January 7, 2019

Q&A: Salesforce’s Matt Garratt on Salesforce Ventures and What Makes it Unique

 

Salesforce Ventures is turning 10 this year.  Over the last decade Salesforce’s global corporate investment group has invested in the growth of more than 280 companies, across 18 countries. This is the first story in a Salesforce Newsroom series highlighting the team members and portfolio companies who make Salesforce Ventures what it is today.

Matt Garratt is the Managing Partner at Salesforce Ventures, and over the last six years has led investments in leading enterprise SaaS companies, including DocuSign, MuleSoft and Twilio.

 He currently serves as a mentor and advisor to several startups and organizations, including Endeavour.org and the Frankel Fund at the University of Michigan, and volunteers with  nonprofits such as the All Stars Project and Boys and Girls Club. Learn more about Matt and Salesforce Ventures in the interview below.

How long have you been at Salesforce and can you share a little bit about your journey to get here?

I joined Salesforce almost six years ago and came from an investment background. I worked at Battery Ventures, and was interested in moving from investing to the operating side. I was initially doing a mix of M&A and investments at Salesforce, where I quickly saw the potential for Salesforce Ventures.

There was a tremendous opportunity for Salesforce Ventures to become a leading investment platform in the enterprise space. John Somorjai, EVP of Corporate Development and Salesforce Ventures, had created the original investment mandate, and the foundation was well laid. There was an opportunity to scale what was already working.

When I started in the role, the team was quite small; it was me and one other person in Japan. We were investing in about 25 companies per year; mostly smaller checks. If you fast-forward to today, we have invested over a billion dollars and in over 280 portfolio companies. We’ve grown our teams across the world, with locations in Japan, London, Chicago, and the Bay Area. We continue to expand geographically, as we’re actively investing throughout the U.S. and also in Australia and Canada. At the same time, 15 of the companies we’ve invested in have gone public.

Can you explain what Salesforce Ventures is and what makes it unique in the venture capital space?  

We are the strategic investment arm for Salesforce, “strategic” being the operative word. By contrast, most institutional investors are primarily financially motivated. What’s really unique about Salesforce Ventures is we're the only enterprise-focused corporate venture arm that's investing 100 percent in cloud companies. Uniquely, for every investment we make, we have an executive sponsor who is a general manager - someone typically running product. Before we even make an investment, we're really able to align around product roadmap and product vision. And long-term, we’re able to provide guidance and advice for these companies and their founders, such as sales advice and go-to-marketing strategy.

In many cases, we're able to help accelerate our portfolio companies into the market. Most institutional investors just don't have the same focus and value proposition that we do.

How many companies and where in the world has Salesforce Ventures invested in? And can you share a little bit about what kind of companies you invest in?

We've invested in over 280 companies, and we are in 18 countries. Our biggest markets, as you might expect, are the U.S. and Canada. We have a big presence across Europe, in the U.K., France and Germany. We’ve seen a large growth in our investments in Israel. We also have over 30 portfolio companies in Japan, and a few investments in Australia, which is going to accelerate over time. We’ve made a commitment to focus on investments in some specific regions via funds such as our EMEA, Canada and Japan Trailblazer Funds.

Are you complementary or competitive to traditional VCs?

Very complementary. In our investment role, we typically do not lead investments. We focus on strategic alignment and use dollars to create better alignment within the business. In that capacity, institutional investors like having us invest alongside them.

We also partner with traditional VCs in many different ways. For example, we do an event every year with Bessemer Venture Partners and Forbes, The Cloud 100, to celebrate the top 100 privately held enterprise cloud companies.

Institutional investors view our involvement as a positive signal and endorsement.

How should entrepreneurs and startups think about  partnering with corporations, whether it's for funding or just straight partnering?

The best way to approach a partnership is to think about how you would want to be approached. And that means, come with the mindset of, "How can I help you?" Salesforce is a large company, and with our product and distribution teams we can often really accelerate growth for entrepreneurs. It's helpful to have a compelling use case to grab their attention.

I advise coming in with examples of customers that you're working with, and clear thoughts on how we could integrate and work together. We can help fill that concept out and develop it. But having that initial framework and roadmap is incredibly helpful.

Salesforce Ventures has invested in several unicorn companies, those valued above$1 billion. Why have those companies made it?

There is no simple answer for this. As an investor, you’re assessing three key variables; the quality of the CEO and core management team, size of the market and how unique and great is the product. It’s hard to find a company, even $1B companies, that are the best in all of these categories, so you’re generally optimize across all three.

