20VC: The Crowdstrike Memo: Accel's Sameer Gandhi on Leading Multiple Internal Rounds for Crowdstrike, Telling George Kurtz to Go Shop His Term Sheet, How To Think Through Market Sizing & The Importance of Speed of Execution and Knowing When To Go Slow To

Sameer Gandhi is a Partner @ Accel, one of the leading venture firms of the last decade with a portfolio including the likes of Facebook, Dropbox, Atlassian, Hopin, Spotify and more. As for Sameer, he led investments in Crowdstrike, Dropbox, Flipkart, Spotify and more. Prior to Accel, Sameer spent close to 10 years as a Partner @ Sequoia. In Today’s Episode with Sameer Gandhi You Will Learn: 1.) How Sameer first came to meet George, Crowdstrike Founder and CEO? How did a 30-minute meeting turn into a 2-hour discussion leading to Accel's investment? 2.)The Market: How did Sameer analyze and break down the market at the time of the investment? What hypothesis did he have on market evolution going in? What elements went as thought? In what way did the market evolve in a way Sameer did not expect? How does Sameer think through market timing today? Through what approach does Sameer assess market sizing today? 3.) Financing: How did Sameer build the confidence to lead multiple rounds of financing, one after the other? How did Sameer build the trust and strength of relationship with George to win each round? Why did Sameer advise George to "go shop his term sheet"? What was the rationale? How does Sameer advise founders on taking pre-emptive rounds today? 4.) Execution: What specifically allowed Crowdstrike to move so fast in the early days? Does Sameer believe that speed of execution is the strongest moat a company can have? How does Sameer advise companies today on services revenue? In what shape did this look with Crowdstrike in the early days? What is a healthy proportion of services to product revenue? 5.) The Team: How did George evolve and develop as a leader in the decade Sameer worked with him? What were some of the core inflection points that caused those changes? Who are some of the unsung heroes behind the scenes who moved the needle for Crowdstrike? What is Sameer's favorite memory from working with the company? Item’s Mentioned In Today’s Episode with Sameer Gandi Go to thetwentyminutevc.com to download the original Crowdstrike Investment Memo.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  We are back for my favourite 20 VC of any month. Yes, it's the memo where we dive deep on the investment memo from one of the greatest companies of the last decade and what pertinent timing for our company this month. Just last week, they were added to the NASDAQ 100 index, a very special moment for any company. And since their IPO, they've soared from a listing price of $6.8 billion to today, currently valued at $63.75 billion. It is, of course, CrowdStrike and the person to unpack the investment and incredible journey, Sumir Gandhi, partner at Excel and leader of multiple different CrowdStrike rounds. For context, Sumir has also led investments in the likes of Dropbox, Flipkart, DJI, Spotify and more. And prior to Excel, Samir spent close to 10 years as a partner at Sequoia.

• 0:41Harry Stebbings?

  I'd also want to say a huge thank you to David George Landreson and George Kurtz, CrowdStrike founder. Some amazing questions, suggestions today, really did make it so special. But before we dive into the show today, have you ever heard that you need to sleep at 68 degrees Fahrenheit? Well, it's a myth. Science suggests that there's no one universal sleep temperature to give you deep and high quality sleep. However, the average mattress actually absorbs your body heat, giving you those nasty night sweats and causing restlessness. The Pod Pro though by Eight Sleep is the most advanced solution on the market for thermo regulation. It pairs dynamic cooling and heating with biometric tracking. The temperature of the Pod Pro will adjust each side of the bed based on your sleep stages, biometrics and bedroom temperature, reacting intelligently to create the optimal sleeping environment. And the result's incredible.

• 1:26Harry Stebbings?

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• 2:10Harry Stebbings?

  And so you are never far away from a VPN server. And so head over to nordvpn.com to check out the best VPN in action today. And lastly, but by no means least, you have to check out Diligent, the only modern governance solution that recognizes good governance. It's not just one thing, but the coming together of many different elements. So why buy siloed software solutions for each when you can work with Diligent? The only modern governance solution to lead your organization forward. But don't trust me, trust 50% of the Fortune 1000, trust users in 90 countries and trust 24/7 customer service. Find out more today at Diligent.com. But that is quite enough from me. So now I'm so excited to hand over to Samir Gandhi, partner at Excel.

• 2:55Speaker 01

  You have now arrived at your destination.

• 2:58Harry Stebbings?

  Samir, this is such a joy to do. I've wanted to do this one for such a long time now. So thank you so much for joining me today.

• 3:04Speaker 02

  Oh, I'm glad to be here, Harry. Good to see you finally.

• 3:07Harry Stebbings?

