This is episode 14 of The OpenVC Podcast. In this episode, Liz Christo, General Partner at Stage 2 Capital, shares her journey from building a sales team at NetSuite to backing B2B software startups. She discusses her unique approach to venture capital, the importance of adaptability, and key lessons for founders post-Series A.
Harrison Faull (00:24.078)
welcome Liz to season one of the Open VC podcast. It's an absolute pleasure to have you here. How are you today? Awesome, awesome. I'm really excited for this episode. You've got a great mix of operational experience and investing experience, which I think is the first in this space for us. So with that in mind, I'd like to take you back to your operating career. So you joined NetSuite back in 2008, which is the very first cloud computing company in the world. Ultimately, it was acquired by Oracle for, I think, $9 billion. And you found yourself growing the business development platform from no employees to over 170 in under four years.
Could you just tell us a little bit about the journey? What attracted you to NetSuite? Yeah, that'd be great.
Liz Christo (01:26.682)
Yeah, so actually my story of joining NetSuite is sort of an odd one. I was working for a small startup called OpenAir that got acquired by NetSuite. So I got to join the NetSuite rocket ship, but I wouldn't say I chose it. It was sort of a gobbled up in it. I had a really amazing path at NetSuite and was very lucky to have started my career there. I started in sales operations and got to know the back office of the sales team very well. I worked closely with the leadership team. I worked on all of our acquired products because I came in through acquisition.
Liz Christo (01:56.606)
working through how we integrate those, everything from month end, approving discounts and sales orders through SKU management and territories and all that fun stuff.
Getting to know the sales team that well was sort of like a natural step to get into sales from there. And so I had the opportunity to lead an account management group selling into our install base, building out a team that was responsible for renewals and upsell. And it was going really well. Went out and hired folks who didn't have as much of a sales background. They were more like industry experts and really knew the market and the customer very well. And then trained them up on how to actually
Liz Christo (02:39.851)
run, manage a quota, and grow a book of business. And it was an incredible year. And towards the end of that year, we were kind of looking around and the company was trying to figure out how do we build a bench of future sellers. So there are just not that many enterprise ERP sellers in the world that we can go out and hire. And we're selling to CFOs. So it was a really complicated, complex, multi -threaded enterprise sale to a very technical buyer. And it was a tough one.
we were trying to figure out how can we actually accelerate the pace of hiring. And what that came down to was building that bench internally.
Liz Christo (03:16.54)
And so I had the opportunity to put my hand up and say, that got me excited. I really liked the idea of training, of building that team, of thinking about that next generation of sellers. And that's what the kind of foundation of that BDR program was. Year one, we hired 18 people. Year two was something like 50. Year three was like 100. And so we were hiring, I think I hired like over 400 people during my time there.
Liz Christo (03:41.276)
But at any given time, it was in the hundreds that were in seed. And then the goal was basically train, lead Jen, get promoted within 12 months, and kind of jump into that full quota -bearing role.
Harrison Faull (03:53.9)
Wow, so that's a lot then. Going back to beginning, have you always been in startups? So you're in a startup that was acquired, that must have been quite early in your career. You had a high risk tolerance rate from the get go?
Liz Christo (04:09.072)
Or maybe I didn't know better?
So I think, you for me, I knew that I wanted to work in a smaller company. I wanted to be highly innovative. I wanted to build something. I wanted to work with great people. Really the goal for me was like, find a place where I can have impact. And that led me to like startups and tech. And then I got to grow with that suite till they were, I don't know, 5 ,000 employees over a billion in revenue. And with that in mind, like I was itching to get back to earlier. And I thought about like, you the 10
year of my time there and where I feel like I did my best work and you know there were amazing things that I got to do later but the early days when it was like a smaller team I felt like was where I really thrived and wanted to get back to that.
Harrison Faull (04:52.59)
Awesome. Well, that risk tolerance, it stuck with you because you volunteered for this intense job where there was no rights. There was no there's no template for you to follow. You had to actually build and train your own program. It's a race on the fly. And while that's a hell of a rate of deployment, 18 people, 50 people and 100 people per year. What kind of things did you find yourself learning in that process that you could pass on to fellow founders today?
Liz Christo (05:21.958)
just how important hiring is, is the thing that comes to mind first. I mean, there's so many learnings along the way, and I don't want to minimize that, but I think about the team that I got to build there.