For the CEO, you want someone who sets a great company culture, recruits well and sets the direction for the company.

It’s not always 100 percent clear if the company is playing in a huge market in the early days, as often you are creating a new behavior within a company, selling to a buyer that historically didn’t have a lot of buying power or the company is creating a wedge with an initial product that may start to move into an area where there is a dominant incumbent.

Often, the best product doesn’t win based on the quality of the operating team and CEO. Or if the market is big and there is an early mover advantage, a company can establish a dominant position early on and take up much of the funding and talent.

So you have to assess a company across all three dimensions, and figure out for that given business and market what’s important.  

As startup CEOs are looking to raise funds, can you share some pieces of tactical advice for them to keep in mind?

Treat it like a sales process. Have a clear timeline in mind when you need to raise, and who the top partners and funds are you would like to work with. Avoid a scattershot process with a really wide set of investor prospects. It might turn out that you can’t raise from your preferred firm or partner, so have a 2nd and 3rd tier set of investors you want to work with, but prioritize. Also, be clear with your communications and set the right expectations on timing, size of fundraise, etc.

Also, some of those funds you were targeting, might not be a fit at that time you are fundraising or might want to see more proof points. It’s a good idea to stay in touch with those investors and keep them updated. Don’t barrage them with too much information; brief summaries are best. The last thing is to make sure you cut off processes that are dragging on too long. Often inexperienced entrepreneurs don’t ask the right questions to understand where they are in the process with an investor that is showing clear signs they aren’t likely to invest in this round. It’s important to suss that out early and move on.

While many companies are talking about artificial intelligence, Salesforce has invested in and developed many AI tools that customers are actually using. How does Salesforce Ventures approach investing in AI technology?

We view AI as more of a backbone now, in terms of how the leading enterprise software applications are being built. We're at a point now with AI where it is reasonably consumable and approachable through platforms such as Salesforce Einstein. So you don't really need a roomful of data scientists and engineers to build an app that has AI in it. You can use a platform like Einstein and plug it in. We used to delineate between cloud and non-cloud companies. And we used to delineate between AI and non-AI companies. But now all companies are weaving in AI, democratizing it and making it accessible.

We introduced Einstein in September 2016 and now it powers over 4B predictions per day. On the one year anniversary of launching Salesforce Einstein, Salesforce Ventures launched the Salesforce AI Innovation Fund, a $50M fund that seeks to accelerate the development of transformative AI solutions on Salesforce. Our aim is to provide the most innovative and smart, integrated solutions for customers.

As a venture investor what book have you read lately that impressed you?  

One is Ray Dalio's book, “Principles For Navigating BIG DEBT CRISES.” He discusses debt crises and how they've popped up throughout history. He clearly shows how the markets play a role in terms of the distribution of wealth based on where we are in the debt cycle, and how that distribution of wealth is cyclical. He also points out certain indicators in how that information can be used to explain the rise in things like populism and nationalism, with repetitive cycles emerging. And it's really interesting to think that kind of these macroeconomic trends can be a reasonably good indicator and predictor for where things will go from a policy perspective.

Looking forward to 2019, what trends or predictions do you see for enterprise technology?

We're continuing to see tremendous innovation and a number of startups in the industry vertical space that are very interesting. For example, in healthcare we invested in Kyruus, to optimize patient matching and scheduling. In retail, we invested in Narvar to add intelligence and optimize the delivery and return experience for brands and retailers. We expect to make several investments in the sector this year.

The open source movement is gaining a lot of steam now and will continue to in 2019. We acquired MuleSoft, which is well-known in the open source community. We're an investor in Docker, which is one of the leading open source solutions in the market.

We're also seeing some interesting trends around companies building apps with microservices and moving to serverless. People are building enterprise applications not by leveraging a monolithic, full-stack platform, but by aggregating and coordinating across a lot of different microservices. It’s a dramatic change in how apps are being built today.

We continue to assess blockchain, and we’ve made a few investments there. It’s still very early, and there isn’t a dominant blockchain platform yet to accelerate the growth of blockchain in the enterprise. But we are seeing emerging applications and are bullish on the long-term prospects.

There is also an acceleration of companies in the enterprise space being formed outside of Silicon Valley. For the second straight year, we've invested in more companies outside of California than inside California within the United States. If you add in international investments that dwarfs Silicon Valley investments.

 

 

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