  Well, it's good to finally see you too. But I've heard so many things from George before this call, but I want to start with that first meeting. I love a good story. So tell me, how did you first come to meet George? And I hear it was a 15 minute meeting that he scheduled, always a good power play. Tell me about that and what was the story on the first meeting?

• 3:22Speaker 02

  Yeah, this is one of those ones that's gotten to be, I think it's embedded in the lore now. It probably wasn't 15 minutes. I flew down to Irvine with a couple of the other guys here. John Locke had gone with me and Nate Naparco. And so I'm sure we had a 30 minute meeting. You know, this was one of those companies that was very stealthy. No one knew what was going on. It was supposed to be a good team, but they weren't really talking much about it. It was very under wraps and we kept calling George. And so really a longer story about, we just knew that they were up to something interesting and we had a thesis around endpoints. We wanted to meet all the companies. Finally, he kind of relented and agreed to a meeting. And I think part of it was that he looked and saw that we had a long history in investing in cyber and thought we could be, you know, helpful to him at some point. So it was the one meeting he said that he would agree to take.

• 4:07Speaker 02

  We flew down there. He was late because he had a, an eye doctor's appointment, the one where you get your eyes dilated. So he came in with these big shades on, you know, the sunglasses you have to wear. And I thought, well, there goes like. Ten minutes of our thirty minute meeting and you can't see. Let's see how this goes. And I think, you know, one thing led to the other and we just realized that we were really on the same page in terms of longer term vision for the company, what the opportunity was, and the meeting just took two hours.

• 4:33Harry Stebbings?

  Was there a moment in the meeting where it clicked? I often find sometimes there's just a click moment when I suddenly see the unlock in terms of ancillary products that we can build on the back of it, how we can build data moats, whatever that is. Was there an unlock for you?

• 4:46Speaker 02

  I don't think there was one unlock, Harry, but I think it was more like we could finish each other's sentences. And so we talk about the opportunity, why he was building his products that way. He was cloud native at a time when that was really revolutionary step to take. And he was so committed to that concept. And then we said, yeah, we're big believers in that. I would say something and then he would jump in and finish it. And then he would say something and I'd finish it. And we just realized that we were talking the same language about the opportunity. And it didn't make sense to stop the meeting because now we got into the creative riffing of what the company could be. That was hours.

• 5:18Harry Stebbings?

  I mean, I would say it's love at first sight, but considering you couldn't see, it's more love at first finishing.

• 5:23Speaker 02

  Maybe you can see by the end. It was great too. It was like what we like to see in these companies. Early on, small office, really gritty, scrappy, small team. And it was just, you know, had that good vibe of the startup, you know, in the very, very early days, which is why we like to go visit them, you know, we get to take the sense of it. You get that palpable feel of what it's like to be in the company.

• 5:43Harry Stebbings?

  So I really miss that stage. You miss that too, because you don't get to also see the culture, like the physical culture in the office, how it feels to be there. You don't get to see the receptionist, which is a crucial part, see the team engaging on the way in. Do you miss that as much as I do in this remote world?

• 5:58Speaker 02

  I totally do. Look, there's advantages of the remote and you got to blend the two. And I think we'll go into a world where those things live side by side. But, you know, the feel of a company, it's really the right word. It's the feel of it when you walk through in the beginning tells you so much intuitively. And I personally enjoy that and I do miss that and I'm glad that we're able to get back to it.

• 6:17Harry Stebbings?

  I do want to start, they kind of top down. You mentioned that kind of being cloud native at a time when it really wasn't common at all and actually quite a contrarian thought. So when you think back to that first check, how did you analyze and break down the market? Given it's a very different market than it is today.

• 6:32Speaker 02

  Yeah, look, so I think, you know, when we looked at this, there's a couple of things that were really important to us. And if you go back and evaluate what was happening in cyber at the time, you know, endpoint hadn't really been touched and people were really innovating on other parts, you know, network security. And I'd been in this company, Sourcefire, that had done some really innovative stuff around intrusion detection and then just general network security. But endpoint was still like this legacy, very brittle antivirus, you know, kind of stuff that you remember your Mac takes forever to boot up or your PC, you know, bogs down, that sort of thing. And we just looked at it and said like, that's got to get reinvented because the threat landscape is so much more sophisticated than it was when these things started.

• 7:10Speaker 02

  Everything else that we were seeing in that time was all about how do we move legacy on-prem to cloud in a pure cloud native way. From the beginning, the business and the product architected for that. And security was one of the ones that people felt like that's never going to happen. No one's going to want their security go outside the four walls. They're not going to trust it to be in the cloud. And George had this vision of like, this is the only way to solve the problem at scale. And he was so committed to it, just like relentlessly determined on this. And we also felt like the same thing, the way to reinvent the endpoint market was to take a fresh approach to it. I think it was a bold kind of assertion that that would happen, but that was the bet we wanted to take. And it lined up with just how he was thinking about it.

