Grinding it out.
Gil Dibner

Buy or die. A lot of ink and airtime has been devoted to analyzing Adobe’s acquisition of Figma from every angle. The most significant angle of this story, I think, is the debate around whether Adobe’s acquisition was wise or not. While Adobe’s stock price (down 20% on the announcement) suggests that it might have overpaid, most industry analysts I respect see the acquisition as a smart one for Adobe. Figma has built a robust and cloud-native eco-system around the same sort of user that Adobe has always targeted: the creative professional. For Adobe, the choice was either buy them now at any price, or watch them gradually destroy Adobe’s core business. Over the long run, I think this acquisition is going to prove to be a wise move. But for most of us — those without $450M in ARR — the most relevant lessons from the new attention on Figma are these: customer-obsession and willingness to grind it out.

Customer obsession. If you read or listen to a description of how Dylan Field, Figma’s CEO, conducted himself in the early days of the company — the image is one of absolute obsession with the customer experience. This is important for any company, but especially for one that is targeting an experience-obsessed customer base such as designers. Field knew his customer base and devoted significant time to making sure he understood exactly what they were experiencing in his product as it developed.

Grinding it out. The second lesson for me from the Figma story emerged in this week’s All In Podcast at around minute 44. The key point is that Figma took roughly five years to start generating revenue, and that therefore the Series A round was actually the “hardest” round to justify. The company had been grinding it out for years, with no revenue — and thus the $14M Series A in December 2015 represented a bet on future revenue with very little obvious evidence. In fact, Figma kept revenues basically at zero for another two years following the Series A as it built out its product and community. For founders, the message is two-fold. First: sometimes it can take a long time to get a business off the ground — especially for low-ACV productivity tooling that is adopted bottom-up. To survive that reality, founders must demonstrate a ton of grit and build very tight relationships with their investors so that everyone is on the same page. Second: intellectual honesty is essential here. We could all tell ourselves that we are the next Figma and that, therefore, the fact that we have no revenue is fine. But 99% of us would die on the vine (with or without the Series A), because — as it turns out — most of us are not Figma. It’s not easy to maintain the intellectual honesty to assess whether or not a company has a fighting chance at breaking out from the years of zero ARR grind into real revenue growth. Being honest with ourselves can be the hardest thing of all.

The anecdote changes, but the advice remains the same: stay close to your customers; build real value; be brutally honest with yourself, and — when you are sure you are on the right path — be prepared to grind it out for years on the journey to real scale.

EVENTS

Sep 28 / The Evolution of Collibra’s Product Positioning & How They Created a Category
Stan Christiaens, Co-Founder & Chief Data Citizen, Collibra

Date TBD / Lessons Learned From Investing Early in Over a Dozen SaaS Unicorns Including Salesforce, SuccessFactors, Box, Gusto, SalesLoft, ServiceMax, Veeva, Bill.com, Doximity, Yammer and Zoom Among Others
Jason Green, Founder & General Partner, Emergence Capital

FROM THE BLOG

How to Think About Revenue Quality as an Early Stage Founder
What does “quality revenue” mean when you don’t have much revenue at all?

It’s Not All About Bottoms-up
Two recent trends indicate that we may finally be past the mistaken belief that bottoms-up is the only “fundable” business model in town.

Don’t be Fooled by the PLG Mullet
How to know if you should be building a PLG Now, PLG Later or PLG Never company.

PLG Now, PLG Later, or PLG Never
Why there is no helicopter shortcut to the summit of Mount PLG.

WORTH READING

ENTERPRISE/TECH NEWS

What year is it? In a deal that might make you think it’s 2021 again, Adobe has agreed to buy Figma for about $20B ($10B in cash and $10B in stock). That’s about double Figma’s last valuation and 50X forward looking ARR. 50X ARR is rich, when compared to public market equities right now, and there’s much speculation about why Adobe was willing to pay such a high price for Figma. Hunter Walk opines that this purchase was about Adobe protecting its core business, as Figma was increasingly stealing market share. Bryce Elder in the Financial Times argues that perhaps Adobe was trying to block Microsoft from buying Figma (see this glowing profile in CNBC last month), which necessitated them paying a higher price than they might have otherwise.

