Ryan He focuses on early stage enterprise SaaS and has primarily invested in applications and cloud/infrastructure related companies. Ryan is active and works with Code2040, a nonprofit organization that creates pathways to educational, professional, and entrepreneurial success in technology for underrepresented minorities. When he’s not in the office, Ryan spends his time surfing and with his family.
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Hi Ryan, thank you for doing this AMA. I was apart of the Aptrinsic team and I know the founders only had great things to say about Storm Ventures. For context, I work with and advise Seed and Series A founders on building out a team of advisors that can help them with recruiting as well as getting their product into the hands of early adopters. What advice or best practices do you give to your founders regarding getting strategic value from their advisors?
Thanks for the kind words. Great question re advisors - so often founders sign up advisors but find it challenging to get help. I think there are a couple of things I have found work well (1) be specific w advisors as to what they can do. if the ask is too general - it can be hard for advisors to know where they can help - they are not spending hours trying to answer that question for you. its up to the founder. (2) make it relevant - if you have an engineering star as abn advisor get their help w an architecture review or w functional management. they likely are not going to give you the best advice on which VP marketing to hire (3) be proactive and make the interactions happen that you want - if someone agrees to be an advisor and I am assuming there is some equity or something in return - you need to exercise their commitment. follow up w them, spend the time to manage it bc if you don’t, no one will.
Any tips on sizing addressable market before you build a product?
think about it two ways. First - bottoms up in terms of customers that you think have an interest - since this is what you are going to be testing against initially. Second - the tops down approach needs to be such that the solution you are initially building has “sea room” to evolve. If you are so narrow in terms of what you are building, if customers are not interested or as excited as you are then potentially you have no where to run. I generally disregard TAM work - its all a WAG.
Let’s knock out the basics @Ryan Floyd. Tell us your background, typical company profile, check size, metrics and characteristics you look for in SaaS companies.
Started Storm Ventures 20 years ago. We are investing out of fund VI which we started investing last year. We write 500K-5m checks mostly in businesses that have 1m ARR and growing. We are best at helping with GTM so want to see some evidence of product market fit (PMF). Also see: www.Youtube.com/askavc
Hey Ryan! Thoughts on the current capital climate. How has WeWork debacle and renewed emphasis on company margins impacted your theses and investments at Storm?
WeWork actually I think has had little impact in the B2B works - which I should have mentioned is all I do. Very few enterprise companies consume that kind of capital. Its certainly evidence though of a maturing and changing venture landscape. No question.
Thanks for making the time Ryan! See on your site that Storm has almost 30 exits. What hand does VC firm play in helping companies get acquired? Do you ‘shop’ deals or help start strategic conversations? Obviously you have a vested interest in a liquidity event.
Ultimately - the founders and execs are really the ones that make the decision. Most investors would prefer to go for the long ball - partly bc we have more than one investment among other reasons. Its pretty hard if we want to sell and the execs dont - bc we are minority shareholders and really don’t control much except writing that next check. If we are going to sell a company we get very involved - positioning, introductions, solving structure problems etc. Each situation is different.
Hi Ryan, thanks for taking the time to do this AMA! Are there any industries that you’re super bullish on that you think might be surprising or unexpected?
Generally one trend I like is application of SaaS and data to older industries. Construction tech is an example though companies like Plangrid certainly show its not a new thing. I generally try to stay pretty open minded - and focus more on the team and the overall opportunity. One area that has been challenging for me is infrastructure. I think its very hard to find white spaces to build enduring companies with all the change and development in the public cloud.
Hey Ryan, thanks for taking the time. What is target profile for the company you invest in in terms of revenue?
Yes generally above $1m ARR but its not a hard rule. We want to see (1) growth and ability to get some customers (2) convincing evidence that there is product market fit. That means it might be different revenue levels for different businesses. We do some seed investments but its rare and only where we have a lot of conviction or a team we know. There are a lot of great seed investors out there
Ryan – Curious to hear your thoughts on API-as-a-service companies like Algolia. How are these new business models reshaping SaaS?