• 7:52Harry Stebbings?

  I mean, it is a bold assertion and it is a bold bet. But it could have been five years delayed, quite frankly, in terms of enterprise adoption of cloud native in this way. But market timing risk is something I'm always inherently quite scared of. How do you feel about taking market timing risk today?

• 8:06Speaker 02

  Well, I think just more generally speaking, like market timing, if you get it right, it covers up a lot of other deficits in a business, right? If your team isn't complete, your product isn't quite there, if your execution is not stellar, you can cover all that stuff up if you just hit the market at the right time for a while. Eventually it will catch up with you or somebody will do it better. And so we're always, we're very much oriented at evaluating opportunities to see, you know, and really assess where we are from a timing perspective, but all the other aspects of the market too. What are the dynamics as it relates to the existing players? How are other competitors thinking about it? Is there something that says that the timing today makes? More sense than it would tomorrow or yesterday, you know, all those things factor in. We really start there before we think about technology and products and things like that.

• 8:50Speaker 02

  Because the thing if you get timing wrong, it's it's hard to overcome that with any other part of the business. And then, you know, with CrowdStrike, it was a sense of not if, but when. And so we were pretty pragmatic going in saying it could take a while. And you're right, it could have been five years longer. I would not have been surprised if it was five years longer. It happened faster than I expected, but we went in thinking it was like, this is the long term right approach. But we're gonna have to be patient because it could take a while before companies are ready to adopt.

• 9:16Harry Stebbings?

  So I totally agree with you there in terms of potentially, you know, taking five years longer. My question to you is, and I have this day where, you know, I sometimes see something and I think this is absolutely the way it's gonna be. But I'm uncertain on timing and it could be five years. Do you mentally write a check for five years with that in mind and continuously? I mean, where do you draw the line? Because there is a time when the rubber hits the road and the market isn't there or isn't evolving. How do you think about that and when you have to pull the cord and market timing just isn't timing?

• 9:42Speaker 02

  Yeah, I look, I think, and if I was gonna give you numbers, if we really felt like, hey, this is five years plus out. It's probably too far out for what we were trying to do with a CrowdStrike type of investment, which is really, you know, it's a go into market investment. It's not an early development stage company. It was like ready to launch a product. And so if you're waiting five years, you're, it's a lot of time to be sitting around. I think there's other types of investing where you're willing to go that far. Look, I think we really look at it and say like, it's gotta be, you know, within plus or minus a year or two. That's the right way to look at it. If you're later than that, you're too late. And I think if you're earlier than that, it's just a different kind of investment. And with this one, here's why you can feel like you might get cloud adoption happening sooner. There was so much pressure around the kinds of attacks that companies were facing.

• 10:24Speaker 02

  Like, think about the difference, you know, in 2013, now you're talking about organized crime or state sponsored, you know, threats. And the sophistication and the backing and the capital behind it and the risks and the benefits of pulling off something like a hack or a or intrusion. Like, there was so much bigger. So companies had to do something different. They just weren't gonna be able to sustain the way they were doing in the past. But we kind of counted on that happening to sort of push the cloud adoption further along.

• 10:50Harry Stebbings?

  My question to you is, in terms of like market evolution. That you didn't expect. Did the market evolve in a way that surprised you or was unexpected?

• 10:57Speaker 02

  No, look, I think it's back to what we talked about in the timing. I think we had a scale that was that was longer than it was. You know, I don't think it was not five years, but we felt like, hey, we could be pushing cloud and having a slower adoption cycle around the Falcon platform, which is really the endpoint product platform. And the way that was mitigated for us is that the company was doing really high end incident response services. And so there was a bridge to get there as opposed to, you know, you're trying to sell a product that the market's not ready for. It felt like we had a transition period and we could absorb some of the slack on the market timing by offering the IR services, which in and of itself was a really good category, right? There were companies that Mandiant is an example, highly successful in that particular category.

• 11:37Speaker 02

  So we had some downside protection, even though the long term vision was really this Falcon product and, you know, doing the the cloud based endpoint protection. But yeah, I think, look, I mean, if you look at that and say, again, if versus when, what's the question? And we felt like it was when. It really came down to, you know, having a couple of years here or there of just, you know, being able to manage the timing aspect of it.

• 11:57Harry Stebbings?

  So before we move on to team and execution, I do just have to ask, in terms of the deal itself, you know, I think a lot now about kind of outcome scenario planning and upside maximization when writing growth checks. And it's like, what is attractive enough? I hear some people as three to five X, others like you think too small at seven to 10 X. What for you is attractive enough in terms of seeing the upside scenario planning?

