Resilience: Why Starting a Company Today is Awesome

On this episode of The Founder's Sandbox, Brenda speaks with Martin Tobias.  Managing Partner of Incisive Ventures, an early-stage venture capital firm focused on investing in the first institutional round of technology companies that reduce friction at scale.

Martin is a 3X venture-funded CEO raising over $500M as CEO with two IPOs who has also invested in hundreds of companies and is a limited partner in over a dozen VC funds.

They speak about Resilience: Why starting a company today is awesome.

You can find out more about Martin at:

https://www.linkedin.com/in/martintobias/

https://incisive.vc/

 

Transcript: 

00:04
Hi, I'm pleased to announce something very special to me, a new subscription-based service through Next Act Advisors that allows members exclusive access to personal industry insights and bespoke

00:32
corporate governance knowledge. This comes in the form of blogs, personal book recommendations, and early access to the founder's sandbox podcast episodes before they released to the public. If you want more white glove information on building your startup with information like what was in today's episode, sign up with the link in the show notes to enjoy being a special member of Next Act Advisors.

01:01
As a thank you to Founders Sandbox listeners, you can use code SANDBOX25 at checkout to enjoy 25 % off your membership costs. Thank you.

01:19
Welcome back to the Founders Sandbox. I am Brenda McCabe, your host,  now into its third season. The monthly podcast reaches entrepreneurs and entrepreneurs and business owners who learn about building resilient, scalable, and sustainable businesses with great corporate governance.  I like to assist, and my mission is very simple, entrepreneurs and entrepreneurs  in building those scalable, well-governed, and resilient businesses. And the guest to the podcast,

01:49
are also founders, business owners, investors, professional service providers who like me want to use the power of the enterprise, small, medium or large, to affect change in the world. Through storytelling with each one of my guests on topics that are going to touch on resilience, purpose-driven enterprises and sustainable growth, my goal is to provide a fun sandbox environment where we can equip one startup founder at a time to build a better world.

02:19
through great corporate governance. Today, I'm absolutely delighted to have as my guest, Martin Tobias. Martin, thank you for joining me. you're joining me. I wear many hats. I've been a follower of yours for years. We're both in the enterprise SaaS space. You're joining the podcast today. We have a full load of questions here, but as managing partner and founder of Insights of Ventures and

02:48
There's lot to unpack here. defined it as an early stage venture capital firm focused on investing in the first institutional round of technology companies that reduce friction at scale. Yeah. So we're going to get into what does that actually mean  for my listeners.  And you're also a blogger at Insights Ventures, right? Yeah. And a personal blog as well. And fairly active on Twitter. uh Excellent.

03:16
I always appreciate the connections I make on  Twitter. And when I go to real life events too, I was at a conference last week and like 20 people walked up to me and said, I follow you on Twitter. And I wanted to say, hi,  this is amazing. Isn't it amazing what  digital footprint can do?  And it was, you know, I've known you for years and it wasn't until I subscribed to um your blog at Insights Adventures. um And  it was in  June or July this year, uh one of your blog posts.

03:46
really  resonated with me and that's the title of the episode. I always have a title  around resilience, sustainable or scalable em and purpose-driven. It's a resilience. Why starting a company today is awesome. That was the title of this blog  and um I thought  what a better time than now to have you as a guest  because it's a tough market out there.

04:12
and your own  experiences  leaving corporate life and then  having your first startup and then  as a CEO founder building, scaling, selling, had some ups and downs.  Just the hindsight that you can bring,  you've been through quite a few  economic cycles as an FI and just bringing-  three cycle investor, that's what they call us.  Oh my, so three, you heard it here, three cycle investor. Three cycle investor.