Directors, managers, individual contributors, it didn't matter. We put like a ton of effort into hiring really, really strong A players and that showed. I look now at like the legacy that team has left and many of them still work at NetSuite more than a decade later, which is just kind of crazy to see. Have been incredibly high performers, have been promoted many times, have been, you know, top reps have made it to the VP level, et cetera. And, you know, I think
think about the success of that program and really like it wouldn't have been that way if we hadn't put so much effort on recruiting. And that happened in a lot of different ways. So I think like we were early adopters of a technology called HireVue. So sort of like a chorus or gong or recorder now, but from the recruiting space. And the idea was we have this really large distributed team. have managers who are out here hiring individual teams. Like how do we create some consistency in our process? How do we coach those managers to ask the right questions, to really dig in?
Liz Christo (06:33.294)
And that actually required a lot of thought, a scripted process, coaching on the actual interviews themselves. I was spending 50 % of my time on just interviewing.
Harrison Faull (06:44.392)
Wow. So you weren't just, were, but you're what's it called? You're decentralizing the hiring process and empowering the managers to do it themselves, which would involve identifying their own biases, trying to help them ask the right question and actually identify what's being said in an answer.
Harrison Faull (07:09.132)
Were you looking for any other leading points of data on candidates before they'd even make it to an interview? Because I know you're very much into the leading indicators now and the go -to -market strategy. Did you employ a similar type of thinking for the hiring?
Liz Christo (07:21.348)
It's a great question. We were hiring people with less than two years of work experience. So I would say, take this for what it is. I don't think this is standard across all hiring I do now. But there were a couple of signals that I thought were actually really helpful. I didn't care what college or university you went to or if you went to one. But I like to see that people were involved and that they pushed themselves. So that might be excellence in academics. That might be working while you were in college. That might be how you showed up for sports or a
Like it didn't really matter. I just wanted to show that you were like engaged and worked hard at whatever you were doing and then the second thing and this is like I'm gonna get a laugh from somebody who worked with me at that point but like How you wrote your resume really mattered, right? You have one chance for a first impression and if we pick that up and there were like three typos on it I was like I can't like it was a really fast DQ that actually is like sort of funny looking back on but was generally like a pretty good indicator like
If you didn't care when you were writing this and putting your best foot forward, it was going to be pretty hard to teach you to send 100 emails a day and be on it.
Harrison Faull (08:28.392)
I'm sure, no, I think that does rain. It's even harder for employers now to scan for that because of things like chat GPT and things people do to help write their cover letters and improve their quality of writing beyond what they'd naturally be able to. So I think that's become harder for employees to find, but no, those are some really good leading indicators. Thank you for sharing those. So after next week, you've got all this learning. You moved across the table into a venture fund.
Harrison Faull (08:56.947)
and a huge venture fund with over $2 billion under management today. How did you find that transition from startup operator high growth into picking investments and actually helping with other startups go to market strategy?
Liz Christo (09:12.208)
Yeah, so my path was actually a fairly interesting one. So I came out as an operating partner at OpenView, and my role was really focused on post -investment to start. So they had a team of partners that were responsible, an investment team for doing deals. And then I joined to lead the post -investment group. And it was a team of consultants and recruiters that worked closely with the companies. And so it was really like,
take what you learned in your career and apply it across these companies. And at the time, they were really trying to think about how do we scale that outbound motion across many companies. And so that has like, that was the work that I had been doing. Pretty quickly that evolved and I was doing a whole bunch of different things related to go to market strategy. But my first foray in was on the operating side and I share that because
It was a really tough transition because I went from being in a role where like I was the decision maker and I could decide something, whether that's about process or structure or hiring and we could like roll it out quickly, to being in a role where I had to influence others. So I was working with, you know, 30 -ish portfolio companies and probably closely with five to 10 at any given time. And...
you would kind of get on the phone and you'd see all these things that could be done differently. And the most critical thing I could do was narrow that down to like, are the one to three things that are gonna have the most impact? And I remember in my early days, I was sharing like all this feedback. was like...
Okay, here are the 20 things we're gonna do. But you've got a really small, generally understaffed, hardworking team who can't tackle 20 things at once in addition to what they're already doing. so figuring out prioritization and focus was like something I had to do fast. And then figuring out how to kind of bridge the gap between here's what I see as sort of an outsider looking in and knowing you're never gonna know the business as well as people who are in it every single day. And so you have to sort of
Liz Christo (11:09.81)
walk this line of I can share patterns and I can share observations and recommendations but like you as the business are the decider and being really careful that like not to cross that line and realize like you like you can't know it better than them nor should you and your goal is just to try to inject some ideas and support when they need it not on your own agenda.
