We are here with Meredith Finn and partner at Mar Capital Partners. Hi. Hi. Thanks for being here. Before this I believe you were in the Bay Area at Salesforce ventures. Yes. And now you're up at March capital where you guys do Series A B and C investing. That's correct. Fantastic. I got it right. Welcome.

Thank you. Great to be here with you guys.

So how long ago did you move. I moved it at.

Well I joined March January 1st and moved to Santa Monica.

February 3rd. Wow. I know nine months I love it. Great. Yeah ten months segments.

And yeah.

Tell us a little bit so we know the basics of March you guys are series ABC investors. Yep but let's let's go backwards rather than forwards and talk about you and what you were doing maybe at Salesforce.

Yeah of course. So I was at Salesforce for almost four years working as part of the salesforce Ventures team which is the strategic investment arm of Salesforce.com. So we were largely investing in enterprise software companies that were strategic to Salesforce. So they're built on the Salesforce platform or had the potential to integrate with the Salesforce platform primarily focused while I was there on investing sort of in Series A B and C companies as well. The firms obviously really morphed over the last couple of years to investing in over the last few months I should say not even couple of years but to investing in a lot of growth stage deals and doing a lot of pre IPO stuff which is exciting for them.

 But yeah it was it was a great opportunity. And was a third person on the team in the U.S. there.

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Wow. And so when you guys are looking at deals are you thinking that you might. Could they be potential acquisition targets.

So Salesforce ventures didn't have a mandate around the company being an acquisition target. You know we we were doing so many investments candidly and I think when I left we were up to like over 300 portfolio companies which is pretty pretty sizable. So there's no way that Salesforce could have bought all of the companies that that we invested in. So the mandate was really around strategic partnership first and foremost but through that process and obviously through building a relationship between our portfolio companies and our product teams we did see some some em and they obviously come out of the Ventures portfolio as well.

I'm always curious in a situation like that are the is really employees or are they compensated like GPA. Then you don't have to tell me at Salesforce in particular but now it's. Yeah.

So you know at Salesforce we were employees of Salesforce.com it wasn't a separate fund structure. We were investing directly off of the balance sheet so there wasn't a separate pool of capital where you know sort of the sole LP was was Salesforce you know we didn't have Kerry.

And so we're compensated in the same way based upon returns that that investors typically are. We were compensated sort of more traditionally as employees with a base bonus and equity.

So I was asking this question we had or were talking to Comcast Ventures and they have funds and you guys would be more evergreen Yep yep much more evergreen capital and so we didn't have to look at doing follow on investments out of any particular fund it was each investment in in a company was thought of as a separate decision.

Right. So. So if I'm a founder coming to talk to you guys tell me about a typical round in terms of someone else's leading and you guys are are adding capital to the round and how or how that structure would work and how I as a founder might think about specific considerations like follow on investing.

Yeah. So and again this is for. For Salesforce not for March we have a very different approach to investing at March but Salesforce was primarily sort of following. Other investors who were other more institutional investors who were leading taking you know at the time maybe 10 percent of of around at you know just again the real purpose of the investments we were doing was to build strategic relationships. So we weren't targeting any ownership goals if anything because it is a public company that's investing and it is the company that that's investing.

 You know he didn't want to go over 15 percent ownership. You didn't want to trigger anything on the accounting side that would potentially cause you two have to consolidate hit financials which is something that obviously funds don't think about and are a little bit more oriented towards optimizing for for ownership and financial return.

So now at marcher purely financial.

Yes.

MURTAUGH were purely financial which I tried to bring strategic value in other ways to our portfolio companies but obviously we don't have a specific strategic mandate in the same way Salesforce did.

Got it. So how is life different for you.

Yeah. You know so primarily the biggest thing that's different for me is you know we're primarily looking to lead rounds today as opposed to at Salesforce where we were following other institutional investors. And so we're much more active candidly in the companies that we do invest in. We typically take a board role and you know well we'll write much larger checks you know into the companies that that we're investing in. Know I think having having a fund structure having LP that you're financially accountable to who have very specific financial goals in mind when they're investing in your fund and.