04:41
Excellent. So before I jump into the topic of why starting a company today is awesome, paint a picture of Martin's deep experience. was previously at Accenture and Microsoft and as a former venture partner at Ignition Partners. Martin is a three times venture funded CEO raising over 500 million as CEO with two IPOs. And you have also invested in hundreds of companies

05:10
and is a limited partner in over a dozen VC funds. Martin was an early investor in Google DocuSign deal and over a dozen unicorns. So it's a privilege to have your uh presence here and your insights.  You're also a father of three daughters left one in after med school,  cyclist, surfer, quintessential California, although you're not from California,  poker player, life hacker,  and you tinker with motorcycles on the weekends.

05:40
In the show notes for my listeners, you're going to have many multiple points of access, Incisive Ventures, Twitter, as well as Martin's LinkedIn profile. So let's move into the body of my podcast. You and I are passive cross over the years while working and investing in enterprise SaaS companies. Your blog that came out in June, 2024 at Incisive Ventures,

06:10
How I lost 500 million and still won lessons from a CEO and a VC.  I knew that I wanted you on my podcast.  So  I reached out and you um actually do answer your uh subscribers immediately.  You're in Paris, I think.  I just speak in the engagement. walk us through,  share with, my listeners, some of the highlights of your career that led you to become one, a founder.

06:39
and then a managing partner on a VC fund.  Well, one of the things, I mean, some people say it different ways, but  one of the sort of advantages of having been a founder and investor for a long time is that  I got a lot of arrows in my back and I've learned a lot of things.  And I actually find it interesting because people on Twitter or people in their bios, a lot of times they just talk about all the positive things.  But what frankly I think sets

07:08
many people up for future success is what they learned from the negative things that happened in their lives. um Because  hopefully those were learning  experiences. um that one of where I took my company public um and then made and lost a bunch of money, um that's been a really formative uh experience for me  about how to invest going forward and understanding where you are in the cycle. And the learning for me on that was,

07:37
You know,  what I say about bubbles, first of all, it's better to be in them than out of them, but it's also you need to be aware of, you in a bubble?  know, LoudEye Technologies, which I started uh in 97 and we took public in 2000, um we  were, it turns out, the absolute last company to go public in the dot-com boom.  Here's a company with $10 million in revenue that got a $2 billion market cap for a $10 million  revenue company. um I knew.

08:07
as a CEO that we were in a bubble. I knew the bubble was likely bursting. I was trying to get that fucking company public before the bubble burst.  And it turns out we went public March 17th, the peak of the NASDAQ was March 21st. We were literally the last company to go public in the dot-com boom.  So when you realize you're in a bubble, first of all, try to take advantage of the bubble. If you're a founder,  if you're in a category where people are throwing money around, take the money, but  don't believe your own hype.

08:36
and don't go spend the money like we've seen some people do in crypto or some other enterprise software companies where they continue donking off the money. You know, what we did at LoudEye, we realized we were in a bubble. We were lucky to get the company public. We have $110 million cash to the balance sheet. And then the market goes to shit literally four days after we go public. So what do you do? Do you keep spending, you know, this huge burn rate and trying to sell and trying to get customers and all that stuff?

09:05
Or do you sort of turtle and sort of change strategies and preserve your cash? We ended up doing this, the latter, but we were able to do that.  The reaction time to a lot of founders to when bad things happen,  and you saw this when the retrenchment happened like in the pandemic. lot of VCs were sending out stuff to their CEOs like, cut the burn really fast.  And  it's hard to cut the burn.

09:32
in those scenarios, you know, survival's the name of the game.  But anyway, so that company, you know, it's worth $2 billion at the IPO. A year later, it was worth about $200 million.  So down 99%, like every dot-com company was. We both have scars in our bodies from that time. A lot of people have scars. Yeah. I mean, don't feel bad for me. I was fine.  But  one of the learnings that I, because I had kind of

10:02
knew that we were in a bubble. One of the things that happened, uh at the IPO, owned about 30 % of the company.  So I had more than $500 million of stock. But  I did not change my life. I didn't buy a new house. I didn't buy a new car. um I did nothing different. It's just a number on a spreadsheet.  I knew a lot of people that did that. I have a friend whose company went public during the dot com boom.  was the COO of this e-commerce software company.