Harrison Faull (11:35.499)
No, I... In terms of influencing founders, if you're an operating partner of UC Fund, there are probably good discussions and bad discussions. Good ones being where the operators are looking for an answer and maybe you're able to provide some experience and some lessons learned along the way. Bad ones being we think you're maybe doing something wrong here and here's why. How did you find yourself
changing your approach over time, if at all, to make yourself more effective in that communication. Because it's true for investors as well. It's not just operating partners. Anyone trying to tell a founder to do something, it's not necessarily an easy conversation.
Liz Christo (12:14.16)
Yeah.
So I might kind of span the last decade of my career as I give this answer, but I started in an operating partner role. I moved into an investing role. Today I have companies where I'm an investor, not a board member, where I'm an investor and a board observer, where I'm an investor and a board member. And there are different roles you need to play from a governance standpoint. But beyond that, it's all influence. And it turns out basically the job is the same here. You are an outsider looking in. You are on the same team.
team, you want these great outcomes for the company, but you're not in the operating seat anymore. And so I'm really careful, or I try to be really careful, not to overstep and to focus on what I think the most important things are and bring them up.
hold up that mirror, share what I see, and then figure out if there's something that we can or should work on together, or if it's something that is not a priority of the company, letting it go. And I find that the places where I spend the most time, given my experience, number one is team.
Often founders haven't hired a VP of sales before or haven't hired, you know, an insert title and role here. And so part of what we can do is help calibrate, what does an A player look like? What does that experience look like? Can we make intros to folks who, like, help them set their bar or help interview knowing that, like, I've hired hundreds of these roles. Does that make it easier for them? So that's one. And then I think the second place that I spend a lot of time is on go -to -market, just giving my back.
Liz Christo (13:50.686)
and again I find that their role is generally helping people focus. the tendency is to take on too much and you're gonna get more done if you have a narrower scope and so helping just like refine down the set of goals. And then look, like over time there's you know plenty of times we'll share an idea or you know see something that we want someone to look at but I try really hard not to have too much of an agenda walking in.
I mean, you kind of alluded to this, but I think one of the interesting things is like, there's a whole spectrum of ways to work with a company. There is like hand raise, a CEO is saying, I need help with X. And then there is like an observation where you're like, okay, I really think we need this to happen. And then there is like a collective like board alignment that something needs to occur and you're diving in. And any of those scenarios, like it starts with the CEO. It is all about having a relationship where you can have an honest conversation and working together to figure out kind of what the next steps are.
Harrison Faull (14:50.214)
There's no one set answer, the situation changes and also people's response, how people respond to the type of feedback they're given. Some people are very good at receiving constructive feedback. Others find it as an attack on their character that wounds them deeply in their soul. As a founder, hopefully you're more open to feedback than the normal person because you're going to get things wrong. There's just too many things to do. It's inevitable.
Liz Christo (15:20.988)
That's something we look for, actually.
Yeah, it's what we look for in our investment process. We have kind of built the CEO scorecard of traits we really care about and things we're looking for in a CEO. And one of them is definitely the ability, not just ability, but seeking out other opinions and learning and ingesting all of that, but then using it to make your own decision. Because it's not about, they told me to do that, so I'm going to go do it. No. It's like, who can you learn from? Who are the experts on insert problem here? And then go make your own decision and ask.
Harrison Faull (15:54.277)
When you joined OpenD as an operating partner, did you intend to become an investing partner or is that something that you ended up deciding was maybe your career path?
Liz Christo (16:04.772)
No, it's a great question. I did not. When I joined OpenView, in my mind, I was...
likely going to be there for one or two years. And my goal was like, meet all the portfolio companies, figure out where I want to take an operating role and dive back in. And I really fell in love with the like, kind of consulting outside in view. And with venture generally, I think the opportunity to both basically learn professionally, I feel like my job is decide some you find something interesting, learn as much as you can about it and decide if you want to make about that. Like, that's really cool. And then, you know, help these companies grow and you
The opportunity to do that across a bunch of companies presented a totally different set of challenges and opportunities to me, but I really loved it. So no, it's not what I set out to do, but definitely where I ended up.
Harrison Faull (16:52.675)
have seen something that enables you to make that transition across. How does it change what you do within a VC fund when you move from an operating partner to an investing partner?
Liz Christo (17:07.814)
Yeah, I mean, the job becomes way more focused on sourcing, like identifying great companies, and decision making. And I think, you know, what's interesting? Parallels in my career.