 Just sort of puts a different lens candidly on on investing I mean that's elsewhere. We were so focused on what the strategic value was from doing the investment and how we could build a partnership. Obviously first and foremost in many ways our customer is our l piece. And so we have a duty to produce a financial return for them. And so I think remembering that and just having that be your primary lens as opposed to a strategic mandate just forces you candidly to think about investments a little bit differently.

Before we get I want to spend the bulk of the time on March. That's why we're here. But I'm interested in that strategic component. And when you guys are talking about something having strategic value what does that mean to you and maybe the broader question is What role do you think strategic really play in the ecosystem the startup ecosystem. Yes. So I mean one of the beauties of sales forces like model and technology platform and is the ability for companies to build applications on on top of the Salesforce platform and create seamless integrations between Salesforce and other apps.

Or other solutions. And so it was really important from Salesforce his perspective to you know grow that ecosystem of application partners. And investment was one way in which we could help sort of incentivize those partnerships. So we we were really thinking about this as how do we enrich the. We thought of strategic asset Salesforce or I thought of strategic intel sources how do we enrich sort of that ecosystem of solutions that can plug into the core salesforce platform in order to deliver you know. Better options to Salesforce customers right. It's all about increasing the optionality of the platform really.

But if I'm raising a Series B let's say can I you know if you're not leading is is there any reason to approach you or is it more once I found a lead then I go to Salesforce.

Yeah. You know I.

I think if you're really interested in getting strategic capital from this I think goes beyond just Salesforce and really build it you know build the relationship with that company. Right. I mean I think the important thing to remember about investments from Salesforce is the decisions aren't solely made by the investment team you need support from the product team as well. And you know building those relationships across the company I think is really important in order to get true strategic value out of any corporate investor.

Are there any other advice to founders who might be looking for a strategic as part of their investment things to either watch out for or really look for.

Yeah. You know I. I think.

There's so much strategic money out there today. Candidly it feels like everyone has sort of popped up a corporate venture arm over the last couple of years and you know really look at the program and the track record of delivering on that strategic value. I think some companies do it better than others candidly and I just think it's knowing what you're going to get in addition to the capital out of this strategic. For some it's purely branding and you know maybe a little bit of marketing value maybe you go to their customer conference maybe you know you mentioning them as part of your investor base is valuable to your customers right.

 Because it shows an affinity between between the two companies. You know but not in every case does it mean that they're going to introduce you to customers or help grow the top line for you. So I think it's more about expectation setting than anything for Founders understanding what it means to take on that strategic capital it doesn't it also doesn't always mean that they're going to acquire your business. But for for some firms it does right.

Do you think taking money from a strategic can sometimes shut off certain opportunities for the company for example working with competitors.

Yeah.

You know look I would never do a strategic investment where there was any condition of exclusivity whether it's a partnership exclusivity or an investment exclusivity it can be a negative signal sometimes. Right.

If you've taken money from you know the mortal enemy of another company you know you may sort of isolate yourself from from working with them but for the most part you know and especially as we thought about this at Salesforce it was never our goal to box you out of working with with anyone else. And the ownership percentages are are so small typically that you don't have a controlling position and you don't have a board role. It's part of why. Candidly I I would question taking on board members from from strategic sites.

As you know again you want to maintain your objectivity in building your company and not necessarily have that influence of a strategic around or on the board table.

So I promise we will get to March but we miss that prior to Salesforce. You were in court debit Twitter if I'm not mistaken briefly. Yeah. So I am curious and I think Salesforce ventures was within corp dev and the broader umbrella. Any other thoughts on corp dev or what Corp. Dev kind of means to founders who have seen now from the outside have seen acquisitions but how to how to approach someone like a Twitter corp dev. Yeah yeah.

And I've spent probably about half my career now in and around MFA. So I started my career in investment banking and saw no number of deals from that perspective as well. So in addition to obviously the internal corp dev perspective and I think regardless of whether it's a Twitter or a Salesforce or you know any company out there. And the thing that people miss on on acquisitions is how much it's driven by the people and by relationships.