10:32
his software was worth $120 million  when it went public.  And the first thing he did is he took a $30 million margin loan from his broker, went to Miami, bought a mansion, got a Ferrari, and started living like he was a hundred millionaire. uh A year later, his stock was down 99%. He gets a margin call, he lost everything.  I  mean, uh I...

11:00
was aware that we were in a bubble and that the money wasn't real. mean, and by the way, when you go public and you're the CEO of public company like that, you can't fucking sell your shares anyway. You're  trading windows. You've got all these other issues.  If you start to sell, there's a negative signal in the market. So you can't count that as real money. So the lesson was, you know, don't believe your own hype. Don't count the money until it's actual money. m

11:25
And  just continue to  make the best decisions you can with the information that you have. em I like what you said too um around just being aware that you're in a bubble. Be aware.  if you are in a bubble,  take advantage of it. We just ended,  probably a year ago, ended probably the largest bull run in venture capital ever. The ZERB period and all of that stuff.

11:52
Companies could rate with almost any business plan could raise money every six months. And we are now over that. We are now in a risk off environment. And there's a lot of founders out there. I got one last week who's like, the round's closing on Friday. Can you write a check in five days? And I'm like, what is it? 2021? Are you kidding me? No, I can't. I'm passing.

12:20
Like we are in a risk off environment and a lot of people still haven't changed their brain to realize that we are in a different environment. And some CEOs are having a problem with it. They're like, Hey, I got this crazy valuation in 2021. I've got to get it. And I'm like, listen, the market changed around you. Like it's not your fault. Your company still might be good. It might be doing well, but the metrics have changed and you raise money in the company.

12:50
that you're in the smartest CEOs that I know now, you know, they take the dilution, they take the down round, they do the hard stuff, they clean up the cap table, they do the hard work because I mean, I just posted something about this on Twitter yesterday. Okay.  I've said it a couple of times. As CEO, you have one job, one job, you know what that job is? Don't run out of money.  Don't run out of money. have run out of money. That's right. And to do that job, you only have three tools.

13:20
You can sell something, you can cut expenses, or you can raise capital. There's nothing else to do. People talk about your job is culture, your job is this, okay, fine. All those are second order things that you do if the money thing is working.  And  if uh you have less than six months of cash in the bank, you  have to do some very different things.

13:48
You have to change your decision.  going back to LoudEye,  so  did it not sell to Nokia? Yes, it did. How did that happen? um Well,  the business was doing okay. mean, basically it had $120 million of cash. We cut the burn and we sort of made it through the dot com bust because we had cash  with a smaller team. And then we built some other applications, got some other customers.

14:18
And basically, had the largest database.  We actually ran all of the back office music services for Amazon.  When you listen to 30-second sound samples before buying a song, those servers and all those sound samples were created by Loud Eye.  Loud Eye was running digital download back end for some of the early music services.

14:44
So we had a whole bunch,  we were the only company that had all five major record labels having legal  digital distribution rights through our servers. So what Nokia wanted in the end is they wanted to get into music distribution on their phones. And so they ended up buying it. So the company had enough money to survive through the .com boom and end up selling. It wasn't a great uh exit relative to the um prior market cap in the company, um but you

15:12
people got jobs and it turned out  okay. um Yeah. You know, while we're on that topic, so I'm going to jump ahead. um So LoudEye was your first startup coming out of- LoudEye was my first startup coming out of Microsoft. I left Microsoft on Friday, started LoudEye on Monday. Wow.  And um in your LinkedIn profile, you talk about, well, we were early to the market in terms of technology, right? But I was right.

15:41
Can you apply that same kind of logic to what we're seeing in generative AI?  Well,  so what I say about generative AI, mean, almost all of these hype cycles that come on  come around, including digital media, which I was a part of, people  overestimate the impact in the short term and underestimate the impact in the long term. OK. And that's what creates a bubble.