I, a lot of investing is an enterprise sales process. And so, you know, there's always a buying and selling motion going on. The buying side, you know, that was a learning curve for me of figuring out like, what are the things I need to learn about a business? Like, what do I value as investor? What am I looking for? And then marrying that with the firm you're at, because you ultimately have to find deals that fit the fund mandate and the fund construction that you're looking to build. And so the deals we looked at at OpenView are different than the deals I look at today at stage two. There's definitely some overlap. They're all B2B
software but the stage, the quality is the thing that make it a like home run deal for us like they're different. But the other side the selling is actually I think what looks almost the same. So if I think about like my average day, week, month now I'm reading up on you know insert any kind of research here.
finding companies I'm excited about, reaching out to them. It is like the job of a BDR. You are writing cold emails, you are trying to get in touch with the CEO when they are also getting bombarded by a bunch of other investors, getting on the phone, deciding whether or not pretty quickly that's like a qualified deal for you and could be a fit in the future. And then for the ones that you're excited about, you're nurturing those for a long time, generally over the course of many months before there's even like an opportunity to put a deal on the table. And then either they're raising or you're trying to catalyze a deal and it is
enterprise sales process. You nurture this over a long period of time. You are trying to add value, get them excited to work with you, like win the opportunity to even look at the deal. And then I don't know if you win at the end, you know, you're handing somebody a six million dollar check instead of gaining revenue, but it's really the same process. And so I think about the parallels there and there's so much I learned on the software side that applies to venture and getting to like put all that together is pretty fun.
Harrison Faull (19:10.729)
Wow. Is there anything you miss about the operating side that you don't do anymore, or is that kind of replaced by the learning side and trying to predict the future when it comes to? Yeah.
Liz Christo (19:20.668)
There's definitely things I miss. I think that the two that I miss the most, one is like being part of that kind of team. We obviously have a team in venture internally and you are part of like each of these companies, but like your day to day is very different. You're not working towards this like one goal altogether. Each partner is working with different companies and like it just feels a little bit different. And the second part is like
these like monumental wins. So I think when you're when you're in an operating role, there's like big lofty goals that you're working towards. And when you win together, it's like the combination of the team dynamic and accomplishing something. It's hard to get that same feeling in the venture role because the feedback loop is so long. So like, I think I've made some great investments. I'm really excited about the companies I'm working with. But like, I'll let you know in seven to 10 years whether those were the right choice or not. And that's a kind of a crazy time.
So that feedback loop and the feeling of the wins, you've to manage yourself a little bit differently.
Harrison Faull (20:22.186)
That's really interesting. How do you stay grounded when some of the startups that you've led for a stage two capital are showing phenomenal progress? They're going through a series C round, a series D round, they're raising a huge amount of capital, their growth is just going off the charts. You must somewhat celebrate those milestones along the way, or do you just take a step back and you're waiting for that exit opportunity to finally give yourself a pat on the back?
Liz Christo (20:49.404)
Well, I'm going be really honest with you, Harrison. We're not there yet. So I've made most of my investments with Stage 2 over the last two to three years. And so we have companies that are raising B rounds. But it's very early days for these startups. There are generally around a million in ARR when we make our first investment. And so we're not staring down any massive companies at this point. They're really doing very well. And of course, they're raising the next round. We've got a couple of companies who are out raising their B round right now. And that's super exciting to see them make that progress.
more fixated on like the fundamentals of the business versus those like external factors, particularly given the stage. And so we're celebrating like, you know, what's the plan we put out? Are we hitting the quarterly number? Are we seeing like all the sales reps on the board? Are we building product quickly? Like what is our customer satisfaction and retention levels? And like those signals get us really excited right now of what's to come. And then I think if you ask me that question again in a couple years, I hopefully will have a different answer.
Harrison Faull (21:46.987)
Awesome. No, I really like it. And you're looking at, you're also keeping an eye on what you can control, what you're measuring, what you're monitoring and the levers that you can use to influence those. So you're staying very in touch with the startups post investment. I think it's good segue to talk a little bit more about stage two capital, the fund that you're now a partner at. So they're now on their third fund, writing two to $5 million checks at the C to series A stage for B2B software companies.
Would you be able to give us like a two minutes synopsis sales pitch on why stage two capital is the best VC fund for any B2B SaaS entrepreneur to take capital from today?
Liz Christo (22:28.592)
Yeah.
We were founded around this idea that there are a couple of very risky points for a startup, particularly as it comes to go to market. And so what I mean by that is as you make the transition from founder led sales to first professional seller, or from first professional seller to scaling up your go to market team, there are these like very risky moments where you can derail and make mistakes. And we think there's like a lot of opportunity to do that better and to help support founders on that journey. And so we were founded with the idea like how to
we de -risk those moments? And the two pretty fundamentally different things we do than other VCs, one is we work in a pod model, which means two partners are on every deal. Someone with an operating and go -to -market background, someone with a more traditional finance and VC background. And the idea there is the founder doesn't have to choose the profile of the partner they work with. They get accessed and the benefits and skills of both.