• 12:19Speaker 02

  Yeah, I think it's a little bit different. I mean, I get the three to five X, you know, that's nice in a base case. But when you're making an investment like this, and for us, you know, we had made it as a early growth equity investment. So it was a pretty risky one from that standpoint, just given the maturity of the company. But, you know, the way we would look at it or the way we did look at it then is if all this works and we're right about cloud native, right about endpoint being reinvented, then there's a chance for a number of companies to be successful. And we know that multi-billion dollar companies have been built in the past on endpoint. So, you know, there's already the existence of, you know, companies in this category that have gotten big outcomes. So for us, it's like, if this all works, then we know that the outcome is measured with a beat, right? Some number of billions. Then the question is, from a growth standpoint.

• 13:02Speaker 02

  A growth equity standpoint, is there a downside scenario that still enables us to achieve a good outcome? And part of that, in the case of CrowdStrike, was back to the idea that threat intelligence as a content subscription and incident response are already big enough categories where you can create a company that can have a nice outcome. And so we felt like, you know, the downside was protected, but we were going after the bigger opportunities. So I never looked at it as a three to five X. I looked at it as we're investing in a company, you know, in the first round when we did it, it was a hundred and fifty post or something like that. Is there a legitimate chance it could be worth one, two or three billion? And it felt like that was a pretty legitimate chance. That looks very different today, but that's what we thought in 2013.

• 13:41Harry Stebbings?

  You will always underestimate the upside in a lot of cases. I do want to touch on the team, because you mentioned it quite a few times. Obviously, we touched on George before the call. You know, when I looked at the memo, it was just the speed of execution that was unparalleled, scaling the team to a hundred with sixty engineers and ten million in bookings in one year. How much weight did you place on the speed of their execution when making this investment?

• 14:03Speaker 02

  Yeah, I like that you call it speed of execution. So I would rephrase it a little bit. And speed is a component of it. I think we look at execution overall in terms of the quality of it, and some element of that is speed, but it may not be that you're the fastest. You just have to be the best at different aspects of executing your plan on your business. And some of it might actually be that you're taking longer to do something, but it's the right way to do it. And you didn't take the shortcut. You took the harder path, but it's the one that sets you up for longer term success. And one of the things I'll point back to is there was this blog post when the company went public. It really talked about in the early days how George was very focused on doing things right. What we called it was do the hard things first. And part of that related to he had this longer term vision of what the company could be,

• 14:46Speaker 02

  but it meant that you had to lay the foundation right in the beginning. You couldn't take the shortcut because you'd never be able to go back and fix it later on. It's really difficult to do. And a lot of that was in product decisions, it was in team and org decisions. And we didn't necessarily go the fastest, right? So when you say speed, we weren't the first, you know, to do next gen A B as an example. But we did it better, even though it took longer. And that set the company up to really be more of this platform company that is today. So when I looked at it, at that ten Really in first year, but I really looked at was he's built this incredible engineering product org. And he's already thinking five years ahead and he's building things that are going to enable him to really deliver on the cloud native promise for security. Rather than taking his eye off the ball and doing some of the quick things that could have been

• 15:30Speaker 02

  good for a year or two, he was willing to sacrifice that for the longer term right answer, if you will. And so the 10 for me, it looks fast, but I really saw that the two years of work under the covers was the thing that was exciting about setting up, again, setting the company for longer term success versus coming out of the gates and hitting 10. And by the way, it's like, it's 10, but it's not all ARR in a software sense. It was services in there and content subscription. So, you know, we still knew it was really, really early on. It's not one of these things where you just show up and you do 10 in the first year. It's like if you're inside, you're like, you saw all the decisions that went along the way, you know, of the two years of work that got you there. And the outside looking in, it looks like you just showed up and it was like, wow, look what happened. But there's a lot of stuff that happens under the covers.

• 16:12Harry Stebbings?

  Can I ask, I feel like VC cycles have like compressed so much in terms of our expectations of what companies achieve as fast as they do achieve them. We see companies like Hoppin achieve incredible, incredible valuations and revenue numbers in very, very short timeframes unlike ever before. Do you think it's still possible to go slow to go fast, do the hard yards first and get the VC love and funding that others would get if they just hit the revenue ground running and go for the easy wins?

• 16:38Speaker 02

  Yeah, I think so. I mean, I think it all comes in if you articulate what your longer term plan is. So something that George is really good at is he's able to talk about where the market's going and why he's doing things in the company that are going to be relevant two, three, four years down the road. But he does that at the same time where he's got this current focus on what has to happen in the quarter or the month. The combination of those two things is pretty rare. So I think if you have an entrepreneur like that or a founder like that and you understand and you're also a patient investor, you may be perfectly happy to take an investment in the company that maybe isn't the first one out of the gates, but is really looking at owning that opportunity over the longer haul. You know, the ones that get the quick markups and are focused on the vanity metrics and the vanity valuations, maybe that's great.

