David Ulevitch - General Partner at Andreessen Horowitz

(Joel Beasley at 00:00:00) Hello, my friends. Today we're talking to David Ulevitch, a general partner at Andreessen Horowitz, and we discussed the founder's journey from raising capital to a successful exit, the need to communicate the value of your product, and why you may not be charging enough for your goods and services. All of this right here, right now on the Modern CTO Podcast. Here we go.

(Joel Beasley at 00:00:24) This is the Modern CTO Podcast. Hey, David.

(David Ulevitch at 00:00:37) Joel, how are you, man? You know, I looked at your website and I did not see the incredibly amazing, wonderful beard on your bio headshot.

(Joel Beasley at 00:00:48) It's new, man.

(David Ulevitch at 00:00:49) I mean, it's not that new. That doesn't happen overnight.

(Joel Beasley at 00:00:52) It's COVID beard.

(David Ulevitch at 00:00:54) Yeah, there you go. It looks good. It looks really good.

(Joel Beasley at 00:00:56) Yeah. Where are you calling in from?

(David Ulevitch at 00:00:58) So I live in Montana, although today I am actually in San Francisco. I came in. I'm working on a deal and I thought there might be a chance I need some face time, so it's a short flight. I came in and I'll be back in Montana before the weekend.

(Joel Beasley at 00:01:15) Do you have, like, some land out there? You hang out with the moose or the meese?

(David Ulevitch at 00:01:19) Yeah, the meese, right. I do. I have a couple of properties out there. I've been out there for about five years. So I was, you know, I'm sort of in the nerd prepper world, which is totally irrational, but then all of a sudden COVID hit and I felt totally vindicated and justified. And so, and then here's actually the crazy thing which relates to your audience, is that I have fiber optic internet into my home. And the reason is that back in the Bill Clinton era, the FCC had some rural broadband initiative. And so there is fiber. I might be the only person around me that has the fiber, but like, it goes basically right in front of my property, and I was able to get, we have a rural local phone exchange kind of company, they call it a rural CELEC. And they, when I called them and asked for the fiber, they said, "Great." And I did it.

(Joel Beasley at 00:02:13) You've got the best of both worlds then.

(David Ulevitch at 00:02:16) I have better internet there than I have here in San Francisco.

(Joel Beasley at 00:02:19) The rest of us are waiting on Starlink. They're funded through that rural project too. I don't know if it's the same project, but...

(David Ulevitch at 00:02:25) I'm also signed up to be a beta tester, like probably everyone who is a nerd, for Starlink, and I'm eagerly awaiting to test that out.

(Joel Beasley at 00:02:33) Now did you see the new screen that they have where you put in your address and it'll tell you the length of time?

(David Ulevitch at 00:02:38) I have not seen that. That must be in the last few weeks or months.

(Joel Beasley at 00:02:41) It is, yeah. So I did it, like, six months ago and it just said, you know, we'll respond back to you. Then I was looking at buying a house in Georgia, and so I put that address in there, and they put, like, an exclamation, like, "We will only ship to this address, and it'll only work at this address," because everybody's probably doing that. But they had an actual time code, and the time code for the town I had picked in Georgia was, like, two months.

(David Ulevitch at 00:03:04) Oh, really? That's amazing because I thought they're sort of coming down the continental U.S. because I think it starts, like, I'm actually right on the cutoff of the current band of satellites, but I, you know, they're launching a lot, so I don't know how it works.

(Joel Beasley at 00:03:18) Right. I went to try to see a launch, actually, and it got scrubbed four days in a row, three or four days in a row. And then the day we left, it, like, went off.

(David Ulevitch at 00:03:26) Oh, no, bummer. But that would be cool. And the good news is you'll have more opportunities. They're going to be launching a lot.

(Joel Beasley at 00:03:32) Oh, for sure. I told my team, because every morning I said, you know, "Oh, we missed it. We missed it." And I just said, "This is being a founder, man." This, it's even getting sweeter because the rejection just builds this intensity and this fire. And I was like, "When we do get to see that launch, we'll have to come back, you know, in two months for the next batch of launches, and it'll be even better."

(David Ulevitch at 00:03:51) Absolutely. Absolutely. That's awesome. Well, that sounds like a really good time. But, actually, I'm motivated now to go check it out myself.

(Joel Beasley at 00:03:58) Yeah, yeah. So I'm curious. I was looking at your history and you got started, your first job was before, like, right when you started high school at an ISP. Can you tell me about that?

(David Ulevitch at 00:04:09) Yeah. I realized a while ago that I've had a W-2 or a 1099 every year since, I guess, yeah, the summer after eighth grade. I was one of those people who, my sister hated me, because rather than getting, like, AOL like every other normal kid, I was like, "No, we need the real internet." And so we found this local mom and pop ISP. We got them as our internet provider, and then I emailed the owner basically asking for a job, and he was very nice enough to sort of give me something between, like, an internship and a job. I guess it paid me something. And it was amazing because I learned about, that was, like, my real first exposure to Unix. And I learned on SunOS and then eventually Solaris, and then they had BSD machines. And it was a great experience. I learned about peering and routing and networking. We had a great systems administrator who was a great guy, and he sort of taught me a life lesson there that stuck with me, which was, you know, the bad, like, everyone, you know, when you're a young kid, you're sort of, like, a little hackerish. And he sort of said, "Look, you know, it's easy to be a hacker because you only need to know one way into a system. But if you're a good guy, you need to know all the ways in." And I was like, "Oh, that's true. That's, you know, that was a really good point." And that probably kept me on the straight and narrow through the rest of my technology career.

(Joel Beasley at 00:05:28) So where did you go from there?