16:07
People are like, this is gonna change everything. All the value is just like, like Loud Eye being worth $2 billion, you know, for a $10 million revenue company. That was a bubble. People were overvaluing digital music at that time. But if you look at what's happened to the music industry today, 15 years later, it's all digital.  There's nothing else. Like nobody buys CDs and tapes. Like it's the way that people consume music.

16:32
and things like Spotify and Amazon Music and so on are very big businesses and it's totally transformed the way people experience music. um So I think generative AI is very similar. Like, know, my picture on Twitter was a generative AI thing and a lot of people are playing around and trying things out and people are like, this is kind of cool. Then the question is how much would I pay for that and what's the real value of that in my life? I don't know.  So  we're in this

17:02
the positive part of the hype cycle where people like this could change everything, but they don't really know how it's gonna change things in the future.  So we are in an AI bubble,  but I  definitely believe that AI is one of those few  major shifts. I wrote a post about that. I mean, there are some fundamental shifts like mobile was a fundamental shift, mobile first versus the enterprise,  cloud versus owning your own data centers, another fundamental shift in the architecture of how people

17:30
build and deliver things. And AI is  one of those kind of impacts. um But what it's going to be, I mean,  the way I look at it, I think that the major uh AI companies, the LLMs and the core function is going to be owned by the same people who own the cloud. It's Microsoft, Google, Amazon, Facebook. um This is not an opportunity for startups.

17:57
But if you look, and it's the same thing that happened with the cloud infrastructure, mean, Azure and AWS, all big businesses. But if you look  at the value of the enterprise software companies, which are built on top of the cloud,  it's like 20, 30, 40 times more than the infrastructure layer. And we're in  the AI build out, we are in the early phases, like we were in the early phases of cloud, where in the early phases of cloud Dell and Cisco made all the money, the  infrastructure guys.

18:27
But over time, the application people make a lot more money. And that's going to happen in the same in AI, I think. We're in the infrastructure phase where  NVIDIA is getting something like 60 or 70 % of the money being deployed to um AI today.  applications that solve people's problems uh and generative AI is one that can solve real business problems. For example,

18:54
doing  personalized cold outreach emails at scale is a generative AI thing. um That's something a lot of people want to do that delivers value to businesses. uh There are other  generative uh AI things like these automatic note takers that everybody uses in Zoom calls, uh automatic to-do list creations, things like that. I think those will have real fundamental impacts  into how people work and  make their lives easier uh in the future.

19:23
Thank you. So we're still at the infrastructure um phase and building  large language models, right? Yeah. At scale. I do want to mention, who had the big blip? Was it BART? um Their generative AI model came out. There were huge biases in it. Yeah, Google. And that went down $80 billion in one day.

19:47
Exactly. Yeah. Google screwed up there.  We're in the early innings of this. We're in the first inning or something. There's going to be a lot of things that screw up. um But  it'll all get fixed. That bias will get fixed. That's just a training problem.  OK. So um in this third season, thank you again for being my second guest on this third season of the Founder's Sandbox. Many of my guests, um you're veterans of the corporate world.

20:18
um and became either by purpose, mission, curiosity, or the love of sharing their insights on building resilient companies, get involved in the ecosystem of startups. Your corporate experience was um over 10 years between Accenture  and Microsoft. And you went off to, as we've heard here, uh create your first  startup, LoudEye.  What  is it that makes you stay in the game, I  suck at golf.

20:49
You heard it here. I have retired three times. After Loud Eye went public and I hired another CEO, my daughter who's 24 now was two at the time. I had this giant number on my balance sheet and I didn't buy a new house, but I'm like, well, maybe I'll just stay home.

21:14
maybe I'll just be a dad, right? Like I don't have to do anything. So I went from working 80 hours a week to zero. And uh after about a year, I knew every word of every Teletubbies song and I hadn't had a conversation with an adult.  And it was, I literally was going crazy. um And so I said to myself, I love being a dad, but there's gotta be more to it than that. mean, I gotta have hard problems to solve. That's, know,

21:44
And I had hobbies, like I liked to work on my motorcycles and I liked to surf.  you know, I  had a house in Hawaii. I, you know, we went to Hawaii. I surf for like six months and I'm like, love surf, but I can't surf all the time. Like I'm just bored. um So  I had, I went on this about 10 year journey of like, what am I going to do when I grow up?  And um what I realized personally for me  is that I need to have hard problems to solve every day.