And then the second piece of that is actually how we raise money. And so we have large institutional investors like MIT's Endowment Fund. And we also have a really amazing set of individual LPs who are operators. So we now have over 800 CROs, CMOs, heads of sales operations, enablement, all these go -to -market execs who have literally voted with their checkbooks. And we're calling on them for a one -off question, a talent referral, a prospect introduction, a advisor, consultant.
board member, sales kickoff presenter, like insert your idea here. This network has just been unbelievably helpful to startups in our portfolio. And I would say those two things have really set us apart and allowed us to have very real impact on how we think about go -to -market and helping companies.
Liz Christo (24:11.28)
And then the final piece behind this, we have a number of frameworks that we have developed and really work closely with companies to introduce post -investment. And that's really like kind of the nitty -gritty of how we think about go -to -market.
Harrison Faull (24:26.637)
Wow, okay, so you're absolute go -to -market specialists. That is the USP of the fund. You don't just get an investing partner that might be able to help you fundraise or pull up a few friends and help you with the series B. You're getting down nitty -gritty, working alongside founders and also tapping your extremely large network of current operators as well who are directly invested in the fund. I've seen you make some, I've seen some really good blogs.
on this space written by yourself at stage2capital.com. I swear, is that the right plug? Dear stage2.com.
Liz Christo (25:05.98)
We have two. So we have on stage2.capital, we have our blog and some incredible pieces from our LPs, from partners. And then I also run a secondary blog called Dear Stage 2. And that's at dearstage2.com. But the idea there is actually we get constant questions from our portfolio, from individuals in the network. And what we started doing was just saying,
Harrison Faull (25:06.332)
stage okay
Liz Christo (25:30.618)
Like, let's answer those publicly. So rather than like me writing a long email that goes to a CEO and then I'm hunting for that again, you know, when somebody asks me the question six months later, make it public. So I take those questions every week and write a go -to -market advice column.
Harrison Faull (25:44.77)
No, I've read a few and I actually really like them. I think you're a great writer and there's some super helpful advice for founders. One of the blogs I was reading talked about leading indicators of customer attention. Could you tell us a few examples of some really niche leading indicators that you've found startups have identified in their customer onboarding or lifecycle?
Liz Christo (26:13.872)
Yeah. So.
say like the way to think about leading indicators of retention if somebody is seeing it for the first time like there is a great piece on our website that Mark Rebears wrote. He was the founding CRO of HubSpot and this whole framework that we use came from him and his time at HubSpot. And at the time when he was running the sales org they were selling to an SMB audience and they had a churn challenge and he was trying to figure out how do we we don't want to wait until the end of an annual contract to know if a customer
is at risk. How can we identify earlier whether a customer is successful and whether we are getting better at making them successful? And so this whole model is predicated on look at the customers you acquire either at an individual level or over time on a cohort level like quarterly or monthly where you have a set of customers you can compare and make sure that like you are delivering the value you expect to and getting better at it over time.
So the first thing you want to do is figure out what product usage metrics, something that is tangible, data -driven, that you can see and identify and observe, actually ties and is closely correlated with retention. So that might be something like.
have used five features in the last 30 days. That might be 80 % of customers in the cohort are logging in at least 50 % of the days in a month. That might be...
Liz Christo (27:46.754)
the number of destinations that a customer sets up because we know that's closely correlated with value. It's very unique to each business. The critical piece is just make sure it aligns to customer value and have a binary metric of whether you have done it or not that you can measure easily.
And what we find is like having anyone, even if it's not the perfect metric, actually gets you way more focused on retention and gets the team rallied around making progress. You can change it over time. This is not like set it and forget it. But it's trying to get everybody focused on if we get customers to do this thing, they are more successful with us long term. And then checking in on that to make sure they're continuing to do it. And if you see a dip, identifying and going in to dig in.
So that's what we think about leading indicators of retention. We try to set it up with each of our portfolio companies, and it has been a really eye -opening experience. And then it gets much more sophisticated over time as people start to cut it by segment or by industry or there's a bunch of different things you might look at. But a simple one to start is definitely what we like to see.
Harrison Faull (28:51.956)
I really like that. I think Facebook had a very famous one where it was the number of friends that you had connected to within the first X days of logging in. And then they really pushed that as one of the first, like above, before the newsfeed probably was even out, they just pushed that as a key feature for every user just to add all their contacts. And then that would build on the networking effects of the platform itself. Awesome. Okay. So.
Liz Christo (29:01.072)
Makes total sense. Yeah.