So and I see this with investors too who will come to me and be like Is there anyone on the salesforce corp dev team that you can introduce me to. Right.

It's like I can introduce you to people and Salesforce corp dev team. But typically companies. And again this just isn't for Salesforce but what I've seen across the board typically companies are not just out there buying buying buying up assets that are being fired or sold right.

You know and the way in which they think about M and A and I think I really saw at Salesforce.

Was. Yeah. How do we think about not only buying this technology and what that's going to bring to the table but the people that we're buying as well. You know there was a real emphasis on looking at retention and culture of a company that we were acquiring you know Eminem has such a high risk of failure. Candidly that as a corporate if you're not looking at those things you know you're really missing out on where all the risk exists. 

And when you're looking at valuation someone said to me Look if you're being acquired just for the people if it's an acquire it's going to be kind of a low valuation. If they're acquiring the product now I can remember the different pieces. If they're acquiring the product you might actually get more for that acquisition if they're acquiring it for the whole company and what you've built. That's even a higher valuation to expect as there's some rubric like that you guys.

Yeah. You know I think a lot of Aqua hires will happen on sort of a dollar value per head basis.

Yeah. What does a good engineer go for. Yes it depends. Right. You're like autonomous vehicle engineer. Like a couple of years ago I think they were getting bought up for like 10 miles ahead or so was going to give you a couple million. Yeah.

Yeah. So we move to march and talk about. So we've been talking about you which is great. Yeah.

Who else is here so the firm was was founded by Jamie Montgomery so Matt Mendell and Gregory Milken back in 2013.

Know first fund which is a 2014 vintage fund with 240 million.

So it's pretty pretty sizable to fund a pretty sizable first fund.

But I think there was always an interest in the mandate and sort of working and investing it working with and investing in early growth stage companies and the enterprise software space and you know usually typically takes at least a hundred million dollars to build an enterprise software company. So we knew we were going to need a substantial capital in order to sort of play at those stages. I'm also sort of joined by my partner Jed light Heisler who has worked at March for a few years now and was promoted to partner around the same time I joined Gregory has also sort of split off and and was doing a lot of work around gaming early stage gaming investment and so we've started a separate fund called merch gaming that he is now running.

 And so the core fund will pretty exclusively be focused around enterprise software. If you look at our Web site you'll see some some legacy gaming stuff on there that was in funds 1 and 2. But the core fund now four fund three will be focused on series A through CE enterprise software.

And how big is fund 3.

We're targeting 400 to 450. Got it. Yeah.

But you're currently investing out of your equity investing fund.

So we we did a final close on fund to the end of 2018 and that was a 300 million dollar fund. And yet we're still doing a few investments out of there.

Jamie's Newmont Jed and myself all work as part of the core fund. Yeah got it. Great.

And tell us about what you're looking for when you're doing investments.

Yeah of course.

We're focused on looking at companies that are truly selling into the enterprise.

So have products and technology that are are ready to scale in the enterprise by the time we're invested investing.

Even if you know previously they've maybe had some traction sort of in the mid-market we like to see some true enterprise traction so six maybe moving into a seven figure ACP deals. Yeah few logos coming from the Fortune 500. And in terms of trends that that we're following and investing in obviously everyone's buzzing and has been buzzing for years about a I we think the technology has matured enough now or that people are thinking about it in the right way.

And do you see particular applications there. A I am certain Yes trees that are interesting.

So I think you know five years ago you you probably saw what I would call just a lot of layers of intelligence that were being built and and they were just you know it was like hey we're going to be a chat bot or were a you know intelligence layer for voice or something like that people were not thinking so much I think about how to integrate intelligence into a broader platform.

So I think we're looking for companies that are really trying to build those plot next gen platforms that have intelligence sort of embedded in them.

And as part of the offering but not the offering itself if that makes sense. So how do you build the next intelligence system of record right as opposed to just being an intelligence layer on top of an existing system of record.

What's a good example of that. I sort of get what you're saying. Yes. So.