(David Ulevitch at 00:05:30) So I worked at the ISP for a number of years, sort of after school and then the summers. And then in eleventh grade, I was really interested in journalism and I really enjoyed writing. And when I was in high school, the way our high school worked, we only had three classes a day. They were two hours each. And if you did journalism, it was one of the last classes every other day, and you didn't really have to go to class. You just had to make the newspapers. It was also, like, a life hack to not have to do very much work other than if you, I mean, assuming you enjoyed journalism. And so I really enjoyed journalism. I interviewed the CEO of this new company in San Diego called MP3.com, and MP3s were getting really big. And so I was able to turn that into an internship and eventually a job at MP3.com, and I watched them go from 30 people to over 300 people. I got to see a, this is, like, in the height of the dot com. This is, like, 1999. I went to an IPO party. They snuck me in because I was a minor and it was supposed to be 21 and over. I saw things that no minor should ever see at an IPO party, because you have to remember MP3.com, this was sort of just pre-Napster, was at the intersection of, like, music and technology. So all the cool music people from L.A. came down to San Diego to hang out with the nerds. I had never really seen drugs in my life before, like, in, you know, way too much drinking and alcohol. And, you know, I didn't do any of those things, but, like, I saw it all. I was like, "Alright. This technology thing, you know, you can have, just by writing code, you can have a huge impact." And, you know, programming is one of those few things where your input is not at all equal to the output. And that was something that was really always exciting to me. And I was always a decent programmer. So I worked there and then, I was, again, I told you I was, like, a good kid, more or less. I finished high school and I went to college. Everyone said, "Hey, you know, it's 1999." I graduated right in 2000. The dot com thing was still amazing. The bubble hadn't burst. And, you know, I had friends and peers being like, "Why would you go to college? It's a waste. You already get computers." But I went to college. I went to Washington University in St. Louis, Missouri. I actually studied anthropology, which I, I deliberately wanted to get out of California. I wanted to have a broader liberal arts education, and I knew I was never going to be, like, a computer scientist. Like, I was good at programming, but I was never great at programming. I would sort of describe myself as a duct tape programmer. Like, I sort of did enough to prove it was possible, and then somebody with actual talent would sort of look at it, you know, scoff, and then be like, "We can do this better." But I always loved writing code and writing software, but anthropology was a study of people and society, and I just found it like this whole new world that was so interesting to me. So went to a small liberal arts school, studied anthropology, loved it, and eventually graduated and immediately moved out to the Bay Area. I moved out to the Bay Area because, to me, San Francisco was like Mecca for nerds. And I knew my whole life I wanted to be in San Francisco. And, you know, this won't sound weird to your audience. It sounds weird to, like, other people. But, like, I had friends on the internet that I had made in, like, these internet chat rooms and programming chat rooms, and I wanted to meet them in real life. Like, I wanted to be in that community of engineers and programmers and sort of people that were entrepreneurial. And so I moved to San Francisco. I had started a project when I was in college to manage domain names, which I was very lucky that we can talk about that if you want. I don't know. But I was very lucky by the time I graduated, it provided enough money for me to essentially live. It wasn't, it wasn't like an amazing company, but it was enough that I paid my rent, had food, and could sort of sit around and tinker on other things. And, you know, so while my parents were freaking out that I wasn't going to job fairs and applying to work at Microsoft, I was instead, you know, moving to San Francisco and was going to try to, you know, leverage my technical skills, and that started my professional career.

(Joel Beasley at 00:09:29) Yeah. I know exactly what you're talking about. It can sound weird to people if you make your friends online, but, you know, my background is software engineering, and that's what I was growing up. And when I wasn't engineering software, I was playing Xbox Live, right? And I remember when I was, I think, 16, I'd gotten my license, and I'm 33 now for context. So I'd gotten my license, and one of the first things I did was I drove up to Tampa, because that's where my dad had lived at the time. But there were, like, three people that I had been playing Xbox Live with, like, in their clan for, like, two or three years. And I went and, like, met all of them and hung out with all of them. Some of them, you know, were at the college up there in Tampa. Some of them, you know, owned refrigeration businesses. And it was just weird. It was so cool to do it, but my parents saw it as, like, a very, you met a person on the internet, like, a very strange, weird thing. I was like, "I've spent more time with this person than I've spent with my parents in the past three years just through playing games." But I get, we're like the digital, they're like the last generation before the digital natives, right? Like, I equally got locked out of my house and had to drink from the hose. But people three years younger than me, because I have siblings, they just missed that cutoff of, like, fear. Don't let your kids outside anymore.

(David Ulevitch at 00:10:49) That's exactly right. And it's funny when you're talking about the Xbox and meeting these clan people, I'm like, the first thing you said when you met them, like, "Hey, what did you say you were going to do to my mom?" You know?

(Joel Beasley at 00:11:01) We had a positive clan culture.

(David Ulevitch at 00:11:03) That's good. That's good. That's important. That's important. And that's good because you have to remember, there's always somebody on the other side of the screen. Yeah. No, I'm, I've actually, I'm still friends to this day with many of the people that I was in these sort of networking and programming and Linux sort of IRC, you know, chat rooms. And I've actually hired a bunch of them. I've worked with a bunch of them. I've invested in a couple of them. And, you know, it's really, it's really ended up being something that at the time, obviously, I didn't know, but really did both teach me a lot and give me a network. Like you said, with these people you spend so much time with, but then when you meet them in real life, it's actually, it's awesome. And yeah, so I think it's less weird now, but we were right on that cutoff. I'm a little bit older than you, but not by much. And, you know, I think it was, it was unusual for my parents to, like, know that I would, like, go to DEF CON and have a roommate who I hadn't met in real life to split a hotel room. But then over time, you know, they got sort of progressively more comfortable that I was, you know, these were responsible. Well, I actually, this is sort of funny. I remember one time I was going to DEF CON to share a hotel room with somebody, and my mom was totally freaked out. But then I said, "Oh, well, he's like a sophomore at Stanford." And then she's like, "Oh, okay. Well, then it's okay because maybe he'll be a positive influence on me." And that was the case, and I'm still friends with the guy now.

(Joel Beasley at 00:12:22) It's parents' job. Make sure your kids are hanging out with the right people.

(David Ulevitch at 00:12:25) Totally. Absolutely.

(Joel Beasley at 00:12:27) Not the people at the IPO party. I'm just kidding.

(David Ulevitch at 00:12:29) Right, right, right, right. That's right. I haven't kept in touch with them.

(Joel Beasley at 00:12:33) Tell me about, he winked for the record. No, I'm kidding.

(David Ulevitch at 00:12:37) I'm joking.

(Joel Beasley at 00:12:37) He did not. But tell me about the story of OpenDNS.