Harrison Faull (29:20.335)
There are some frameworks and theories that have worked over time when it comes to go to market. Have you seen anything change? What used to work? What have you had to adapt over time? Or have you just got better at what you do when it comes to helping startups in their go to market strategy?
Liz Christo (29:39.014)
Constant change is the answer. And I think there are some fundamentals that have held true. Understanding the metrics behind the business, what your cost of acquisition is, what your payback looks like, how your funnel converts, what you're tracking in your funnel. They may be different for businesses, but still tracking all of those things and taking insights from them is really critical. But I think how we act on them has changed a lot.
Liz Christo (30:05.532)
the strategies that we're working for marketing in the 2008 to 2015 period when I was first doing outbound, definitely different than what's working today. And I think we've seen that journey from pretty strict outbound prospecting to the rise of inbound content marketing to product -led growth.
And when I think about what's working today, some of my current observations, I'm finding that events and in -person time are working very well again. Either industry events that people are attending or hosting on their own with customers. I'm seeing influencers and micro -influencers as a channel. Less scalable, but often very high conversion, getting in front of the right audiences.
And then, you know, for all the talk of like, outbound is dead that we see out in the world, outbound is still working really well. I think what's changed though is particularly on outbound. We spent the last, I don't know.
five to eight years, figuring out how to automate everything. And that has led to really high volume of really bad emails getting sent. And what I'm seeing work now is a reversion to more of an account -based strategy with a very small targeted list, hyper -personalized emails, potentially using tools to help along the way, but trying to go much narrower and deeper with accounts and being much more thoughtful in that prospecting, and that is delivering. And then, I mean, like the last thing that's changed is the text.
and you think about what tools are working for what companies at any given time and it is just a constant series of new entrants into this go -to -market space and we are always thinking about you know what's the next hack that's gonna work for X period of time and trying to get ahead of that.
Harrison Faull (31:57.265)
Yeah, I imagine there is a repertoire of instruments that a founder can use, but actually selecting the right one at the right time is where expertise and having exposure to a VC fund with 800 operating partners who can say, hey, this is working for us really well, or maybe you should try and change your strategy a little bit with your content to hit the right audience at the right time would be instrumental and actually move the dial when it comes to strategizing for your outreach campaigns.
Liz Christo (32:26.672)
Yeah, it's definitely the goal. We're also thinking about how to make connections across the portfolio. So for example, we have three portfolio companies that sell into restaurants and to the hospitality space. And they're sharing with each other if they find a really great data source or a tool that's working for them to build territories. how do we bring those learnings to the broader group, knowing that, hey, that's a niche problem. I'm not going to share that with another portfolio company that doesn't sell to restaurants. But making that connection at the right moment between our portfolios, companies can be critical.
Harrison Faull (32:56.466)
That makes a lot of sense, shared learnings and building a community of founders because it can't be quite lonely out there. What kind of things do see founders getting wrong after they take that big check at the series A stage? Do people go a bit crazy? Do they start spending? What would you say is a common misstep for founders at that stage?
Liz Christo (33:21.232)
Yeah, ramping spend too quickly is probably like the number one mistake we see. And I think for good or bad, that comes often from like top down pressure of like the board sets.
an arbitrary number of, we want to 3x or 4x next year. And often that leads to people hiring really quickly. We try to take a much more reserved approach to that building a bottoms up model understanding. If you just continued with your current performance today, you know, where would we end next year? And then think about what assumptions we can layer into that and what would it take to go hit whatever the top down number is. And often that means we need to make additional hires.
But one of the things we caution against is don't make those hires until you have the demand gen and leads to support them. Putting three more sellers in seat is just going to add to your burn number unless they are fed leads and you have a plan to get them productive. so, yeah, kind of throttling hiring and figuring out what are the milestones that unlock hiring is really critical. The other thing that I think I see a lot in, you know,
It's not always a mistake, but I think it is a valuing or overvaluing of industry experience, and particularly in sales hiring. think I hear from lot of founders that they're looking for someone who has sold to their exact buyer or sold a very similar product before. And I think one of the things we've found over time is that industry experience, like...
generally doesn't matter that much. There might be a few exceptions to that, but a very strong seller with good fundamentals and an incredible work ethic is going to be successful in a bunch of different scenarios, as long as they understand the motion. I wouldn't hire a sales rep who has worked at Calendly moving these PLG inbound leads through the funnel to go sell an enterprise solution that's 300k in an initial land.
Liz Christo (35:22.488)
a very different motion. But if you know the motion, I think you can kind of move across industries quickly. so I think we encourage people to think more about the actual sales and sales leadership skills and less about industry experience.