This is one of my favorite models (and other venture investors too). Algolia is a fantastic example. The reality is that engineering is so precious in terms of a resource and time that if you can access an API and you don’t need to devote resources to build that yourself its a huge advantage. Maybe its a natural extension of what has happened w the public cloud. The great unbundling of applications. My newest investment here is a company called www.signalwire.com which has some similarities to Twilio but is also very different. Video and telephony is something no one wants to build - generally.
This is a massive trend in SaaS - however its also tricky to find opportunities where you are building a company and not a feature
Where can we find good resources and readings on these new models? Also good point, most API companies I’ve seen are solving niche problems but big problem spaces like ‘search’ and ‘video/tele’ are billion $ opportunities. What characteristics do you think make a market primed for an API model to be a big business?
I would start with the Twilio S-1. Great if you want to nerd out on those businesses. There is a lot of legal disclaimers and legal speak so you need to read through most of that but its a good place to start. The characteristics seems to be (1) a complex engineering stack like search or mail or telephony or video etc. (2) non-core part of SaaS product requirements (3) broad applicability to SaaS applications. I am not involved with www.mapbox.com but I think its a great example of all three
How do you think about feature vs. company for API companies?
Objectively think about as is it something that could be built and replaced in a reasonable matter of time - since I generally think nothing in software is really defensible w enough time and resource. Take Twilio - Whatsapp is still a customer I believe. One must conclude that its not worth it or at least has not been worth it for WhatsApp and now FB to build it themselves. They have the resources obviously. Just Twilio does it at such a low cost and so well its not worth it - at least not yet.
lots of VC’s sell potential portfolio companies on “value add”. Name a CEO that you’ve backed that is the best at getting you (asking) to do stuff for them strategically. What sorts of asks do they put in front of you?
I am an investor in www.workato.com and the CEO there is very good at pulling me into to the right conversations. Whether its an early view of the financial plan to stress test it with the CFO or a deep dive on the sales strategy going into SKO or debating debt versus and equity fundraise etc. I appreciate that he wants to know not only my opinion - but why I hold that opinion.
Sometimes being able to add value means its just as important to listen - rather than give your opinions. I think sometimes its easy to think you know best and just be prescriptive - but that is almost always the wrong thing to do. I have to work at it - sometimes I do better than others. I think its something I have gotten better at over the years.
Another question for you - what are your thoughts on the growing number of ‘alternative’ fundraising types? For example, Earnest Capital and Lighter Capital. Do you see the VC world making any dramatic shifts in the next 5 years?
Well when you have apples - you sell apples. I have a venture fund - so I am going to be somewhat biased. With that said - I think we will continue to see new ideas emerge that solve market problems. I know a fund that is going combinations of equity and debt as part of late stage financing which gives them some real advantages wrt pricing and deal size. It is hard to have both gears in an organization.
I am not a big fan of expensive venture debt in lieu of equity. I think it adds a lot of risk for most companies bc there are too many variables and you cannot do a down round w debt usually. If you have a stable revenue platform then debt maybe is ok - but then venture gets much cheaper too.
As a SaaS founder approaching you for funding what are the key elements you are looking for in the pitch deck?
I did a video on this https://www.youtube.com/watch?v=KGgcGwO7IVo&t=33s and wrote a post that covers the video. Take a look and let me know what you think. Its a really important aspect I think that some don’t take seriously enough. Its amazing how important storytelling is for success at least at some level.
Do you have the typical VC thesis of “return the fund with this investment?” when you look at prospective investments… or is there something different about the way you think about potential growth and scale?
We go into an investment believing that we can build a big standalone business. We like big swings for sure but I think in the enterprise sometimes things evolve with time if you are pointed in the right direction and if you only invested in things that were going to change the world I am not sure your returns would be top quartile. We have to believe that we can build a big business on a relatively short time scale however. That is critical - otherwise that business might be better funded w other sources of capital.
What does “big business” mean… $100M I presume?
Directionally yes - plus or minus. I think its hard at least for me to see beyond that when investing in 1m ARR companies. Seeing that in the future as potential is hard as it is - balancing creative imagination with grounded fundamental market realities.