• 17:22Speaker 02

  In terms of a quick hit on funding or valuation, or even a quick hit on exit. But if you care about building companies for the, you know, that are going to really persist. There's an element of you got to go quick. It's not like you're going slow, but you have to do it right. And are you willing to be patient to really make those correct trade offs when the decisions come up? But look, I think your Hoppin example is great. It's a phenomenal company and we're investors there. There is a pace today that is different than what we were experiencing in 2013. And you have to be willing to live up to that pace. And if you're not, someone is going to take that opportunity from you. So we're very cognizant of that. And, you know, the speed component of execution is not lost on us. I just make the point that there's other parts of it that are also important.

• 18:02Harry Stebbings?

  I think the hardest thing for me when working with founders is like the speed of company growth and trajectory has accelerated so much. Hoppin being a great example, Miro being another great example in your portfolio, you name it. But people fundamentally like haven't like increased brain size necessarily. Like people have not increased their acceleration ability at the same scale of company. How do you advise founders in terms of scaling with the increased acceleration of company growth?

• 18:27Speaker 02

  Yeah, I think it's a tough challenge. And I think if there's not a, you know, in a company like that, if there isn't some sort of conceptual north star that everybody understands, you know, like there's a vision and then some sort of mission for the company and people are really bought into it and it's easy to articulate. It's hard because you're adding people at an incredible rate. Everybody's moving so fast. You're not all sitting around together. We're in a virtual world too. You know, if you don't have that commonality of purpose, I think it's really hard to go do. And when it's simplifying and people really understand what you're all about. And I think even in the CrowdStrike case, it took us a couple of years to really articulate it. I remember in the beginning, it was fuzzy and we used to work on that and say like, how do we really crisply articulate what we're all about?

• 19:05Speaker 02

  I think these companies that are growing really fast and are managing to do it are able to get everybody on board with that same clarity of vision. Because it applies to employees in the company, people you're recruiting, but it's also like your partners, your customers. It's everybody in the ecosystem. And if it's confusing, it's hard to do. And then it gets back to our execution conversation, right? Which team is really exceptional on that basis? And now the difference between the winner and the loser is going to come down to, or second place. Maybe not loser is going to come down to the team that is just exceptional at being able to deliver across the board. That's, you know, I look at the companies like the ones that you're talking about that are really good at it. And it's, you know, the well-instrumented, they understand the metrics, they understand the nuances of the business.

• 19:48Speaker 02

  They hit the numbers very predictably or beat them on a very consistent basis. They just understand where they are on the playing field and that's the thing that's going to set people apart, I think.

• 19:57Harry Stebbings?

  I totally agree with you. I mean, part of that is financing to kind of fuel that growth. Before we talk about financing, I do just want to touch on, you mentioned the element of like services versus software-based revenue there. Like a lot of founders here, VCs say services revenue is bad and we've got to avoid it. How do you feel about services-based revenue and how do you advise founders today where services is a component part of their business, but they're concerned about it?

• 20:20Speaker 02

  Yeah, I think you got to break that down a little bit. So, you know, if you're talking about a software business, even if it's a cloud or SaaS business, and there's services as it relates to making a customer successful, implementation services. I think we look at that very carefully because to me, if that, if the percentage of that rises too much in the company, it really tells me that there are product issues at the root of what's happening there. It's just too hard to onboard customers and it takes too long and therefore it's just, it's just a drag on growth overall. And there's a risk in that in terms of overall customer success. So I think there's, it's an indicator, but then there's other types of services. So you look at the incident response services at CrowdStrike, which are, it's a self-contained business. It's very high-end, it's high margin, it's a very critical service because it's delivered at the time when a company's had a breach

• 21:05Speaker 02

  and you're trying to address in that moment what they need to go do. We look at that and say like, that's a standalone business. It's not related to the product at all. In fact, it's an amazing business because once you make money on incident response services, it pulls through product afterwards, right? Because that, the next thing you're going to do is like, well, how do we avoid this in the future? So I think that's a really great way to think about an added component of services to a product business. But the, the one that you're talking about, I think the implementation services, that's the one that I'm very wary of in terms of how high a percentage it gets of the overall, overall business. And, you know, I look at some other ones later, like ours, that are very complex. They take long times to implement. But keep them under twenty percent or have a partner ecosystem, but it does tell you about product readiness and ability to adopt in a company.

