Today I am with Dom Perri from Vertex. Vertex is a multi-billion dollar family of funds. And Dom is with Vertex US a $200 million reasonably new Fund III investing in early stage B2B companies. Vertex US is based in the Bay Area, but we are lucky to have Dom with us in LA after a career in the Bay Area, in corp dev roles at Dropbox, Tesla, and Juniper.
Yeah, I'm happy to, so, Vertex US, we're a boutique early stage B2B, venture fund we invest. Early stage seed and series a, uh, two thirds of our time is typically focused on infrastructure cloud developer tools. that includes, you know, data dev ops, cybersecurity, and roughly one-third of our time is spent in newer markets, at least newer for us, uh, such as B2B FinTech, supply chain robotics, industrial automation, things like that.
Some of our portfolio companies include LaunchDarkly, PerimeterX, very good security Sera, Desktop Metal, and, about 30 others. And as you mentioned, we're on our third fund, $200 million that first two funds were. Each 150 million. my two partners, incent GRI and Jonathan Heidegger. Co-founded the firm. their relationship goes back a couple of decades, going back to the loud cloud OpsWare days. that's where insec, co-founded the company with Marc Andreessen and Ben Horowitz. And Jonathan was actually their very first. higher. I did not realize insect was with mark and Ben that's some history.
Yeah. Uh, I guess, uh, maybe lesser known, uh, founder of LoudCloud Opsware, but he was there, uh, right from the founding, right from the beginning. He's also helped start club Dara. Couchbase Kiba few other companies, so yeah, he's, he's certainly, very well accomplished.
and what's the relationship vertex us and vertex. I referenced that it's a multi-billion dollar. Group of funds who is vertex global,
Yeah, thanks buddy. It's it's an interesting point. at the end of the day, vertex us, we are an independent VC firm. Uh, we are part of a global brand and the common theme across the six global vertex funds around the world. Israel, China, Singapore. is we anchor off of, Tomasek as our anchor investor.
And um, Tomasek The big
Singaporean Entity. I'm not sure how to characterize it, right.
yeah, they're a, uh, nearly a $400 billion, entity, in Singapore. You're correct.
Yeah. Okay. 400 billion though. That's that gives us a idea of this scale.
Yes, they own Singtel and, Singapore airlines and, STG engineering, just a, number of companies. Super helpful to understand Vertex. So dumb let's change it up and talk about you a little orient me on your background and your career
most of my career has been biz dev and Corp dev. you know, working on strategic partnerships, doing a lot of M and a transactions.
And a lot of that time was, at Juniper networks where I was for about 10 years. And then I spent some time at, both Tesla and Dropbox So Corp dev is really interesting. I think, you know, if you, really look at the landscape, the reason, M and a is so exciting is the vast majority of great startups exit through acquisition. but having said that, I will say virtually all investors are not investing in companies to be acquired but it is interesting to see, especially now the you know, numbers behind the skyrocketing M and a pace. Uh, so there's, a lot happening there. And I think that typically the advice we give is, you know, we're not advocating to startups to spend all their time, talking to Corp dev and, you know, trying to exit, but I think you'd be, missing an opportunity, to build relationships with. particularly companies that are very much in your wheelhouse or in your orbit.
I think getting to know them and knowing where they're going is important, but at the same time, you also want to balance that with, not having them sort of, suck all your time essentially, and asking you, endless questions about where the company's going. So it's, it's a bit of a balancing act I'll give a quick example. You know, one of my friends that, was InCorp Devaney, he recently moved to venture. I was talking to him, not long ago about an acquisition he made and yeah, basically just asked them, you know, why that particular company and not, the other five or six that are in that space.
And one of the main reasons was it came down to relationships. He had started. getting to know those founders, early on in the process so they just built a really good relationship over the course of well over a year, And that sort of put the founder in the pole position when that larger, publicly traded incumbent was ready to sort of pull the trigger on an acquisition. They were. You know, really top of mind and stood out from, the other companies in that space because they already had, sort of a head start. so I think it's important to just get to know, the Corp dev folks. They are also really great at navigating, their own companies and can help introduce founders to key people in those companies, and it could usually lead to a lot of other good outcomes such as, uh, strategic partnership or, just a better, relationship overall, maybe even a strategic investment.Let's stay on M and a and talk about strategic investment in a second. Can you guide me at all on how acquirers think about valuations
it's a great question that I would say that it goes back to what's driving the interest. why is the company interested in potentially acquiring you and, asking them, how do they. Think about valuations and valuing the company. I know the founders can compare yourself to, and look at, you know, the multiples which, clearly in the last couple of years has been, magnitudes, higher than they have in the past.