Harrison Faull (35:34.548)
a lot of sense, but you probably need the right amount of structure internally to have that coaching of the sales team and having them get to a place where they're beating or exceeding what might have been achieved by someone with industry experience. Cool, awesome. So Vertical Software is a very big focus for Stage 2 Capital. What do you see as the biggest opportunities in that space?
Liz Christo (36:01.242)
Look, I think we're...
We're spending time in a lot of different areas. We see opportunities in industry 1.0 and thinking about construction and manufacturing. We did a deal last year at a company called AeroCloud who sells into airports, back office, and gate management, flight information display, common use passenger processing, all of the nuts and bolts of how an airport runs. I think there are still many industries that have these sort of large incumbents that are
older technology have a huge opportunity to be disrupted by AI right now. So look, we're spending time in a lot of different places. But I think one of the reasons we're excited about vertical software is there is still opportunity for a lot of disruption. Generally, like fewer competitors, what looks like potentially a smaller market from the outside. But when you think about some of the really big wins, like Procore, for example, there is just a huge amount of opportunity as you start with something really critical and a
wedge in and can expand what you do for those companies over time. So it gets us pretty excited.
Harrison Faull (37:10.004)
you feel about threats and defensibility? Because this is a new era where we're seeing companies be built by a solo founder using some AI and some incredible coding technologies that turn them into a superstar. How does that influence the investment decisions for stage two?
Liz Christo (37:26.714)
Yeah. Just kind of two things wrapped into that and what you said. I think the first actually is more about efficiency. And we love founders who are constantly thinking about how much can I get done before I make another hire? And how do I maximize the value of each hire I make? And a lot of that comes down to tooling and workflows and process and just generally a mindset shift.
So love that. And then I think the second piece you alluded to around defensibility and building a moat is something we spend a lot of time on. So when we are making an investment, a very critical piece of that evaluation and diligence is thinking through like, what are the current differentiators? Which of those are defensible and how do you build a moat over time? And is something we continue to look at in our own portfolio as well. That can come through different things. I think there are, you know, some companies where you look at it and think there's a first mover advantage.
and having these early adopters is gonna allow you to move faster and further. There's data, which is generally a very common one, thinking about what is the data you're amassing and why is that unique to you relative to others. And then I think one of the other things we are just evaluating is what is the competition doing and what would it take for someone to replicate what you're doing today? Why you, why are you ahead? And so yeah, I think a lot of
that comes through our calls with customers, through our calls and work into market. But it's definitely something we spend a lot of time on.
Harrison Faull (38:57.897)
No, I like that. It's definitely something people need to consider a bit more. I think angel investors are guilty, perhaps more than professional investors, of not thinking about that point a little bit more and the rate of improvement that we're seeing with artificial intelligence and how that could break down barriers for building software companies.
Liz Christo (39:14.682)
Yeah. For what it's worth, don't think many of the companies we're looking at, like a Seed or a Series A, actually have a true defensible competitive advantage today. We think of it more as like, what's differentiated that could be defensible in future? Very rarely do you see a company that no one else could replicate that. What they have is a head start and an opportunity to build a moat. It's rarely that they have it actually today.
Harrison Faull (39:44.227)
That's a smart answer. You floated that one.
Liz Christo (39:47.088)
Well yeah, I can give an example if you want. I look at a company in our portfolio like Slang. Slang.ai is voice agents for SMBs. So they've started in restaurants. And if you call a restaurant, you can talk to their AI agent in natural language, and you can make a reservation. So part of what's really cool about what they've done is they have started with a very focused set of restaurants. So they are going to amass a really critical data set about restaurants, about the kinds of questions.
that people ask restaurants. And then they've also invested in building integrations with all the players in that space. So they just announced a reservation integration with OpenTable. And something like that, then, when you pair those things together, is much more defensible against a other voice AI horizontal player who's going after a bunch of verticals. So the integrations, the data they're amassing, those things over time are going to create a moat for them.
It's hard to say that that's really a moat today. They're in the earliest innings of doing this, but it's a really big opportunity.
Harrison Faull (40:52.983)
hope that makes a lot of sense and there's nothing worse than calling up a restaurant and they just have a humor on the line and you can't get through because there's four other people on the line trying to get through. Using AI and agents I imagine you can have multiple concurrent calls happening in parallel and bookings have it happening automatically which...
Liz Christo (41:08.592)
Harrison, alluding to the fact that they're even answering the phone. Like, I feel like I keep calling restaurants recently and I get a voicemail that just says, if you'd like to make a reservation, go on Rezzy. Like, they don't even answer their phone. Stop snapping it.