(David Ulevitch at 00:12:43) Sure. So OpenDNS is, this is, again, a company, it's a cybersecurity company. It was cloud-delivered security. That's not how it really started. It started out as a consumer security company, and the origin was actually that I got an email from the founder of CNET who was now sort of investing and helping to start companies. And he had seen that company that I mentioned that I started in college, a company called EveryDNS. And he had sent me an email sort of, you know, saying, "Why wasn't I doing more with that original company?" And I wrote back to him and I said, "Hey, well, you know, when I started that business, managing DNS and domain names was really, really a complicated, hard thing. You had to go to Network Solutions. It was very expensive. But now we had GoDaddy and basically anybody was registering domain names by the point I had graduated college." And so the need for that original company sort of went away. But I said, "Hey, there's this other thing that I would do that's more security-focused around the domain name system where, you know, if somebody doesn't want to go to a malicious website, we could block it. But if someone else doesn't care, we can let it through. If maybe a parent wanted to block inappropriate websites for their kids but let them be online, we could block it for them. But we could basically give somebody a much more customized internet experience just using the DNS, which had never been used in this way before. It was, you know, the DNS is like this control plane for the internet. It's the phone book that sort of helps you get, you know, connect names to the IP addresses on the internet."

(David Ulevitch at 00:14:12) I know all your listeners understand this, but it is that phone book for the Internet, and it had never been customized for the recipient where you could say, "I want the DNS sort of in the way that I want it," and someone else can pick a different set of configurations. And he said, "Well, that sounds like a great idea. How are you going to make money?" And I said, "Well, if somebody types in a website that doesn't exist, maybe we can show a page of search results and ads."

(David Ulevitch at 00:14:34) This is back in the era of toolbars, like the Google toolbar and the Yahoo toolbar, and, you know, Netscape sort of still ruled the day on the browser with Internet Explorer on Windows. And so, you know, he said, "That's a great idea. Let's do that." And he put in money and the company started, and a bunch of things happened. First was that everybody wanted this.

(David Ulevitch at 00:14:57) It was a faster and safer Internet experience. We grew almost instantly to millions of users, which today is like a small number on the Internet. But back in 2005 when we launched the service, millions of users very quickly was a big deal, especially because they had to change their settings on their computer to point to an alternative DNS service away from their Internet provider. The bad part was that we basically made money from search results and ads. And over the years after we launched, we became more and more security focused.

(David Ulevitch at 00:15:27) We realized that DNS was a fantastic vector for stopping Internet threats. So if you think about botnets, they often use DNS to phone home to connect to what's called a command and control to sort of get instructions. That's how they spread. That's how they basically exfiltrate information back up. That's how they download updates.

(David Ulevitch at 00:15:46) You can also imagine phishing sites. Like, if somebody tries to get you to click on zamazon.com, it was a great control plane to block zamazon and say, "Hey, wait a minute. You really are trying to go to Amazon, not zamazon," or some other kind of typo of that.

(David Ulevitch at 00:16:01) And so really, we underestimated when we launched just how really novel of an innovation it was and how good and lightweight of a control plane it was. And then the timing of our launch in 2005 was fortuitous because if you think back, 2007 is when the iPhone launched. And at the same time, people at their houses had like these Nintendo Wiis and the Xbox was then out. And so you couldn't install endpoint antivirus software because there was no way to, like, on the Nintendo Wii or the Xbox, to install any kind of security controls, any kind of parental controls. There was just no way to install that software.

(David Ulevitch at 00:16:37) And so by making a change on your Netgear or Linksys router, you were able to then protect all the devices in your home, even these wireless devices, even guest devices that came on. And so that all was great. We're growing really fast. What I didn't really appreciate — what I did appreciate was that we hated the advertising model. We hated that advertising was, and this is unique to our business, not advertising in general.

(David Ulevitch at 00:17:02) We didn't like the advertising model because online advertising back then was often a vector for infection. Like, you'd get banner ads or things that would have click links to malware. And so, you know, it was like we're trying to provide a security service for free, but then we were getting paid by advertisers. And those advertisers — we didn't get to pick who they were because we were just using these sort of networks of ad providers. And so that relationship became more and more tenuous.

(David Ulevitch at 00:17:29) So while the company was profitable, it was just becoming more and more difficult for us as a business model and sort of to continue to innovate on security while we were still making money from a thing that was actually a vector for malicious Internet behavior and activity. And so that part we understood. What we didn't understand was that businesses were going through the same experience of having all these devices show up on their networks that were employee owned. They were bringing their own devices, their own iPhones, their own smartphones.

(David Ulevitch at 00:18:00) They had guest Wi-Fi policy issues. Wi-Fi was proliferating. You couldn't do sort of network access control as easily because people weren't plugging into the network. They were just, you know, signing on to the Wi-Fi, and this whole, like, sort of BYOD model of bringing your own device to the office was just exploding. And so all of a sudden, lots of companies were starting to just turn on OpenDNS on their guest Wi-Fi or on their wireless networks or even everything and just using us.

(David Ulevitch at 00:18:26) And at one point, we realized that, you know, like, there was a company that was like a Fortune 100 company, and we looked at the stats, and they were sending us, you know, millions and millions of DNS requests per day. They would send us customer support tickets. They were asking for Active Directory integration. Then we looked at that — we're able to track revenue sometimes by customer, and we made like a dollar eighty-seven in advertisements from them. And at some point, we're like, "Wait a minute. We should — we can be smarter here."

(David Ulevitch at 00:18:50) Oh, and they wanted to turn off the ads. I think they were clearly already blocking the ads with some mechanism because we weren't making any money. But then they wanted like a support contract. They wanted things like that.

(David Ulevitch at 00:19:02) And so finally, we said, "Look, for a hundred dollars a year, we'll give you a phone number you can call for phone support." And we got one of those virtual 1-800 numbers that rolls to like a cell phone, and it rolled to one of my ops guys first and then a woman in support and then eventually would roll to my cell phone if nobody answered. And they immediately said yes to the hundred dollars. Like, there was no rhyme or logic or anything.

(David Ulevitch at 00:19:24) But that was our first sort of major customer. And we're like, "Okay, well, there's probably a thing here." And so in 2009 — I've skipped over a part where I wasn't CEO for eleven months, so maybe we'll talk about that or not.

(Joel Beasley at 00:19:36) I think we should.