22:10
And I need to be in an electric simulator. I need to be around other smart people. And being a venture capitalist lets me be curious about a lot of different kinds. Because CEOs come in and they're like, I'm going to change this industry. And then I know nothing about that industry. I get to learn something and it's great. But I get to help them with my experience as well, maybe steer them in a little bit of a better direction or something like that. So it gives me intellectual problems to solve every day.

22:38
um which keeps me engaged, but it also gives me a little bit of uh flexibility,  you know, not being the CEO who's responsible for all the employees and everything every day. So for me,  being a VC has turned out to be the perfect  work-life balance uh thing for me. Thank you. That's  quite insightful. um And I liked how you said, you know,

23:05
I like being a dad, but I want to be stimulated, solve big problems, be around smart people. And you went on a journey and that journey has been what, 15 years, 20 About 15 years, yeah. I I went back, I tried being a CEO again, I tried being an investor, I tried being an advisor, I tried all different things and what I've come to is being a VC.  I love it, I love it.  So you have uh been CEO, Chairman and Board of Director. um

23:33
of  our board director of companies.  And  I always go back in the founder sandbox. I'm uh passionate about good corporate governance. And the earlier you start, the better, right? My background is when I was going to grad school, Enron blew up. I was then at a pharmaceutical company uh and we had very  unethical behavior, collusion. And it was when Sarbanes-Oxley was born, right?

24:02
So in the end 2001. So that has really informed me on working with startups. So my last 15 years has been working with them from ground zero to really have um good corporate governance, which is informed decisions that do comply with legal regulatory financial, but also just  bringing in those advisors, either as advisory board or fiduciary board of directors,  surrounding yourself by... um

24:30
wise people that have been in the trenches and you can benefit from that. So I'd like to ask two questions because you've been in these roles. um What is a CEO's perspective now that you have hindsight and how to work effectively with the board of directors?  Well,  let me make a couple of general comments and I appreciate your focus on this sort of governance and stuff like that because frankly, I think that we have in venture

24:58
gone off the rails on that with the explosion of late stage capital, the introduction early stage to all safe notes where you don't have price drowns, you don't have boards of directors.  You've basically delayed  corporate governance longer and longer and you can because of all this fucking money.  And you've got private companies that go private for 10, 15, 20 years before they go public.  And  Bill Gurley talks about this. There's a certain discipline. uh

25:28
that's imposed on a company being public. And by the way, growth can happen in public companies.  98 % of the enterprise value of Amazon and Microsoft and Google were created after the IPO. uh so I think this,  and I think one of the worst things that happened  in venture in early stage pre-seed and seed is the invention of the safe note. Because the safe note is basically not  a liability on the balance sheet.

25:58
Grant the investors any rights on the board. There's no governance. The CEOs can just  collect these things and then run the company any fucking way they want with their friends on the board or whatever. So it, again, is a tool that enables you to delay  putting in correct governance. Now, some CEOs will say, well, I want to do that because I'm just doing my own thing and I don't want to listen to any of these guys. But OK, at some point, you're going to have to grow up  and uh be accountable uh to  the shareholders

26:28
who you took their money. um And  the fact that you can delay that is not necessarily a good thing. uh you know, I am a fan  of pricing rounds earlier,  you know, maybe even a price seed round. I'm fans of, I'm a fan of putting a board together earlier rather than later. uh Maybe after you raise a million dollars, you need a board.

26:56
Some people don't put boards together until the series A when you're raising 15 or $20 million.  I encourage my founders to put boards together sooner. Now that doesn't mean you have to do all the expensive audits and get an independent third party auditing and blah, blah, blah.  But just having the discipline, for example, I have 74 companies in my portfolio, pre-seed portfolio right now.