You know so I think we think of the traditional systems of record you know Salesforce Oracle SVP ERP. Right. We're investors in a company called A.S.A.P. based in New York which is basically building a next gen service cloud competitor.

And they are basically trying to be the single pane of glass for a customer service representative. So in real time recording a conversation right. That's happening over the phone in a call center transcribing that but leveraging the data that's coming out of that call to trigger actions and notifications in order to help the rep be more productive. So for example if I'm calling about my Comcast subscription Comcast I don't believe is one of the two yet that maybe they will be one day.

Yeah I'm calling about my Comcast subscription.

You can notify them. I'm not subscribed to HBO today and so the rep can say you know hey why don't you take a look at our HBO package or whatever it might be. But there's a little bit more personalization around it then you know traditionally today. It's more the rep and during notes into a system of record.

Or the other level of intelligence we've seen sort of around customer service is primarily chat bots which have also have high rates of maybe being able to solve like low level problems. But yeah kicking you up to a call center rep when they sort of get to a level of issue that you can't handle.

So that sounds like a pretty horizontally applicable company. Yeah. Do you focus mostly on horizontal type plays like that or do you. Are there specific verticals where you're interested. Yeah.

So for the most part we are looking for first for software that can be used across any any enterprise. We do see some interesting opportunities within the industrial segment and if you look across our portfolio we probably have half a dozen companies that are looking to exploit what we believe is a large market opportunity around industrial tech. And it's been sort of a slower market to mature than traditional enterprise 80 in part sort of due to a lack of standards within sort of industrial companies. Technology standards within industrial companies but we think there's some particularly interesting applications of of A.I. in the industrial space now.

 So we have a few plays there one. One company being spark cognition based out of Austin Texas which is focused on leveraging A.I. for predictive maintenance.

Well one of the applications of their technology is around predictive maintenance for large and industrial machinery jet engines things like that.

So explain industrial a little bit more to me so there's a lack of technical standards. Is that what you're saying is that it. Tell me more what how that manifests or what would be a good example if there were better standards in X. Yeah.

So I think what we've seen across the enterprise is a pretty standard adoption of either windows or you know the Apple Apple OS which enables you to build applications right or now you've got the Web right. So and SAS applications but enable you to build applications that can sort of be run be run anywhere. Given that sort of standard technology layer that exists I don't think we've seen the same thing in an industrial which then makes it hard to build something that you can build a product that can be sort of like repeated repeatedly installed without a lot of custom integration work you know sort of across industrial customers you've talked a little bit about the kinds of companies.

What about the location of companies you're here in L.A. Do you invest in L.A. companies.

Yes. So we we certainly look for companies in L.A. We don't have a mandate as part of our investment strategy to invest in L.A.. So we have companies all over the place candidly 

And how about How about your partnership in terms of how it works. And do do you focus on different things than Jed focuses on. Do you get different deal flow than Jamie gets or how do you guys work that.

Yeah of course.

You know so I tend to be pretty focused on the application layer.

And we'll also look at some stuff around fintech. You know Jed does a lot more on sort of security and infrastructure.

You know Jamie it's sort of all over the map all across the enterprise he's done stuff and in security and infrastructure he's done stuff in in payments and fintech and and obviously application software. So I think there's we're all you know he would say we're all sort of general generalists across the enterprise with with maybe some like you know specialization obviously anything that touches sales service or marketing. You know given my experience at Salesforce you know and I know a lot about those market segments. But yeah and then you know how we're sourcing deals we we work very collaboratively.

 So I think everyone across the firm has great networks. You know we we work closely with a number of different funds but we we also just have our own great relationships with with entrepreneurs and find that our own portfolio companies are sending us things as their friends are building our portfolio companies CEOs have friends they're building companies you know they they sort of some of them our way. So yeah I think we're all we're all sort of sourcing and then working on stuff together.

So Jamie is very well known for the Montgomery summit is that now a march production and how much of your business comes from that.