(David Ulevitch at 00:19:38) Yeah. Sure. It's fine. You know, you might have to pay for the therapy later, but if you're going to make me dredge it all up. But in 2009, we basically pivoted the business because we were sick of the ad model just becoming, you know, too tenuous for us to maintain as a security company, and we saw this great opportunity in the enterprise.

(David Ulevitch at 00:19:57) And so I then basically started down the path of what became the next five years of my life of trying to become a student of sort of the enterprise go-to-market and really evolving from a very technical CEO. Like, I still had enable on the routers. I still had commit access to the code base to a really a product CEO, to a go-to-market sort of sales CEO, and ultimately to sort of a general manager, at which point we sold the company to Cisco. And the process of building an enterprise cybersecurity company was really an incredible one and one that was a lot of fun. And I learned all kinds of lessons on hiring and leadership, but, you know, the foundation of everything was a great product. And then we made the consumer service free.

(David Ulevitch at 00:20:41) We always kept it. We never really got rid of it because all of the data — we ended up building a security research team and security lab, and all the data from the free users, which wildly outnumbered the enterprise users, provided us a huge amount of data to do real security research and analysis, to be able to build baselines and patterns of what good websites look like, what malicious websites look like, to do predictive sort of threat analysis of, you know, if a website got registered yesterday pointing to an IP address that was hosting malicious sites for the last two weeks. Well, like, maybe you don't want to be the guinea pig and go to that new website that just got registered and pointing to an IP address that for the last couple weeks has been hosting compromised websites, like that. We would be able to do all kinds of analysis based on the fact that we have this massive amount of free users generating traffic for us to be able to do that kind of research. So let me pause there because I covered a lot of ground, and I don't know where you want to go from here.

(Joel Beasley at 00:21:41) Well, I think the therapy bill would be really expensive, so we'll probably skip over that. How did you meet the team at Andreessen Horowitz?

(David Ulevitch at 00:21:49) Oh, this is good. You mean in terms of like, how did I end up working there now?

(Joel Beasley at 00:21:53) Like, how did you meet them?

(David Ulevitch at 00:21:54) So in 2009, maybe 2010, I'm not entirely sure — we actually, as part of that transition to going from a consumer to enterprise company, that original investor also needed to sell his position in the company. I think in 2009 — or 2008 and the economic crisis had been rough on him. He needed some capital. We were shifting our focus for the business.

(David Ulevitch at 00:22:17) And so we found — we went out to meet with investors. And I went to go meet with Andreessen Horowitz, which was a brand new firm at the time, but they had a huge — you know, Marc and Ben are like these big celebrity personalities, super, super smart guys. Marc is like a visionary for the future of the world. Ben is a huge organizational leader and a great investor, and they had an amazing portfolio. So I wanted to go meet with them, and they basically were like, "You're great. The idea is great, but your whole company, like, just like the corporate structure, your capital history, your pivoting the business, like, it's all so messed up. There's just no way we're going to touch you with a 10-foot pole."

(David Ulevitch at 00:22:44) But we think you're great. That was sort of the very nice way that they rejected me. And I thought they did it in such a first-class way and such a nice way that every year or so, I would sort of send out updates to Ben with like, "Hey, here's what's happening with the company. Here's like what I'm learning." And we ended up raising money from other investors. Great investors also, but I always kept in touch. And then when I sold the company in 2015, there's a guy at Andreessen Horowitz who runs our executive talent network, which is a function that basically keeps track of like all the best CFOs, CMOs, heads of sales, CTOs, VPs of engineering.

(David Ulevitch at 00:23:29) Like, he basically is like the world's greatest executive recruiter. Part of his job is to keep track of potential general partners of the firm. And so I think he's so smart that on the day I sold my company, he put a little calendar reminder on the anniversary of my sale to reach out to me every year. And so after the first year, you know, Jeff calls me up and says, "Hey, David. You know, Ben and Marc always liked you. Do you want to come in and talk to us about working here?" And I was like, "No. I'm both contractually stuck at Cisco, but I also like it." And I enjoyed the job I was in, so not a good time.

(David Ulevitch at 00:24:04) Next year, second year, he calls me. "Hey, it's been two years. Do you want to come talk to us?" And I said, "Hey, well, I'm no longer contractually required to be at Cisco, but I still like it. So I'm going to stay." At that point, I was running Cisco's security business. It's the largest security business in the world. And it was a great experience. I was learning a lot, developing new leadership muscles.

(David Ulevitch at 00:24:22) So I said, "Not the right time." Third year, he calls me. And at that point, I had been on airplanes like every week for two years straight, traveling to visit customers and partners and other engineering offices. And while I loved it, it sort of felt unsustainable. And I was thinking about doing something else.

(David Ulevitch at 00:24:38) So his timing was perfect. And I came in, and I never thought I was going to be a venture capitalist. I love being an entrepreneur. I had sort of had my own weird experience. Like I said, we didn't really talk about it, but I did get fired by my original investor as CEO for eleven months and had to bring in the CTO.

(David Ulevitch at 00:24:52) So I sort of had this one impression of VCs that, you know, they really, you know, are obviously stupid because he did that to me. And so I never thought I was going to be a VC, but I met the team at Andreessen Horowitz. And a lot of the team are former CEOs. I sometimes joke it's like a refugee camp for entrepreneurs. And I don't think that's on the marketing party line, but that's sometimes what I joke.

(David Ulevitch at 00:25:16) And so I think we have both an empathetic investment team because a lot of us — it's like, whatever the worst thing that's ever happened to you as an entrepreneur, like, whatever it is. Like, I've seen worse or personally done worse or been in worse situations. And, you know, we also believe — and, you know, people know this about our firm, but we're in service to entrepreneurs. Like, when I was an entrepreneur, you know, I would have to like track myself down to Sand Hill Road, beg for a meeting. But now the tables have turned.

(David Ulevitch at 00:25:43) Entrepreneurs have way more resources. There's a lot more capital in the system. There's things like Y Combinator that really educate and inform entrepreneurs. There's podcasts like yours that take people that are really technical and start to inform them about the broader sort of entrepreneurial world and opportunities out there. And so the entrepreneurial ecosystem is just so much more informed that now if you want to be a VC, you can't just like sit behind this big desk and just sort of hope people come to you asking for money.