27:22
I would say less than 50 % of them send me monthly updates,  which is an incredibly low percent. uh if you had a board that met every month or even once a quarter, you're sort of forced to put stakeholder updates, just simple things like being honest with the shareholders about what's going on in the company. If you have a board and you have some cadence where you have to report to them, then maybe you have to report to everybody else.

27:51
And frankly, in the early stages, what I found is the  CEOs who do monthly updates and communicate better tend to be the better CEOs.  And having a little bit of governance can maybe force that communication and force that self-reflection on a regular basis. And it's not a bad thing. It's a terrible thing when I invest in a company I don't hear from the CEO for eight months and the only question is, I need more money. It's like, well, you haven't told me what the hell you were doing.

28:19
for the last eight months. Like, how am I supposed to give you money?  And you do have also a blog that speaks about  the ideal kind of report, right?  Which is actually a one page.  Yeah, I mean, what I expect is it should not take you more than an hour to put together.  And if you don't have an hour once a month to communicate to your shareholders, there's something really, really wrong with you.  Excellent. So. um

28:49
I  let's still stay on this question.  You know, you've been chairman,  board of directors. talked about what, know, what CEOs get out of having a board of directors sooner than later as chairman. um And you've also been in public company. So what  have you seen that is world class and governance? oh

29:12
What have I seen that's world-class in governance?

29:17
I don't know. I could tell you all sorts of stories of dysfunctional governance. Of course. But the world class, are there term limits? Do you have to bring in certain domain experts? mean, what is a world class board of directors? It probably evolves with the business model. uh There's no right answer, right, I don't think there's any right answer. uh some of the things that you have to do in the public things, I'm not sure I like.

29:44
For example, the audit committee must be chaired by a person that's an accountant. So that means you have to get an independent person. And frankly, getting independent board members who don't have any stake in the company, I mean, I've seen that be a very bad thing. So I don't know that I would call that world class, best of class. I think the best boards that I've been on are ones that are

30:10
know, shareholders in the company, I think it's bad for the board to not be shareholders, um preferably shareholders who've written a check versus gotten free shares as an advisor. um And that have a bunch of, you know, connections that can, you know, help the company  and that have, has a chairman that is truly independent and can be honest  about what's really going on  in the company and honest with the CEO if he has to change something.

30:40
um I see captive boards as uh a poor governance thing. uh It is an evolving.  It's evolving. um

30:56
You know,  this last week, so this podcast is being recorded  the week of  August  5th, 2024, for the record here.  So last week there was a landmark Google antitrust verdict. um And I really wanted to take advantage. uh I lived in Europe for long time. I love Financial Times. I read The Economist. I read all the financial press. But the title from Financial Times is

31:25
billions of dollars in payments that have flowed between the iPhone maker,  Apple,  and the search giant, Google, could be at risk. Taking advantage that I have  you as my guest, Martin,  can you forecast or predict  what the,  because there hasn't been  kind of the next stage of the verdict,  what does Google have to do to  demonstrate that they are not a monopoly in the search business, right?

31:54
um to be determined.  Would you want to kind of forecast what may be some logical um next steps and how the  sector may evolve? Well,  I'm still a Google shareholder, so maybe I have a dog in this fight. But  I think one of the worst things that has happened and continues to happen in the tech business  is when the government comes in and tries to help.

32:26
This ruling is the most backward, stupid, misread ruling about the antitrust in the world I've ever seen. I think it's a terrible ruling. I hope it gets appealed because the core of antitrust is the consumer hurt, not is something a monopoly. It's frankly not illegal to be a monopoly. What's illegal is when consumers get hurt.

32:54
how do consumers get hurt with a free service? It's free. So  anyway, we can argue all day about the validity of that. I think what ends up happening is a fairly simple uh solution, which is um what Apple should do is say, we will give consumers a choice  on um which  one they want to do at the install and we will pay.