• 21:49Speaker 02

  And so it's one, like you say, like we look at very carefully is it, it tells you a lot about other parts of the business. It's an indicator of a lot of other things.

• 21:57Harry Stebbings?

  It's one thing that's terrible if you have an incredibly efficient customer success team that can cover up a lot of product flaws. So I totally agree with you. I do want to touch on the financing element. I spoke to George, obviously, before the show. I spoke to David George before the show also. And so I want to talk on, because you led multiple rounds in CrowdStrike, which is pretty rare, actually. So what do you think enabled you to build the trust with George that he wanted you to lead multiple rounds?

• 22:21Speaker 02

  Yeah, I think, you know, as we were getting into this, our relationship and our roles had changed. In the beginning, it was a lot of company building and we were assembling the team to go to market. And I really worked closely with George on that. I think, you know, he always appreciated that we were very patient about what the long-term vision and outcome of the company would be. We're on the same path as him. It's like that early meeting where we could finish each other's thoughts. As we went along in this company, our clarity of what would happen in a year or two or three, it became more obvious and clearer. And frankly, the opportunity became bigger. And I think he saw that we understood it as well and we were willing to be patient and go after that and build a company to pursue that and weren't looking for any sort of quick outcomes or anything.

• 23:02Speaker 02

  And that patience and sort of then helping him along the way and being consistent and also agreeing with that vision just sort of strengthened the relationship over time. And then, you know, I think having an investor like us that offers a stamp of approval every round along the way in terms of, you know, really wanting to be aggressive about investing in the company, it just sends a great signal to the market. He understood that and it helped catalyze. There was always interest in this company, but I think it helped catalyze interest even further. So. But I look at it, for me, it was actually very simple. It was like, I believe in the entrepreneur and the founder. We had a great relationship. We saw eye to eye and every round along the way after the initial one that we did, to me, there was more that I understood about the company and more that I believed that it was going to be bigger than I initially thought.

• 23:46Speaker 02

  And they'd always exceeded my expectations of what they were going to accomplish with the prior round. So if you look at that, Say if I'm a new investor coming in, this is a great setup, but I know it better than anybody. So why wouldn't I be the one to want to lead that route as opposed to let somebody else do it? Which is what we did.

• 24:01Harry Stebbings?

  Which I totally get, but then I spoke to George and George tells me that you, I couldn't believe it. He said, you wrote a term sheet and you'd say, go shop it. Now, that is very unlike any other VC, as we both know. I mean this with respect, Samir, like, what were you thinking and how did that play out?

• 24:19Speaker 02

  Yeah, I had a lot of people that said, what were you thinking at the time? So here's what I felt, I felt like he valued our relationship and the fact that we're investors. But I also thought like, hey, look, he's a sophisticated entrepreneur. It wasn't his first company. He's smart, he wants to understand what's out there. And it's not just what capital and valuation and that sort of thing, which he obviously wanted to make sure that he was doing the right thing for the company. But maybe there were other investors that should be part of the syndicate. Likewise, you know, when I talked to George about it, I said, look, you know, like you should do your homework and make the best decision you could possibly make for the company. But I tell you what, I'm committed to it. I'm excited about where we're going. I'm willing to do it. Why don't you take my offer, my term sheet, you have it in your back pocket. So when you have these other conversations, go in knowing that you're deal done already.

• 25:03Speaker 02

  And if someone comes along and offers you something much better, or you think they're additive to the mix and you want to bring them in, it's just better for all of us. So I just think it was the right call for the company to end up at the right spot at the end. And he felt like, I felt like he would come out of that, realizing that he had done, you know, run a thorough process, done his analysis. And ultimately he would make the right decision for the company longer term. That's really what it came down to. And in the end, I was very grateful that he went off and sort of did the homework and then came back and was excited to have us always be in that lead spot or co-lead spot in the round. I think it just comes back to having him know that he has something. Let's just find the best outcome for the company. Like, it's not just about us, it's really about the company having the right outcome.

• 25:46Harry Stebbings?

  I totally agree. I think the question that comes first to mind for me is like, if this was today, you know, there would be multiple crossover funds, offering multiple, you know, extensively, you know, exhaustive valuations. A question that I have, and a lot of founders are asking me is, when we have preemptive offers. How do we determine whether to take them at very high prices? Or whether to stay disciplined, stay the course, we don't need the money? You have this, I'm sure, with all of your portfolio companies. Like, how do you advise them on whether to take the preemptive term sheet? Or whether to stay the course?