(David Ulevitch at 00:26:07) You've got to go out there and really decide that you want to be in service to entrepreneurs. And our firm believes in that. And that doesn't mean there's not other great firms out there, other great investors, but that is our model, and that's our approach. And ultimately, what made me decide to work here is Ben, you know, sort of sat me down and just said, "Look, if you come here, you can be the kind of investor that you wish you would have had when you were an entrepreneur." And that sort of for me sealed the deal.

(David Ulevitch at 00:26:33) I didn't want to do nothing. I really didn't want to start another company. I needed to not put myself through that mental anguish. I wanted to be a cheerleader, supporter, coach, you know, mentor, helper, partner to entrepreneurs. And I didn't want to do it on my own.

(David Ulevitch at 00:26:48) And so this has been a great home and I've been here now two and a half years. I've written a lot of checks, made a lot of investments. There's general wisdom in the industry that you should come in and not do anything for your first year. Just take meetings and not write checks so that you don't make mistakes. I ignored that, and we'll see if it's at my peril or not.

(David Ulevitch at 00:27:08) But I like the job of investing. I love working with entrepreneurs. And as Marc tells me, writing checks is the job. So that's what I do.

(Joel Beasley at 00:27:19) Do you guys have like a minimum revenue requirement?

(David Ulevitch at 00:27:22) We don't. So we'll do everything. I mean, so one thing that's — there's a few other firms like this, but we're a multistage firm. So I will meet an entrepreneur and write a check on an idea, someone who's just deeply technical, the best in the world at what they do. They have a vision for the future, but maybe they haven't written a single line of code.

(David Ulevitch at 00:27:40) I'll write that check. Or I'll come in — there was another company where I came in. The company was quite mature, had — you know, they were on track to do about a hundred million or more in revenue last year, and I wrote a very large check coming in much more later into the process. So I'm fairly agnostic. I do prefer the earlier stage.

(David Ulevitch at 00:27:57) I like the messy stage. You know, I don't believe that investors should be the ones helping to sort of design your products or tailor your product. I feel like that's the founder's job. But I'm certainly down to help on hiring. How do you hire those first few key hires that really can make a transformative difference in the company, help you sort of just in terms of organizational development, leadership, you know, a lot of founders, especially technical founders.

(David Ulevitch at 00:28:24) If they're like me, they're sort of more introverted, and so thinking about, you know, when should I have an all hands? Should I have an all hands meeting when I only have four employees, or is that too cheesy and ridiculous? It's not. You should have an all hands of four people.

(David Ulevitch at 00:28:36) It's fine. It can be casual. But, you know, and then trying to help entrepreneurs basically scale through figuring out product market fit and then ultimately bringing their product to market. I focus on enterprise software. So almost everything that I invest in is something that ultimately gets sold to a customer.

(David Ulevitch at 00:28:52) You know, so I'm not going to be the right person to find the next Snapchat or Clubhouse or Facebook kind of thing. I have other partners that do that, but I like the infrastructure, the security, and enterprise software world.

(Joel Beasley at 00:29:05) Yeah. Given your experience with taking the products to market inside of the enterprise, what's the 10,000 foot overview? How do you do that? Somebody says, hey, how do I take a product to market inside enterprise? How do you respond?

(David Ulevitch at 00:29:19) Yeah. So I would say, look, the foundation is you have to have a great product. In fact, having a great product will make everything else easier. I'm not going to say that there's never been enterprise software companies that have been successful with bad products because obviously, we know that there have. We've been on the buying side of some of those products probably.

(David Ulevitch at 00:29:35) Sometimes they make it up with services and support and professional services. But I think in today's world, we're increasingly in an environment where enterprise buyers are very sophisticated. They often want to try before they buy. You see things like Slack or Zoom where the company might even have users inside the company before the CIO and the decision maker, whoever that decision maker is, before they buy it wall to wall. You know, there's already people using it. And so I think that model is here to stay.

(David Ulevitch at 00:30:05) I think, you know, organizations have empowered their employees to have much more, you know, both buying decision as well as choosing decision. They can choose to use a product for a while, and then eventually, the company will decide if they want to go wall to wall. And so I think you have to have that foundation of a great product. The other thing is that I think product marketing is something where a lot of founders make a big mess. They often think that if you build it, they will come.

(David Ulevitch at 00:30:30) And that's just not true. Even the best companies that you feel like you just heard about organically or through friends or word of mouth, they've done a lot of work conscientiously to communicate a narrative, to tell a story about why this product exists, why you need to be using it, why it's better, why it's easier. You know, it's not just that it's free, but there's something about it that lowers the friction. You know, with Zoom, you can connect through the web. Anybody could create an account.

(David Ulevitch at 00:30:56) You didn't have to have an enterprise sort of conversation with a sales rep. You can just start using it. So whatever it was, whether it's through go to market, whether it's through the product itself, there's a narrative of the best enterprise companies that gets created that they communicate, and that's product marketing. Product marketing, for those that don't know, is translating the sort of what you have into a value proposition for the customer. And you don't want to leave it up to the customer to figure out why your thing is really special or good.

(David Ulevitch at 00:31:23) You sometimes just need to tell them. This is why it's special and good. This is the real benefits, not just a list of features of, you know, this provides SSL encryption. This provides, you know, high speed packet processing or whatever. What you want to say is this will enable your employees to connect more reliably, to connect faster. Those are value propositions.

(David Ulevitch at 00:31:44) Those aren't just a list of features. And I think that most early stage companies trying to go to market, they really neglect—they get so myopically focused on the product and the capabilities that they neglect the actual translation of that into value proposition. And so there's great books out there on product marketing. There's great people out there in product marketing. It is one of the hardest things to do, I think, in a company, and you have to iterate on it.

(David Ulevitch at 00:32:09) But that might be the most important. So if you have a great product and you need your product marketing, which is, you know, a component of an overall marketing strategy, then ultimately, you want to do sales. And, you know, the last thing I guess I would say before I pause here is that as a baseline rule, when I meet with a small company that's out in the market selling, whatever their price point is, I already know they should double it, especially if it's a technical founder. Technical founders almost always underprice their products. Oftentimes, it's because they themselves are cheap, like me.