33:22
and those vendors will pay us a per install fee for whoever gets installed. So I guarantee you, 95 % of people will still choose Google, but maybe Microsoft or Brave or one of these other ones gets paid too. As long as Apple would allow a choice and not an exclusivity, they're probably gonna get less money from Google getting paid for install. And by the way, people can always change it.

33:51
I think there's a fairly simple fix to become compliant in the antitrust laws. It'll result in some lower revenue to Amazon, but that's okay. I mean, they've got how many $200 billion of cash on their balance sheet? Like they don't need the money. And Google is facing much more. And the funny thing is, is here we have a ruling about a prior thing, you know, five or six years ago, but look at what's happened with perplexity and open AI.

34:20
The real threat to Google search is not whether or not they're on Amazon. It's that AI  is going to disrupt. I have switched most of my searches from Google to Perplexity. And the funny thing is the reason Google has been so great, I don't know if you were around when Google launched, but when Google launched,  there were lots of bigger, Yahoo was a bigger search engine, AltaVista was a bigger search engine. But what happened is that when you went to the Google search box and you typed in your query,

34:49
the results were 10 times better than Yahoo or Alta Vista. And you switched immediately. They have a better product. It has been a better product for 20 years. They won the share with a better product. You can argue whether they kept the share with any competitive things, but their product is amazing. And what's happening now is that these integrated AI bots are better products than Google. Because Google's model has devolved.

35:17
into basically selling ads and trying to get you to click on buying things.  And  sometimes I just want the answer.  Yeah. So the true competitor  or upcoming competitors are the perplexity, right? Perplexities, open AIs. I mean, and it's all better for consumers because rather than having to navigate through a bunch of sponsored posts, I can actually get the answer to my query immediately.

35:45
which is really what you want. That's what you want in Search Most. You don't really want a link. You don't want to be sold something. You want an answer to a question that you have. And AI gives you the answer.  Right. And you know, the m verdict maybe came a little bit too late. mean, Microsoft was already um fined in Europe and had to unbundle, right? So it's giving options to the consumers, right? Fine. Fine. Unbundle it. mean, yeah.

36:13
All that stuff will solve itself.  I'm not worried about it.  I'm very excited about the next phase of innovation, which is going to benefit consumers.  And there'll be some disruption. mean,  it's not clear that Google's going to own  AI. Look at how they screwed up Bard  in the beginning, oh which is, as an investor, a very exciting time.  Change is in the air.  I love it. I love it.

36:40
So Martin,  I also  like to have um my guest  have an opportunity to  talk about how to reach you.  What's the best way to? The best way is to follow me on Twitter, Martin G. Tobias.  And uh on my bio, if you want to pitch me a company, I have a link to where you can pitch me. um But I'm most active on Twitter.  I do not respond well. I have  occasionally to cold emails.

37:10
I prefer Twitter. All right. And my blog of course is incisive.VC. You can sign up for the blog and see my investments that I write. All right. So thank you. um Before we go, um coming back to the founder sandbox, I do like to do a round of questions with each guest on the meaning  of resilience,  scalable businesses and purpose-driven businesses and your own words, please.

37:41
Resilience, what's resilience mean to you, Martin? Being able to take a punch and get back up. um The  founder  is  a long hard term uh job.  And I started investing only in founders who have some kind of resilience practice. Because the problem is not, can you burn the candle at both ends for as long as possible? The problem is, what do do to reset yourself from the stress?

38:07
That could be meditation, that could be working out, that could be something. But what I've found is that if founders don't have a way to reset from the stress to be able to be resilient,  to come back from  down times,  they're not going to make it long as a startup founder. So for me, resilience means having some sort of a practice to be able to reset your stress meter and come back.

38:34
or another punch, because you're going to get another punch. And I hope you like punches.  That's very practical,  what you've just shared here. What about purpose-driven enterprise? Your whole professional career as you've walked through here for my listeners is very purpose-driven, right? I to be around smart people, solve big problems. You actually have a nonprofit in the environment. I do. I have a nonprofit called Retree, which helps reforestation.