It’s a great source of deal flow for us. I think we just basically just did analysis at our offsite where we saw how many companies had had really come through that summit ecosystem and network. We have you see is that are our constantly pushing companies to us to showcase there.

 So a little bit of context on the summit for everyone. It's held the first week of March every year here in Santa Monica at the Fairmont. Over 1000 attendees. And we have one hundred and forty handpicked private tech companies that present as part of that and the attendee base is obviously private companies CEOs public companies CEOs investors.

BD and Corp dive teams from from across the ecosystem. So it's a pretty big deal. I would crush it if you do. Yeah.

And it's it's a great event.

Honestly if you're a company that's fundraising or you're an investor I found Yeah I met the march team actually through the Montgomery summit and was always one of the best attended events I attended every year just in terms of sourcing because there's a real focus in and around you know fundraising and and and know pairing up investors with with portfolio companies.

Great to have advice for founders. Beyond perhaps presenting the Montgomery summit which sounds like a great venue. Do you do most your deals still come inbound to you rather than you going outbound and do advice for founders who are pitching you to see common mistakes anything like that.

Yeah of course. You know I think it's a mix.

I think we we certainly have our own theses on the space on a variety of spaces. You know I think I think about industrial tech in our thesis there. Right. Like you know we were actively going out and looking for companies in those spaces. So I think there is a proactive element to what we're doing. But on the other side of the coin you know we also say we need to we need to take what the market gives us. Right. And sometimes there's you know opportunities.

That come your way great investment opportunities where you're like oh you know I'm not going to rule this out because it wasn't narrowly in one of the areas that you know that we had a particular thesis on why don't we do more of like here are my four theses that I'm really mulling with right now come find me if you or do I really do. Yes so do I think I still feel like it's kind of hard look if I go to the website I'm not exactly sure what you look out versus what Jed looks at and what your top three theses you're working on right now.

Yeah yeah. Look I think there is an element of optionality in being big right.

And in that if I tell you I'm only looking at you know as a software that services you know sales marketing and service teams like I'm I'm artificially narrowing the companies that are gonna come see me and excluding companies that probably have the potential to be great great investments.

But I think you can tell when you're talking to an investor. Are they knowledgeable about the space that you're in. Are they engaged. Have they talked to some of your competitors. They even know who your competitors are.

Or are they solely focused on what your churn numbers were your LTV to your show.

And what would be let's say a series B investment for you guys. What is usually sort of a revenue range you might be looking at.

So yeah I mean I hate to say it like you know I mean it really varies. But when you look at Yeah I think because and the reason why I say it varies is like you'll look at a company in the industrial tech space which candidly will be a lot lumpy or sales cycles a little bit slower to sort of mature right.

For some of the reasons that we talked about. But these are really big sticky deals.

You can be signing Bolton million dollar TCB sized contracts but you might be signing one every other quarter right. And there may not be a whole ton of predictability around it. So on those. Yeah. So it's obviously different. I sort of like to see at least 5 million there are you know are going into a series B you know. Some sort of opportunity to see revenue expansion within your existing customer base. So obviously nice to have zero to low you know gross churn but really focusing on like those early net churn metrics as I think some of the best companies out there are not the ones that that are only good at going to get new customers and have one thing to sell to every new customer they get because that's pretty expensive but if you can up sell your existing customers.

 So that you know I'm pretty focused on on like early net retention.

Yeah.

Anything else we missed. I'm asking either of you. I have promised our listeners that they that I will ask like How should people most get in contact with you or follow you or get in touch with merch. Yeah.

Yeah you can always follow me on Twitter at Meredith a fan. I.

Yeah I like take LinkedIn reach out so send me a send me a message on LinkedIn about your company. I actually am not too bad responding.

Yeah we're we're very open we want to make sure that we're not missing anything particularly here in L.A. You know so love to meet with companies locally as well.

Thank you so much for coming on today.

Larry thanks so much for having me. Great to chat with you.

Yeah OK. So Mary do you guys use pitch book at March right. Yeah we do. I'd love it. I couldn't live without it actually. That's a good answer.

Go pitch book. Yeah thanks guys. Great. Go page.

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