(David Ulevitch at 00:32:41) They don't want to pay a lot for parts. They underprice the product, but they're discounting the value that they're actually providing. And if they listen to their customers and they spend time talking to their customers, they're going to hear what the value proposition really is. And so they don't need to price based off what it cost them to serve it. They should be pricing based off the value they're providing.

(David Ulevitch at 00:33:00) And most enterprise software to me is some sort of a replacement for an IT function. So for instance, if you use Salesforce, which is a SaaS CRM service, you're just not having to run some massive internal CRM system, dedicating headcount to it. Salesforce just does it all for you. And so, you know, while it might only cost Salesforce a few hundred dollars a year to offer a Salesforce account to a customer, they're saving that customer tens of thousands, if not hundreds of thousands of dollars because that company doesn't have to go stand up infrastructure, hire experts, hire people to set up Salesforce, all these things. And so I think pricing is the last piece where, you know, companies need to generally have a better sense of what the market will bear and probably increase the pricing.

(David Ulevitch at 00:33:47) So that was, again, another broad 10,000 foot answer, but hopefully, that was on the mark.

(Joel Beasley at 00:33:52) Yeah. Well, it's tough, right? Because, yeah, as a founder, you're sitting there watching your runway, and you need to make sales. And so you can really play some weird mind games with yourself.

(Joel Beasley at 00:34:04) And for me, I got this one customer, GE Healthcare.

(David Ulevitch at 00:34:08) Small customer. Yeah. Small.

(Joel Beasley at 00:34:11) Dude, it came in at the perfect time, right? Because they saw us on a podcast and they were like, oh, we heard the product you're talking about, and we were trying to scotch tape and bubble gum something like that together. And then it was that you made something exactly for that, so we want to buy it. And at the time, I was trying to sell to SMBs.

(Joel Beasley at 00:34:26) And so, and I was trying to sell to people that only had a hundred leaders. You know? And they bought it. And then, you know, it's been, what, eight months and we've run multiple countries of their leaders through it and things, and they love it, right?

(Joel Beasley at 00:34:39) But Peter pulled me aside. He's like, dude, we would usually pay $750,000 for what you did. And I was like, are you kidding me? He's like, yeah. And then he told me how to structure the sales presentation.

(Joel Beasley at 00:34:51) He's like, you need an ROI study done by a third party. And I didn't know any of these things even existed. So I was like, oh, okay. Well, great. I told my team.

(Joel Beasley at 00:35:02) I was like, I'm working directly with Peter because I need to learn everything from this guy. Such a learning experience, though, about value because it's the same software, and it solves the same problem. And if I had gotten $750,000, do you know how much we could have competed? That would have been insane, right?

(David Ulevitch at 00:35:22) Well, that's the other thing about charging more is that it enables you to have basically more resources. You have more margin to go invest in the business, invest in the team, invest in the customer outcome. And you get this very virtuous cycle. And look, the experience you went through is the same experience I've gone through and everyone goes through. And by the way, it's great because there's plenty of other big customers out there that you haven't talked to yet, that you haven't sold.

(David Ulevitch at 00:35:44) And, you know, there's something to be said about, look, they're a lighthouse customer. Now you have a reference there. You have a champion who, you know, the next customer you can go charge $700,000 to. You know, so I, you know, I wouldn't—you know, you're not, I know you're not, but you don't have to beat yourself up over it. And so, but it's a great experience to go through to realize really that value is something quite different.

(David Ulevitch at 00:36:03) In fact, I'd often tell entrepreneurs, especially because I like the model that you've gone through, starting with SMB and then you move up a ratchet and you move up a ratchet. Because by the way, there's a customer out there—if you got 10 people paying $700, I promise you there's a customer that will pay you $7,000. I believe once you get 10 customers paying a price point—I've written a blog post about this—once you have 10 customers paying a certain, a consistent price point, there's at least one customer out there that will pay 10 times that. And if you then get 10 of them, there's at least one more customer out there that will pay 10 times that. Because it means that you've built a product that's really filling a need at that current price point, but there is someone else out there who's willing to sort of slum it with you. And because you're really—you really are preventing them from having to build that duct tape solution. You really have solved that itch that they really need to scratch and you're able to do it, and then the whole company comes along for the ride. The customer support team comes along, professional services comes along, marketing comes along, and then that's sort of the rising tide that helps companies sort of increase their average deal size and their overall revenue.

(David Ulevitch at 00:37:07) And it's a great journey to be on. I mean, it's exciting that you're on that journey.

(Joel Beasley at 00:37:11) Yeah. Yeah. We got crushed down a little bit when COVID happened, right? Sure.

(Joel Beasley at 00:37:15) Everyone would think that leadership would skyrocket, but what ended up happening is everyone froze up, clenched for six months, right? And even the current customers we had contracts with just withheld payment because—it's just the way—and I get it because we had to turn around and do the same thing. It was just tough. But we had a strong team, and so we said, what are we going to do? The podcast was doing really well, popular.

(Joel Beasley at 00:37:38) So we had people that were willing to pay to come on the podcast. And so we said, all right, we have to think quick on our feet because the leadership software is an eight month sales cycle because they plan annually, so it averages eight months. And so we built a PDF, did a quick design, put three sponsorship packages together, and we ended up closing out the year 325% revenue growth, although it was on a different product. But we went from—our first year, we did $50,000.

(Joel Beasley at 00:38:07) Our second year, we did $230,000. And then the third year, we had the issue of COVID, but we ended up growing and closing out $760,000. And that was just—it was $200,000 of recurring revenue from the leadership stuff and $500 plus of podcasts. And we're just like, oh my gosh. It's rinse and repeat.

(Joel Beasley at 00:38:27) So we can support $5 million revenue from the podcast. So what I said was, let's just keep hiring salespeople. And then once we have enough cash flow, which will be in August, September, we can parse off some of the cash because it's so profitable, the podcast advertising. We can parse off some of that, and we can just build the enterprise sales team because we'll have enough cash flow to not cannibalize the growth of the podcast business, but still grow the other one. And I found when raising money, we had some—you know, I did a couple pitches and things like that.

(Joel Beasley at 00:38:58) People had a really hard time wrapping their mind around that. They're like, you're losing focus and you're doing two things. And I was like, I don't know. I don't really feel like it's that way. I feel like it's a journey.

