SaaStr Podcast #213: Tom Tunguz, GP @ Redpoint Ventures On Why Scoring Leads May Actually Be Dangerous
Update: 2019-03-02
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This post is by Harry Stebbings from SaaStr
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Welcome to Episode 213! Tom Tunguz is General Partner @ Redpoint Ventures, the venture fund with a portfolio including the likes of Stripe, Netflix, Zuora, Hashicorp and Juniper Networks just to name a few. As for Tom, he joined Redpoint in 2008 and has since led investments in Kustomer, Looker, Expensify, and Gremlin all prior guests on the show, I hasten to add. He is also the co-author of Winning with Data: Exploring the Cultural Changes Big Data Brings to Business. Tom has also been named on the Forbes Midas Brink list. Before joining Redpoint, Tomasz was the product manager for Google’s AdSense social-media products and AdSense internationalization.
In Today’s Episode We Discuss:
- How Tom made his way from creating software with his father in Brazil to being GP and forefront figure in the SaaS investment community as a GP at Redpoint today?
- Annual contracts: To what do annual contracts dominate today? How does this differ when comparing enterprise to SMB? Why does Tom think in the early days one should be wary of signing too many multi-year contracts? What are the dangers there? How does Tom think about calculating churn when it comes to multi-year contracts?
- What were the findings on what good looks like when it comes to logo retention? How does this differ when comparing SMB to enterprise? What were the commonalities of leading indicators of churn? Is it fair to always surmise that when serving SMB one will always have a higher rate of churn? What is the right way to conduct a churn analysis?
- Assisted vs unassisted: What does Tom believe are the leading benchmarks for both? How does this differ when comparing SMB to enterprise? How does the impact of a salesperson change the conversion rate? What time frame from SAL to closed lead suggests product market fit? What one question must all founders be asking in the sales process?
- How does Tom think about constructing comp plans the right way today? How should comp plans differ when comparing AEs to customer success? Where should the responsibility for upsell lie, customer success or sales? Should sales commission be paid on renewals?
Tom’s 60 Second SaaStr:
- What does Tom know now that he wishes he had known at the beginning?
- What is Tom’s favorite book and why?
- What is Tom’s most recent investment and why did he say yes?
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Jason Lemkin
Harry Stebbings
SaaStr
Tom Tunguz
Transcript
Harry Stebbings: This is the official SaaStr podcast with me, Harry Stebbings @hstebbings1996 with two Bs on Instagram. A combination of mojitos and workouts will be on the show there. And to our episode today. And some of our shows are just a lot more fun to record than others, to be quite honest. And that’s the case with today’s episode. If you do not read his newsletter, quite frankly, I would almost go as far as questioning your commitment to Saas. It’s incredible and always a must read for me.
Harry Stebbings: Can you guess? Well, I’m thrilled to welcome back Tom Tunguz, General Partner at Redpoint Ventures. The venture fund with a portfolio including the likes of Stripe, Netflix, Zuora, Hashi Corp, and Juniper Networks, just to name a few. As for Tom, he joined Redpoint in 2008 and has since led investments in Kustomer, Looker, Expensify, and Gremlin, all prior guests on the show, I hasten to add.
Harry Stebbings: He’s also the co-author of a brilliant book, Winning with Data: Exploring the Cultural Changes Big Data Brings to Business. And Tom’s also been named on the Forbes Midas Brink list. And before joining Redpoint, Tom was the Product Manager for Google’s AdSense social media products and AdSense internationalization. I must also implore you to check out his blog, tomtunguz.com. As I said, really is one of the very best and always a must read for me. However, without further adieu I’m now very, very excited to welcome back Tom Tunguz, General Partner at Redpoint Ventures.
Harry Stebbings: Tom, what can I say, my friend? It is so awesome to have you back. I’ve been looking forward to this for a very long time. So a huge thank you for putting up with these dulcet British tones once again.
Tom Tunguz: Thank you so much for having me back on the show. I really appreciate it.
Harry Stebbings: Well, not at all, but I want to kick off today with a little bit about you for those that maybe missed our first discussion. So how did you make your way into the world of VC and come to be a GP today at Redpoint?
Tom Tunguz: I had a curious journey. When I was about 17 I got my first taste of startups. I started a little legal software company with my Dad in South America. And then I went to work after college and grad school. I went to work at a startup in Washington, D.C. Called Appian that went public two or three years ago, and we were building business process management software. And then I went to work at Google for about three years as a product manager in ads. And then I joined Redpoint almost 11 years ago. And it’s been an amazing journey. It’s such a privilege to be investing in all these wonderful companies.
Harry Stebbings: Well, from legal software in Brazil to Redpoint, that is a unique journey. So I love that description. But today, Tom, I want to focus on an incredible survey that you did with regards to free trials, and their subsequent effects on how many different parts of both the kind of the financial growth and condition of a SaaS company happened. Does that work well for you?
Tom Tunguz: Absolutely. I’d be thrilled to talk about it. Thank you.
Harry Stebbings: So let’s get the ball rolling, say with number one, annual contracts dominate. So what were the learnings with regards to the relationship and prominence of annual contracts in relation to free trials?
Tom Tunguz: Well, yeah, absolutely. Let me take a step back. So we ran a free trial survey because we found that in most of our startups, many of them at all different price points, even starting around 1K is obvious, but going up to 150K ACV, they were running free trials as part of their marketing campaign. And a lot of the disciplines are the best practices around. Those free trials aren’t really well known. So we sent out a survey and we got about 600 responses back. And so these results … we’ll be talking about the results from that survey.
Tom Tunguz: So we published a presentation about the 10 learnings of the free trials. And the first one as you said, Harry, is around annual contracts. One of the questions that came up was if I’m at a small price point or a big price point, should I
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