So I think founders have that, to their advantage,
And can you give any rules of thumb, like where we are today and where we have been in terms of multiples.
changing a lot. So look at private equity, for example, they have historically paid a much lower multiple in the past. That is now changing pretty quickly. I think they're paying more of a premium now, doing more. Roll-ups putting together companies that, they're going to take public in a few years and they're willing to pay more for that.
And just to try to be concrete, what revenue multiples might we have seen in PE and what are we seeing now?
yeah, P acquisitions. I mean, they've been, I'd say low single digits and something like Okta and on zero, or, you know, Salesforce and. Twilio and segment, for example, those were, anywhere between. 15 and 30 X, so really big difference. And I think that speaks to sort of the strategic rationale behind wanting to do those deals.
So there's, different thinking on how you're going integrate these companies. Is it for strategic value or is it more of a competitive edge innovation?
Yeah and can you shed light on those different scenarios and maybe even an Aqua hire scenario if you did thoseYeah, then those are the ones that you often don't read a lot about. Those are the quieter acquisitions that, you know, you're, buying tech and talent, and that happens a lot. I think the cost of acquiring talent versus trying to hire and build your own far outweighs the. latter, I think, Dropbox has done a lot of that. in the early days they did, a number of acquisitions, mostly around tech and talent. I think even more recently, this was after my time, but the DocSend acquisition, obviously they were buying a business there, but at the same time, I say, the founder probably was waiting for. his options as far as does he continue taking the company down the same road or, you know, sorta take the offer on the table with Dropbox and,maybe that's a better outcome
And is $1 million per great engineers still a fair back of the envelope way to think about an Aqua hire.Yeah, that's the number that's typically been used
And why do you think we're seeing these skyrocketed. Price tags for acquisitions or just interest activity, I guess, in this space.
Part of it is the incumbents themselves are valued at such a premium that, you know, they do have a lot of dry powder to make these kinds of deals that maybe they haven't in the past.And I think at the pace the industry is moving. It's justifiable to pay a premium for a lot of these companies that, are growing really quickly. And concretely, what sort of growth counts as high growth nowadays to an acquire like a Dropbox? Yeah, Dropbox is interesting because if you look at, when they went public, their growth rates since then have been pretty flat. So, really to sort of jumpstart that, acquisitions are sort of a good way to do that. And I think anything that can be sort of a creative to the revenue and, growth multiples is gonna be.
Attractive to investors and, help talk about the company on investor calls.Do you have any good MNA stories you can share or lessons for startups?
sure. I was involved in a lot of them. integration comes to mind. it's one of the key success criteria for any M and a, and it's incredibly difficult. I think, you know, merging companies, is always going to be messy and, really impact the culture, the one company that comes to mind. No my time at Tesla, uh, when I joined the MNA team there, we had just acquired two companies, the solar city and a company in Germany. literally on my first week on the job, I was told to fly to Germany, to, help lead the integration of this, assembly and machine shop, engineering automation company that required.
It was roughly 700 people. Very rural part of Germany.So it was a really important, part of the company and, you know, culturally, it was, incredibly. Different. The two worlds couldn't have been different Silicon valley Tesla versus the small engineering company in Germany. and, this was in 2017, just, at the onset of when model three was, starting to be developed. So really pivotal moment for the company so when I went to Germany,they were, really skeptical about Tesla. And we have to do a lot of education with the employees on. who Tesla is, where we're going, What does it mean for you as an employee to be part of this now, joined, company.And also, you know, international, you had to deal with European labor laws, works councils, just a really different environment.
And, we also have to bring Ilan in to do a, an all hands. That was an important moment. I think the employees, being spoken to directly by Elan and,
So I think communication is one of the most important things and helping people understand the rationale behind the M and a, why it makes sense.
Hm. What is the culture of Tesla? How would you describe that?
frenetic, uh, it is a wild place to be. and it's changed a lot since I was there. you know, it was really, really interesting Having them kind of close to, Elan's direct reports. We would, you know, really kind of follow him to, each of the locations he would work at. So we typically do a couple of days with Paul to a couple of days in Fremont. And so I think just being close in proximity was important because meetings would pop up very quickly and, you know, being near him or near the teams that support him, was important. And, it was, uh, you know, breakneck speed, lots of issues popping up, during the day. so no day look the same. pretty, pretty incredible, place. not an easy place to work, I would say.Wow. I should get back to vertex, but let me ask one more about strategic investment. I think I told you that a strategic right now, who's asking for roofers and board seats and other things, what guidance do you give to the company in that.
Yeah. I mean, if those are. Deal points that are, on the table. that concerns me because, you know, you don't want this to be, uh, encumbered, a relationship. So I think this needs to be, symbiotic in a lot of ways. most strategics are trying to advance their own strategy and innovation and try to gain a specific competitive edge. we've got a few examples where it is a really good fit and, most of the time, the strategics are not taking a board seat and there's certainly no Rafer on the table. that is incredibly restrictive. So, to me that sounds a bit, restrictive and not true, you know, sort of strategic partnership.