(David Ulevitch at 00:39:06) Surviving—and this is also marketing. And these things are virtuous, right? You get this virtuous cycle where people know about the podcast and they know about you and then they know about the company. You know, you mentioned something though that's really important, which is that when COVID hit, you talked to the team, right?

(David Ulevitch at 00:39:21) Everyone knows that COVID was bad. And for a lot of companies, the employees inside these companies know that it's bad. But you talk to the team and say, what are we going to do? And I think that real leaders are open and transparent about the state of the union with their teams because it's not your job to have every good idea. Right? I mean, you may have every good idea, but it's not your job to have every good idea.

(David Ulevitch at 00:39:44) And other people on the team want to know how they can help fix it. And if that means reprioritizing and devoting resources to podcast or some other idea, you want to solve these things openly and with the team. And when you mentioned that, it made me realize that that's a really important part of leadership.

(Joel Beasley at 00:40:02) Yeah. You have to do that because if you don't get buy-in on the vision, especially when you're in crunch time like that, and if you don't crowdsource and if you don't use every single available resource, then you're doing a disservice to yourself and your investors, you know.

(David Ulevitch at 00:40:16) That's right. Yeah. And the employees. I mean, the worst thing that people do is they just put their head in the sand and say, oh, no. Business is great.

(David Ulevitch at 00:40:24) It's fine. You know, maybe things are slow. But then all of a sudden, they realize one day they're just out of money when they could have spent that time working with the teams, you know, sort of scrambling and hustling and saying, what are we going to do to get through this tough moment?

(Joel Beasley at 00:40:37) It's hard to be calm when things are going down. I'm the person—this whole journey of—well, first of all, since age 13, 1099, right? But it's—I've gotten to the point where it's reflexive for me. The plane's going down, and I'm just like, okay, guys.

(Joel Beasley at 00:40:55) What do we do? Let's figure this out. What resources do we have? How do we not let this plane go down? And that calmness permeates through the entire team because if you go crazy, which obviously there were times when I have, you see that it's like chickens with their heads cut off.

(Joel Beasley at 00:41:13) It does not work. You have to be cool hand Luke, right?

(David Ulevitch at 00:41:18) Yeah. That's right. And I think you just have to be honest. By the way, you hire these people. They know they've joined a small company.

(David Ulevitch at 00:41:24) They know there's risks. People understand that. And I think it actually builds trust. It builds camaraderie in those tough moments. And then, you know, obviously, it sucks when you're in these tough moments.

(David Ulevitch at 00:41:37) You know, it's terrible. But when you're on the other side of them, you look back and it's actually one of the best times because you really sort of galvanize as a team. You stretched your muscles into new areas and, you know, you tried new things. And then when things are working, it feels really, really good, you know. And I think some people call this type two fun.

(David Ulevitch at 00:41:58) I don't know if you've heard that term. You know that term? No. So type one fun is you're on the carousel, you're at a birthday party, whatever. That's fun in the moment.

(David Ulevitch at 00:42:07) You're at the event and it's fun in the moment and you're having fun. Type two fun is you went on this big backpacking trip. It was actually grueling. You didn't think you were gonna make it to the top, or you're working through this problem with your team and everything's horrible. But when you get to the other side, you look back and the level of satisfaction that you have and achievement is so good that you look back and it actually was fun.

(David Ulevitch at 00:42:29) Even though in the moment it felt terrible, that's type two fun. And, you know, I would describe myself as a type two fun enthusiast. But it's just, you know, the satisfaction level is so much more fun than just going to a party and seeing your buds.

(Joel Beasley at 00:42:43) Yeah. You're exactly right because type two fun comes with growth.

(David Ulevitch at 00:42:47) That's right. That's right.

(Joel Beasley at 00:42:48) Yeah. So I guess we only have fifteen minutes, and I've gotten through 1% of the notes.

(David Ulevitch at 00:42:55) I know. Okay. We'll go back. You ever do lightning rounds?

(Joel Beasley at 00:42:59) Yeah. You wanna do lightning round? Alright. Let's do something. I'll just turn it into lightning round just like that. We can just do it. Alright. Here's one. I was talking with Ron. He is a board member, entrepreneur type guy at Yieldstreet. And they do, you know, they've tried to democratize access to investments, alternative asset classes. Right? And after that conversation with him and making yield more accessible to other people, I was curious. I hear all these great people come on the show, and they'll tell me about either their startups or whatever. It's like, I wanna invest in them so bad, but there doesn't seem to be a vehicle out there that just lets me jump into anyone I see. Do you think that'll ever exist?

(David Ulevitch at 00:43:37) Yeah. First of all, it should exist. And there are things already that are opening the pathways and the doors to that. AngelList is probably the best way. There's something on AngelList, if people don't know, is somewhere between a database of startups as well as a fundraising platform as well as a set of services for startups themselves to, you know, do everything from manage their cap table to raising money.

(David Ulevitch at 00:44:01) But one of the services they do, and I'm not really an expert on AngelList, but I think I can do it justice to explain it here. Because they have this thing called syndicates where people that are sort of in the flow of good deals put together these syndicates. You can contribute, like, $5,000, you know, which from an investment standpoint, it's a small amount of money. I'm not, you know, in life, it's a real amount of money, but as an investor, it's a small amount of money. And that $5,000 can get spread across maybe 10 different angel investments, and you're sort of just grafting behind the syndicate operator who's making the investment decision.

(David Ulevitch at 00:44:32) So, you know, I think that having sort of a, if somebody wants to invest in startups, I always tell people it's better to sort of just do the basket strategy rather than try to assume you're gonna be a great picker. And maybe you are a great picker. I don't, you know, but if I look at my portfolio, I just think the basket, when I was an angel investor, was much better. And so the syndicate model at AngelList lets you just contribute. This is not investment advice, blah blah blah. Our marketing leader is gonna be freaking out for a day.

(Joel Beasley at 00:44:58) This is not investment advice. Yes.