• 26:17Speaker 02

  Well, every situation is different in terms of capital needs of the companies. And, you know, their ability to go raise money. But I think, you know, non-dilutive, simple capital is something you have to look at pretty seriously. Right? It's like, it has a benefit, there's a cost to it perhaps, but more of a risk that, you know, an over-capitalized business doesn't always have the same rigor in terms of how you run it as a company that's been capitalized thoughtfully. It's also getting ahead of yourself creates all these issues downstream potentially. But I do think that when we look at things and say like, if there's relatively non-dilutive capital with terms that make sense, you know, we wanna have the flexibility later on to do other things, then it's not a bad decision to go, to go take that money. Part of it is also, when we look at this, and I'll tell you, this is one of the things that came out

• 26:59Speaker 02

  of this whole CrowdStrike experience is you get all these coming from the outside. But the reality is that we also have a great inside view on these companies, have a sense for what their real opportunity is and what the outcomes could be. I mean, at this point, you should really intimately understand it. And if you don't, that's a problem. But if you're inside, you should understand it. And so we can present a simple alternative, which is what happened in the CrowdStrike case. Like, here's a board member, an investor, understands the business, is committed to it long term. Here's somebody I don't know. What's the option I would rather take as long as they're comparable, right? Perhaps on terms? I think that a lot of the savvy and sophisticated founders don't necessarily optimizing on numbers. What I've seen is that they, they optimize on relationships and ability to really be a

• 27:44Speaker 02

  steady stalwart investor through all the thick and thin. And it comes through from confidence in knowing that they're gonna be there, right? And the individual's gonna be there. And so I think that's the thing that ends up trumping, and that's the decision that people make. And I think that's a decision that, that George made. And my own point of this is as we saw that, we, we realized that, hey, we should have a later-stage vehicle to enable us to go do these kinds of rounds as opposed to try to shoehorn, you know, a late-stage round into a growth equity vehicle that's not designed to go do. That and it caused us to go raise a different set of funds to be able to do this type of investing. And, you know, write a different kind of check and have a different perspective on this is the pre-IPO round versus the early,

• 28:24Speaker 02

  you know, growth equity round. And by the way, in some of these really, really special companies, those rounds can generate incredible returns. So like, you know, part of this is like, why are we not capturing more of that for XL versus letting it go to the outside? That's really how we think about it.

• 28:37Harry Stebbings?

  Can I, I totally agree with you. I have a lot of LPs that say to me, or some LPs say to me in my fundraise, my two new funds, there's an early and there's a growth fund. They go, oh, it's a very different mindset you've got to adopt doing growth versus early. And I appreciate it is, but you also have the relationship, the historical data, asymmetric information. And so I actually think it's more of an advantage than a disadvantage. How would you respond to that, given the fact that, as you said, you layered on additional vehicles with the insight that you have? How would you respond to LPs that would go, ah, it's a very different mindset to succeed in each?

• 29:08Speaker 02

  Yeah, I, look, I mean, this is not new for us and we've been doing it for over a decade. And it is a different kind of investing. You have to think about the team differently. You have to think about your investment decision-making process differently. You know, we launched our growth fund, our first one in 2008. We're on our sixth one today. This later-stage vehicle, you know, we, even though we expanded it just recently, it's our third one. And so, you know, we're just organizationally set up to think about it as what want to do is be able to back these really extraordinary founders and companies right from the beginning. And so we're still writing, you know, a million dollar, half a million dollar seat check. But if you want to do the, you know, two or $300 million round pre-IPO, we can do that also. And you just have to understand that it's not just one giant fund.

• 29:52Speaker 02

  There are different vehicles and teams that understand how to execute the different investment strategies. And we do that under one roof. But if you're George or someone like that, or Stuart at Slack, or Ryan Smith at Qualtrics, you know, lots of examples of this. Then you say like, hey, I've got this investor that can ride with me through this whole journey that's committed. I have a deep relationship with them and their team, and they're committed to seeing it all the way through. And that, you know, we think is a great story and a great thing to deliver for these entrepreneurs versus a quick, you know, Quick round done by a crossover hedge fund at the tail end.

• 30:25Harry Stebbings?

  Totally agree with you, especially on the ladder comment, but I do wanna move into a quick fire round, Samir. So I say a short statement and you give me your immediate thoughts. Does that sound okay?

• 30:34Speaker 02

  Yeah, it's like an ink blot test, right?

• 30:36Harry Stebbings?

  Totally. It's something to be terrified of. On George, how did George change as a leader?

• 30:41Speaker 02

  I love this about George and I've seen it with the best founders. So when George started the company, he was a visionary founder with some CEO experience. And the really, really great ones, somewhere along the way, they go from founder to CEO. And you look at that and say like, that individual is a phenomenal CEO in terms of leadership, articulation of vision, recruiting a team, and then really empowering them to go do their thing. And then they become a public company CEO someday. And I saw the transformation and there's not like a moment. The thing about like George and I think other great ones is that they always know that it's a process of constant learning and improvement. And every time you see them, they've done something to improve themselves. They just know that they don't know everything.