Yeah. What about I have another company that's very nervous actually about talking to strategics for fear that. The strategic, might want to sort of copy what they're doing. How do you navigate that?
Yeah, it's a legitimate concern. And, you know, it's similar to when you're having MNA conversations as well. So I think, Understanding why they're interested and where they're going and their own strategy. The conversation needs to be two way. It can't just be the large company trying to extract information from the founder. and, look, I think few initial conversations doesn't hurt if this leads to. Them wanting more and more information and spending more time with you. You know, I think it's fair to ask, for a term sheet I think after 3, 4, 5, meetings, that's probably a bit much if there's no offer term sheet.And we're in. When do bankers get involved? And what have you seen work or not work with bankers
Yeah, Becker's, I think they can be super helpful with building out the. Acquire landscape and what that universe looks like, for the founder or CEO. they can really run, a, tight process on, talking to these acquirers and understanding, their strategic roadmap and where you may particularly fit into that. So, from that perspective, they can be really helpful. I think if you're really small and it's a small acquisition, a banker might be overkill, ultimately comes down to process and network and the people that they know and, their ability to, shop and market the company to a pretty broad audience of buyers.Do plenty of deals still get done without bankers.
Yeah, they do. and I think, Corp dev is, is capable of doing those deals on their own. I think once you start getting into the. several hundreds of millions of dollars, that's when you probably need, a very formal process of bankers involved and, you know, strategic finance folks, to help, manage the process and drive the deal.
But yeah, a lot of M and a deals are, sort of done behind the scenes.
Okay, great. Let's bring this back to vertex and what you're doing today. I'm not sure. I even covered what size check is your sweets?
Yeah, we may have missed that. so we're writing checks. They were from, at the seed really early stage, two leading series a and that can really range, anywhere from 500 K to close to 10 million to lead us here. Zack.Got it. And I think a Vertex in the DevOps infrastructure, data security world, and your background is in cybersecurity. So maybe you could talk some about that and maybe share some best practices for early stage series a series B companies.
Yeah, a good question. Many, you know, funny. I recently moderated a panel of CTOs across. early stage portfolio, and it was more around cloud adoption and there was a lot of discussion around security compliance and governance. And there were a couple of key points that came out of that discussion. and one is security, is a team sport. You can't rely on your cloud provider only, which is often widely viewed. feudal security by many. you also need to prioritize compliance and governance and get it right early on or risk leaving your data vulnerable to attacks. you know, really, you know, if you zoom out, the majority of attacks are still largely a result of human error and all the more reason to prioritize compliance and governance, and not just, when you hit a certain scale as a company.
So, we've got a number of chief security officers within our own, portfolio as well. and I think that makes a lot of sense for, founders to, think about, you know, security is, one, certainly one category we focus on. we also are, really, focused on, you know, the return of SRE, the intersection of enterprise, SAS, microservices, open source, a lot of other areas which we can touch on as well.
Yeah. So tell me about the first one. I didn't actually know that SRS had gone. Or that they had returnedthe return of SRE, so site reliability, engineers, this is something that was promoted in the early two thousands by Google. they were the gurus of, tuning and maintaining, application stability through, you know, hypergrowth. This really sort of gave rise to, developers taking over operations, which is essentially, as we know, dev ops, and enterprises are rebuilding applications using cloud native technologies like Kubernetes.
And migrating to new platforms and doing that is very complicated. And we really believe that the SRE role is going to return to, sort of in a new form and sort of lead this, trend. so my partner, Jonathan he was sort of behind the wheel, building all of, walmart.com uh, data center infrastructure, and did the same at Facebook over I think, five or seven years. And, sort of helped Facebook grow from. millions to billions of users. so he saw sort of firsthand, where the industry was going, where some of these challenges were emerging. And, that's why we're making a lot of investments in this area.
And so, you know, let's say, I think you told me you mostly liked to lead rounds, right?
We do. And, you know, we've co land deals as well.But yes, we typically would like to lead, the seed round and series a.So if you're leading a series a for one of these companies, do you woo them with your technical depth or like how does that conversation go in this very competitive series, a environment? So being a boutique and small fund, it really allows us to be judicious around how we spend our time and,There's a lot of sector and domain knowledge. And when you also combine that with sort of our career experience, we can really help them with, you know, HR help, our network go to market. and so, instead of, sort of large multi-billion dollar firms that are maybe a bit stretched in.
A very large portfolio. We're getting known as the team that sort of goes to bat for our founders
And how about for you let's transition to you Dom. Like was the transition into VC for you? Like what has surprised you about the job?