Hi @here. Uber has been (allegedly) hacked. In a conversation with cybersecurity researcher Corben Leo, the hacker shared that they social engineered an Uber employee to gain access to the company’s intranet. From there, they found PowerShell scripts on Uber’s intranet containing access management credentials that allowed them to (again, allegedly) breach Uber’s AWS and G Suite accounts. The hacker, at one point, announced on Slack: “Hi @here I announce I am a hacker…”, to which Uber employees responded with memes and emojis, not believing it to be true.

Layoffs continue. Another pandemic darling announces layoffs. Twilio announced last week that it will layoff 11% of its workforce (over 850 people). Twilio is aiming to reach profitability in 2023, and this layoff is meant to improve Twilio’s operating margin and restructure the company so it can run more efficiently. As Lawson wrote in a letter to the company: “Twilio has grown at an astonishing rate over the past couple years. It was too fast, and without enough focus on our most important company priorities. I take responsibility for those decisions, as well as the difficult decision to do this layoff.”

Next-gen wireless. John Chambers, former Cisco CEO has partnered with Cisco’s former development chief Pankaj Patel, to take on Cisco with a new networking startup custom-built for the modern office. The company, called Nile, has raised $125M over the past four years, though the funding rounds have remained confidential until now. Nile plans on upending the market by providing a dead-simple user experience and charging organizations based on the number of people who use its networking infrastructure each month (rather than selling big boxes up front). Nile already has 20 deployments live.

HOW TO STARTUP

How Fivetran fails. An interesting thought experiment from Benn Stancil, Chief Analytics Officer of Mode, on how Fivetran, the current clear winner of the ETL space, fails. He sees three potential paths. First, we no longer need to move data from SaaS apps to warehouses. Second, we still do, but we start moving it in a different way. Or third, we need to solve the same problem in the same way, but Fivetran is no longer the best tool for doing it. I won’t rehash each of the arguments here. The piece is absolutely worth reading in full, especially if you’re a founder in the modern data stack space.

HOW TO VENTURE

Focus and patience. Mark Suster of Upfront Ventures penned an excellent piece on the realities of “post crash VC.” He makes a few points. First, we’re in a new normal. SaaS companies will not trade at 24X Enterprise Value (EV) as they did in November 2021. They’ll max out at 10X EV. Second, private market valuations will reset, eventually. And, indeed, they must reset for the venture model to work. And third, late stage is locked up because of an extreme mismatch of expectations between founders and investors. That’s the current state of the world. Suster then reflects on what makes the early stage venture model work. It’s not about piling money into hyped up companies that everyone thinks are great ideas. It’s about focus and patience. As he writes: “We’ve created more than $1.5 billion in value to Upfront from just 6 deals that WERE NOT immediately up and to the right. The beauty of these businesses that weren’t immediate momentum is that they didn’t raise as much capital (so neither we nor the founders had to take the extra dilution), they took the time to develop true IP that is hard to replicate, they often only attracted 1 or 2 strong competitors and we may deliver more value from this cohort than even our up-and-to-the-right companies. And since we’re still an owner in 5 out of these 6 businesses we think the upside could be much greater if we’re patient.”

Iger to Thrive. In an impressive bit of recruiting, Josh Kushner has convinced former Disney CEO Bob Iger to join Thrive Capital as a venture partner. Iger will make new investments and mentor founders day-to-day.

A new VC ranking. A new investor ranking has been published, this time using a pairwise comparison, asking founders to rank which investor they’d rather have worked with. Union Square Ventures tops the list. Take a look at the whole list here.

PORTFOLIO NEWS

groundcover, a performance monitoring platform for cloud apps, has raised $20M in a Series A round led by Zeev Ventures with participation from Angular Ventures, Heavybit and Jibe Ventures. groundcover was also #2 on ProductHunt yesterday.

Forter announced a partnership with L’Occitane Japan. With the implementation of Forter’s automated fraud prevention platform, the natural cosmetics retailer has reduced reimbursements, increased revenue, and improved their customer experience.

Snyk’s State of Cloud Security report revealed 80% of organizations have experienced a severe cloud security incident in the past year.