• 31:23Speaker 02

  And they're willing to learn from other people, surround themselves with a great network. Listen is an amazing ability they have versus always transmitting. And I think with George, I saw that right from the beginning and he was just like, just relentless and constantly wanting to perfect himself.

• 31:38Harry Stebbings?

  Tell me, what was your pre-mortem on this one?

• 31:40Speaker 02

  Yeah, I looked at it. So I, I think the number one thing on this was like, man, we just whiffed on the cloud native concept and nobody's willing to do it. You know, like that was one where if you got that wrong, you know, and I think you see in my memo, it's like, well, if we totally botched this and we're totally wrong about this, we're gonna build a nice IR company and we'll have a, like a pretty nice outcome. But I didn't think that was gonna be the case, but that was really like, that's a way to sort of justify it to yourself if you're writing a big check at a really, really early company.

• 32:06Harry Stebbings?

  Who's the unsung hero from the CrowdStrike team? And what did they do that was so needle moving behind the scenes if you were to choose one?

• 32:13Speaker 02

  No way to choose one. We had a handful early days of just, I mean, just pivotal hires. Man, I'll just go, Bert as CFO was amazing. Karp, when he came in to run sales, game changer. Amol was a person we hired. Now he's head of product and engineering. He was an up and comer at Microsoft, not the obvious choice in terms of. What he had run before, but man, you just saw that his trajectory was steep and he's been incredible. So like every single one of them, without them, we don't get here. But I look at that and say like, George found the right time and place to then go say like, I'm going to get somebody incredible for that role and he managed to bring him in. And that to me is the consistent aspect of them all.

• 32:50Harry Stebbings?

  What's your favorite memory from working with the company? Final one.

• 32:54Speaker 02

  I have so many, but I'll tell you, I'll give you an anecdote. It's not quite a memory, but it's one of the things that has brought us together. George and myself, we both have this passion for racing and George, as you know, is a pretty incredible race car driver. One of my memories, like every board meeting we start, we talk about what race we've done and what happened. We watch each other's videos and it's just like, it's a common thing that we share. But it translated to the business and I thought about this a lot. It's like, what is it about the racing that's also like the business? And part of that is if you're going to be a really good driver, you have to be able to look up and out. You're not looking at what's next to you, like you got your peripheral vision and everything. But you know, like the really good ones are already like way ahead of where you are in on the racetrack. And so for George, like he does that driving, but he does that in the business too.

• 33:39Speaker 02

  And when you think about when you're listening to him talk and he's like, this is where the market's going. This is what customers are going to need. This is how we're going to solve the problem. And he's talking two or three years out, but while he's doing that, everything in the company today is being built to address that two or three years later. He does not lose his sight or attention to detail on the present to get ready for the future. The reason why it's a memory is that I would notice that literally in every board meeting, he could progressing on that sort of line or train or of thought or that vision. You're like, oh, we're closer, we're a little bit closer. And even from the beginning, we never really deviated from that. Like everything he's talked about is where we are today. It was scripted out a long time ago. We never told anybody, but we're not that far off from what we talked about very early on.

• 34:23Harry Stebbings?

  The most important question to finish on, if you and George race, who wins?

• 34:28Speaker 02

  George will definitely kick my ass. He's really good.

• 34:31Harry Stebbings?

  I love it.

• 34:31Speaker 02

  Stay on his bumper.

• 34:32Harry Stebbings?

  Samir, this has been so much fun. Thank you so much for doing this with me and I really do appreciate it.

• 34:37Speaker 02

  Harry, it's been a pleasure to be here. I really enjoyed the conversation. Thank you.

• 34:42Harry Stebbings?

  I mean, such a joy to have Sam here on the show and what an incredible journey to that market price today for CrowdStrike, an incredible company and very excited to say we have George coming on the show shortly, so do stay tuned for that. But before we leave you today, have you ever heard that you need to sleep at 68 degrees Fahrenheit? Well, it's a myth. Science suggests that there's no one universal sleep temperature to give you deep and high-quality sleep. However, the average mattress actually absorbs your body heat, giving you those nasty night sweats and causing restlessness. The PodPro though by Eight Sleep is the most advanced solution on the market for thermo regulation. It pairs dynamic cooling and heating with biometric tracking. The temperature of the PodPro will adjust each side of the bed based on your sleep stages, biometrics, and bedroom

• 35:25Harry Stebbings?

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• 36:50Harry Stebbings?

  all your support and I cannot wait to bring you some exceptional episodes next week.