39:03
What I found em is what I look for in an early uh CEO  is some personal stake in the problem that they're solving um that  is going to give them the reserve of purpose, which is an accelerant to this resilience, right? You're going to have a hard time. And what's going to get you through? Well, if you have a purpose instead of just a mercenary type thing, the absolute worst pitch I see

39:33
is an MBA from Harvard said he read a Gartner study about this enterprise market  and he wants to create a company in the top right hand corner because I think the margins are blah, blah, blah. He's done all this fucking analysis and he thinks this is an opportunity. That's a mercenary, right? The mercenary is going to get disheartened by all the problems along the way if it doesn't go the way he wants to, this way his coddled freaking privileged life has gone his whole life.

40:03
What I'm looking for  is uh somebody that has a personal  stake in something. I just looked at a case management software company for uh disabled children,  autistic kids and stuff like that. Basically the software that these field case managers use is old, it's shitty, it's terrible. This  guy's son is autistic. They had a case manager.

40:30
They had problems getting all the reporting correct, the insurance and all this stuff. He went around and looked for a  problem, other companies to buy, couldn't find it, ended up starting the company just because he was so frustrated with the software that he had to use, that he had to solve it himself. So he has a personal stake  in solving this problem, a personal insight into this problem. Then the question becomes, is he a good software developer and can he build a scalable channel and all this other stuff? But I'm looking for that personal

40:59
stake in your problem. Beautiful. Thank you. And I loved that you shared an example of a founder. Sustainable or scalable growth. You've been through three cycles at least. What was that? The term is called a three-time- Recycle investor. Because you were there for the dot-com crash in 2000, the great financial crisis in 2008, and then the pandemic in 2020.

41:28
Sustainable, it goes back to my original thing. I actually have a problem with a lot of these sort of ESG labels or climate things and all of that stuff. don't think that is sustainable. So a sustainable business is a profitable business. Again, as a CEO, you have one job, don't run out of money. And it's not sustainable to lose money forever. So the most sustainable business is a profitable business.

41:57
Now, if you want to, uh for marketing reasons or whatever, put a bunch of non-financial metrics around your company, for marketing purposes, that's fine. You know, much  carbon you wanna save or something like that,  but um you better make sure you have a solid financial  sustainable business. A sustainable business is a profitable business. have to solve a real problem for a customer who has a budget.

42:26
who uh is gonna get more value out of paying you than anything else. For example, I have a company called Vega Cloud. They are in cloud waste management. They help enterprises who have big cloud bills save money on their cloud bill. um One of their customers pays them $3 million a year for the software, but they save that company $48 million on their cloud bill.

42:56
So there is a like 17 X ROI.  That customer is happy paying $3 million a year because they're saving 48 million. If you don't deliver that kind of massive value to your customer, they will not be your customer for long. And you want to have to do that. That is a sustainable company is a company that delivers  massive value.

43:24
to their value-based agreements and like, yeah, it's a pricing  and willingness to from customers. Pricing and willingness to pay. I think this is a giant problem right now  with the general B2B SaaS model, this per seat model, a per seat model that has nothing to do with value. A lot of companies are looking at their SaaS subscription prices and they're squeezing them down. You saw it in the results of companies like Salesforce. Salesforce is having to renegotiate because people are like, why am I paying $1,000?

43:52
per seat, this guy's not getting the value, blah, blah, blah. There's gonna be changes. reckoning Yeah, there is a reckoning coming. There's a reckoning coming that's pivoting more around the value of the software versus the per seat per year model. I think there's a big change coming. And I think that's good because people should only pay for things that deliver value. Last question, Martin. Did you have fun in the sandbox today?

44:20
Yes, I did. I enjoyed this conversation and I appreciate your bringing attention to  governance and sustainability issues for startups. Thank you, Martin. So to my listeners, if you like this episode with Martin Tobias, sign up for the monthly release that founders, business owners, corporate directors, investors and professional service providers go to to learn about building strong governance in resilient, scalable and purpose-driven companies to make profits for good.

44:50
Signing off, thank you, Martin, again for joining me.