That's a great question. It's very different than working at both a big company and a startup. It's almost like a small family business in a way.
look, I think it's a real privilege and honor to be in this position and have a front row seat to. Helping founders build these incredible companies and watching as the years go by from when they first started the company being, two founders than a dog to now being a, series B, C D you know, whatever stage they're at is, pretty incredible.
And it's like a family business. That is an interesting way of describing. So more about you. So Dom you, I think on Twitter somewhere, you posted that you recently became an American citizen.
This is true. Yeah. Very proud to now be a us citizen that happened, maybe six months ago. now looking back, I've equally spent half my life in Canada, half of my life in the U S and proud to be both a Canadian and American. but yes, it was a long process. So something that I can certainly empathize with founders that are going through, immigration or, building a company in the U S and they're from somewhere else.
what's the um, Canadian view of the U S right now. or just what's your view of the Canadian ecosystem
I'm very bullish on what's going on in Canada. Particularly my hometown of Toronto. There are so many great founders there in companies. I think there was a period. you know, after the Blackberry days where, there was a lot of hype around when Blackberry was taking off. And then obviously when apple sort of, crushed them, there was a bit of a lull after that.
But, the engineering schools in Canada are terrific. You've got vibrant market, lots of. founders the startup ecosystem is, really strong there.
What do you think Canadians think of the U S right now? Or why did you want to become a us citizen?
Well, it, you know, I guess going back to, uh, the last administration, there was a
a lot Yes exactly. there.
was a lot of, conversations with my friends Canada over that, but, you know, but it's really interesting. I think the pandemic through all the challenges, I think the one thing that did. Do is continuing to bring the world closer together But, but yeah, in the end gains are very proud. They like to maintain their Canadian identity and like think of themselves as different from Americans but also benefit from being, the friendly American neighbor as well.
So, okay. So the reputation in the U S is that Canadians are nice, right? do Canadians. How do the Canadians think of themselves?
Uh, I think it's true. I think it's a nice, are kinds depending on how you look at it, but, you know, big country. smaller population. I mean, the population of Canada is equal to that of California. I think it's, you know, somewhere between 30 and 40 million people.And pivoting, I'm seeing on you Dom, negotiation workshop at Stanford that you've been teaching. I assume you're not just teaching people to be kind.
What have been some of the better case studies modules, aha moments.
What are you trying to get across to your students?
so, uh, so yeah, I focus a lot on a few areas that, I think some are general and some are more specific. Some of them are. generalized areas are. Just around avoiding sub-optimal tendencies and assuming everything is sort of zero sum, trying to avoid maybe approaching the other person as an adversary.
That's typically not a good approach. you know, or, if you're restricting information or hiding information, or limiting the other person's ability to find that optimal solution. those are all things that. I think we're just going to complicate the conversation or negotiation and, instead I think there's lot of other things you can do to, You know, expand the pie, if you will. there's, a couple of maxims that I, typically preach and one of them is, you don't ask, you don't get,on the salary front itself, or job offer itself.
Usually what I tell the engineering students are, there's a lot more. To the conversation than just a, salary whether it's a bonus equity, even the start date, you know, other types of benefits, whether it's travel medical, No, If you don't ask you don't get.
is a great concept. I actually find it hard. It's harder than you think. I think to even sometimes what you want.
Yes. And why? I think, you know, just asking is one thing, but explaining why, and you know, why it's important to you, is really key. it's like venture capital it's, you know, well, why do you want to get into VC? It's People are interested in that reason and rationale and how you think about it and why it's important to you.
So I think you have to be prepared to, explain that and if you haven't thought deeply about it, then you're probably not as prepared as you thought you were.
Why did you want to get into VC and what gets you out of bed in the morning?
I just, I really, at this point in my career, I love working with founders that are like building. Just the world's next great set of companies is really exciting. it's a real privilege for us to be working with them and just, also being able to help them and drive some of the outcomes. Hearing them in board meetings or quarterly reviews, talk about how we've been able to help them is, it's again, it's really satisfying and fulfilling.
Okay. Last one. You've gotten Esther Perel quote on your LinkedIn profile. Talk to me about that. She's you know, she's a great story teller. So I think that's, that's super important.but I mean, just that. Quote around relationships. I think it's just so important because at the end of the day, you know, regardless of where you live, how much money you make, blah, blah, blah, like it all comes down to the people you interact with every day and those that you choose to surround yourselves with. I think it's just so, so important that life at the end of the day is, the people in your life and the relationships that you built with. also coming to LA for me is, opens up a very exciting time for me in my life.
So I do know a lot of people here, which is great, but getting to know them on a deeper level, is something that, you know, I'm really excited about.
Don. That's a wonderful note to end on. It is so exciting to have you in LA and to have vertex in LA. And so I look to crossing paths.
Likewise many, thanks so much. And look forward to getting together in person.
Great. Thanks for coming on the pod.