Harrison Faull (41:11.841)
Yeah.
Harrison Faull (41:21.023)
Wow. Terrible. And there was that big piece in the New York Times about people selling restaurant reservations not too long ago. I don't know if you saw that. Upsetting restaurant, yeah, making over $100 ,000 a year just doing that, which is quite small. Yeah. Have you seen or have you experienced any real horror stories? And I'm not asking you to name names, but have there been any surprising moments with founders?
Liz Christo (41:29.604)
Yeah, yeah, Crazy.
Liz Christo (41:34.746)
Yeah, reselling them. Wild.
Harrison Faull (41:48.139)
that have just been instant put off. What kind of things do you get to see? What kind of things are you looking for that...
Liz Christo (41:53.958)
Well, I don't know if I would say instant put offs. Do you mean in the investing process of when we say no to a deal? Or you mean with our portfolio companies? Surprises everywhere.
Harrison Faull (42:01.533)
either. Just any explosive story or example of things going wrong that you wouldn't necessarily expect.
Liz Christo (42:14.148)
Yeah, look, I mean, I've definitely worked on deals where you uncover some crazy things in diligence. And all kidding aside, one of the most basic things we do is just like Google the founder. Like, you can, you'd be shocked at like how far you can get into a process. And just like a basic Google will uncover something very obvious. They've been sued, they've committed a crime, they're whatever. Like, there's stuff that happens that like you need to go get the story on and it would be negligent not to.
As far as with our portfolio, think surprises come in different forms. Generally, we're spending a lot of time with teams before we invest. And so I feel like we have a very good view of what we're getting into. But the relationship when you are selling yourself and buying into a deal is very different than when they open the doors and say, hey, we're in this together. And so I don't think they're bad surprises. I'm not thinking of something like, my god, I wish I hadn't done that investment. Not at all. Instead, what I'm thinking of
is like, how do I refine my process to figure these things out sooner? Or what did we like, not miss, but like, there's probably something in the relationship that we could do earlier to like have a more open conversation about certain things. And that really comes down to trust. So I don't like fault a founder for not sharing openly, but like, you know, the sooner we can get into a place of trust, the faster we can have impact and work together on something.
So now I guess I don't have a good explosive story for you, but I do think there's always surprises and many of them come in the form of like founder and team dynamics.
Harrison Faull (43:48.845)
No, that's absolutely, that's a really good answer, thank you. I was just thinking, I worked at JP Morgan for two years and they acquired a fintech. I don't know if you saw this in the news, but it turned out the founder had lied about the number of customers that she had and was completely fraudulent and used a PhD to put addresses with names and make it all look very legitimate. And it was only uncovered a year after. No, good. But it was only uncovered.
Liz Christo (44:11.258)
have not had one of those moments. And hope not to.
Harrison Faull (44:16.633)
Yeah, it only uncovered 12 months after they bought it for over $100 million when they brought the marketing in -house and realized all these emails were just getting bounced back because they were fake. But yeah, that's quite a good story in that space. But let me flip it then. What have been your proudest moments at stage two so far?
Liz Christo (44:18.918)
crazy.
Liz Christo (44:35.195)
Yeah.
No, it's a great question. I think there's a few things that stand out. One, when we genuinely can help a company do something. So when they put their hand up and say, I need X and we can actually deliver on that, part of that is the assistance of the company. The other part of that to me is just reputationally, we do what we say we're going to do. And if we say we can help with something, I want to show up and do that. And so I'm thinking of a couple of moments where somebody said, I need an introduction. I'm trying to get into this particular prospect. And we have been trying for six months. Can you get us
or we're trying to find an advisor that can help with XYZ thing and like finding the right person in the right moment. Like those are really proud moments. I think the other piece, and because it like loops our LPs in with our companies too and figuring out the intersection there is an opportunity for both.
And then sharing in the wins of the company. I love getting pulled into a monthly update email or something that's going out to a town hall or an all hands meeting. And the celebrations that happen when they're working towards something and win. And I know this kind of harkens back to our earlier conversation about what I miss in operating. But seeing them grind and work towards something and then have that celebration moment, those are incredible moments.
Harrison Faull (46:25.752)
Thanks, Les. Look, this has been a really, really good episode. Thank you for the insights that you've given us today, founders and investors.
learn a lot from what we've heard today. For everyone looking to get more information about GoToMarket strategies, I really recommend that they go and visit your blog at dearstage2.com. I'm going to link it in the show notes as well. But yeah, there's some really, really good content coming out there and thank you for your time.
Liz Christo (47:11.834)
Yeah, I appreciate it. Thanks for having me on.