(David Ulevitch at 00:45:01) Not investment advice. I don't know anything that I'm talking about. But if somebody is interested in getting AngelList to learn more, but you put money into the syndicate, and then the syndicate periodically invests in deals as they come up. And a lot of these people, if you look at their backgrounds, they're either, you know, maybe they're a senior engineer at Stripe. Maybe they work at Dropbox. So they're in the flow of Bay Area Silicon Valley startups. Maybe they're a full-time professional angel investor, and they do the syndicate both to create access for other people, but also just have more of a bankroll to write bigger checks. You know, maybe they can only write a $25,000 check on their own, but with the syndicate, they can make it a $50,000 check. And so, anyway, AngelList has a whole bunch of different programs to invest in startups. And the nice thing I like about the syndicate is that you sort of can do the basket. You don't have to pick individual companies. And I think that's a great way to get started if you're interested in that sort of, that kind of an asset class, which is much riskier and the capital's locked up for a long time. But, you know, historically has been a good asset class if you're on the basket approach at least.

(Joel Beasley at 00:46:01) So companies can just go on there and, like, my company, I could just go on there and post something. Really?

(David Ulevitch at 00:46:07) Well, first of all, you could have your own syndicate, which is not necessarily a bad idea because you have a following, you have a brand, and people are like, alright. Joel is in the mix of entrepreneurs maybe that are out. Even in particular, maybe there's an interesting angle of people that are outside the Bay Area. Right? You know, there are great companies being started everywhere. And, you know, you have access to them in a way that maybe the engineer at Dropbox or Stripe doesn't have access. And so you go out, you start a syndicate, maybe you're able to go raise a couple $100 from whether it's, you know, 20 people or 200 people, and then you're able to make those investments. And just like a venture fund, you get some of the proceeds. But then your listeners that think that you're a good picker can invest in you. And then on the entrepreneurial side, if you're a company raising money, yeah, AngelList also has a way to raise money if you're a startup. And I think that part is, I don't know exactly how that part works because I haven't done that part of it. I haven't been on the fundraising side on the startup side, but I know that there are some capabilities around that as well.

(Joel Beasley at 00:47:06) Awesome. I'll take a look at it. As we start to wrap up here, what are some of the hardest lessons that you've learned as an entrepreneur?

(David Ulevitch at 00:47:13) The hardest lessons I think as an entrepreneur are always around leadership and just being really intellectually honest with yourself. I sometimes tell people sort of, what time is it, which is sort of a version of what inning are you in. And what happens is some people ship a product and they think it's ready to go. So they hire a bunch of salespeople, but then it turns out the product doesn't work or it doesn't have product market fit. They get over their skis. And so being really rigorously intellectually honest, and part of that involves having a team around you that gives you honest feedback. You know, I think that is one of the hardest parts of being an entrepreneur is really knowing what inning are we in in the game and what should I be doing to make sure that I'm winning the game. People get sort of, you know, delusionally optimistic or they get delusionally cynical. And neither one of those is good. So having mentors and people that give you that feedback is useful. And I think managing your own psychology as an entrepreneur is really that, one of the most important things.

(Joel Beasley at 00:48:07) And so what do you look for in—

(David Ulevitch at 00:48:09) I'm quite, I thought I also obviously, not running out of money is also, I mean, it's like, it sounds stupid, but the number one reason companies fail is they run out of money. So, you know, not running out of money also is important.

(Joel Beasley at 00:48:20) Yeah. They said that to me when I was raising. I've only ever raised myself, without business partners. Just Joel as the founder. Only ever raised one round from a VC firm here in Florida for $500,000 for 25%. And when I was standing up there in the hot seat, they call it, right, they said that exact same thing. And I looked at them and I said, no. I said the reason why the companies failed is because they gave up. Because I'd be cleaning toilets at Walmart to continue to fund it. Like, I would never give up. And I learned that early on from just personal struggles that I went through. And I think that's what clinched the deal with them.

(David Ulevitch at 00:49:00) Yeah. That's true. Obviously, right, you gotta have the hustle and the grit. And at some point, some people like paychecks, but, you know.

(Joel Beasley at 00:49:08) Yeah. Well, I mean, I would let the company boil down to just, hey. We're not there. Right? Right. Right. I'm actually having the best time of my life because I've never been at the point where I founded something and it's just going. It's, we wait for the last two salespeople to ramp because it takes them three months, and we'll take that cash. We'll hire three more sales, and we're just gonna rinse and repeat and we don't need, we're not dependent on anything or anyone else. We just keep doing our thing. And that freedom, the first year, I would say getting, raising venture capital was scary. It would, after the check got written, it was like, woah. It was a really weird moment because it's now, oh, we've got burn and we've gotta figure this out. It was hard. But, yeah. I don't, we did it, you know.

(David Ulevitch at 00:49:53) There you go. That's it.

(Joel Beasley at 00:49:55) Anything else? What's the most important thing you look for in a founder when you're investing?

(David Ulevitch at 00:50:00) I mean, there's different things. So there's not one thing. And I don't think it's fair to say there's one thing. Incredible product founder, I think is important. Somebody who has a chip on their shoulder where they wanna prove that they can do something that maybe someone told them they couldn't do or they wanna overcome something or they wanna demonstrate their ability to sort of make their dent in the universe as Steve Jobs would say. And then somebody who is able to translate something that's usually a more broad sort of world dominating global vision into something that's articulate and tangible. I think people that are able to translate a broad vision into something that sort of seems actionable and tangible, that's an important skill for hiring, retaining talent, communicating to your talent what's important. And so I would say those sort of, either great product CEO, you know, world sort of dominating chip on the shoulder kind of personality, but then they have to be, you know, somewhat grounded to the earth to be able to translate that broad vision. Like, if you look at the Elon Musks of the world, Elon can talk about going to Mars, but then he can then talk you through the A through Z steps he's gonna take to get there, and it starts with reusable rockets and then, you know, in space refueling and, like, he's mapping out the steps that now all of a sudden, going to Mars doesn't seem crazy at all. Now it's just a matter of time. But before that mapping of the steps, it sounds crazy, you know. And so that's what makes for an iconic founder, I think.

(Joel Beasley at 00:51:28) Thank you so much for listening. And if you found this episode useful, please share it with a friend or colleague who you think would get value from it. And if you have topics that you would like to hear discussed on the podcast, either add me on LinkedIn or send me an email [email protected]. Every time I get an email or LinkedIn message, it absolutely makes my day and inspires me to keep going.