Next in the Seed Series we speak with Accel partner Vas Natarajan, who invests out of the early stage fund. We talk about how Accel does seed inside a venture firm that recently raised $2.5 billion across three funds. We find out that Accel invented the EIR model 20 to 25 years ago, how the founders philosophy carries over in this generation of investors, and how Accel is focused on productivity and the rise of the API economy. The following has been edited for brevity and clarity.
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Gené: Welcome to Vas Natarajan a partner at Accel since 2010? Vas how did you become an investor?
Vas: I have a technical background. I went to Penn, where I also studied finance and entrepreneurship. Insight Partners was one of the few places that hired out of undergrad. They gave you a platform to learn about company creation, and the impact of software technology on business problems worldwide. There was no better place to learn what it was like to invest in companies, to build companies. This was 2008. Venture was still very much a cottage industry. It didn’t have the size and scale that it has today. We were at the dawn of software and technology, refactoring and reorienting all aspects of the economy.
To think how much value has been created by the technology industry just over the last 10 years. In 2008 we didn’t realize what we were about to embark on. Technology is touching every corner of the economy, every dollar within the GDP of the world is ultimately going to flow through some technology system. We’re in the earliest, earliest innings of that transition.
Gené: Are the skills of an operator a different skill set from an investor?
Vas: Jim and Arthur, our founders, would always say the people you hire is the company. Understanding what a really great VP of Marketing looks like, or a really great Head of Engineering, or a great CFO. We have honed that barometer for talent over many, many companies. And we spend so much time with great operators. A lot of what we counsel and help our founders on, is just understanding how to surround themselves with excellence. That is a skill set that venture uniquely gives you, because we have a portfolio of 50 to 100 companies. I’m on 13 boards. I interview multiple execs throughout the week for our companies. I think that is a valuable skill set for an operator, because ultimately, the company you’re going to build is based on people.
Gené: How do you balance the early stage and late stage side of your business?
Vas: The commonality between those two sides of the business are that we want to be the first institutional investor. We want to be the founding investor in business. Whether we are coming in at a seed stage level, where we are writing a $2 to $3 million check and it’s literally the first capital into business. Or it’s a company like Atlassian. We were the first institutional investor in that business that was a $60 million Series A. We want to be the founding investor on a company’s cap table. That is the inherent commonality between our early stage practice and late stage practice.
Many companies that I work with right now I intersect on day one. Many of the founders I work with haven’t even left their companies. They’re just starting to incorporate. We just wanted to structure ourselves so that we could be the founding investor. Early stage and late stage might seem like conflicting ideologies to certain firms, but I think the most important thread there is that we want to be the founding investor.
Gené: You have two separate teams?
Vas: We do, but we share a lot. We share an office. A big part of our philosophy, and something that we inherited from our founders, Jim and Arthur, is this idea of the prepared mind methodology. We spend a lot of time understanding and dissecting markets, talking to customers, meeting with CIOs. We share that data. We are actively investing right now in the low code no code movement. It’s the idea of delivering technology abstractions to non-technical users so that they can build products and services. They can build software. We’ve looked at a number of early stage businesses following that theme. We’ve made one or two seed investments in that space. We just led a big $75 million around in a company called Webflow. A later stage investment, but still the first institutional investor in.
Gené: Accel has raised $2.5 billion across three funds. $525 million for early stage, $1.5 million for growth stage, and $500 million for the leaders fund. Why invest in seed at all if you have to deploy that much capital?
Vas: What matters is that we are the first founding investor behind really great entrepreneurs that are chasing big spaces. How do we do seed differently? We’re very selective. We tend not to do seed deals where we’re just passively participating in a deal. Don’t get me wrong, we’d love to be collaborative, and we are collaborative with many other seed firms. If we have the conviction to do a deal, we want to put as much money into it and potentially even take a board seat and work actively like a Series A investment. It’s not 50 seed investments that we hope five work out, and then we’ll maybe lead Series A in a couple of them. We lean into seeds with a lot of intentionality. We treat our seeds like Series As. And so for a certain set of founder, I think they appreciate that philosophy. They get the resources, and the attention of a Series A firm or a classic venture firm. We will lean into a seed when we have a strong perspective.
Gené: Is there a framework for how many seed versus Series A investments?
Vas: We’d like to target 30 to 35 new investments out of a fund, whether those are 30 to 35 seeds or 30 to 35 Series A. It’s hard for us to be prescriptive out of the gate to say what that mixture looks like. And anywhere from $1 to $4 million on the seed side, and then the Series A side anywhere from $6 to $12 million.
Accel invented the concept of the EIR twenty to twenty five years ago. We were coming across great operators, great technologists within our existing portfolio companies. We wanted ways to engage operators or technologists who were thinking about what they want to do next. We do our best to open our Rolodex to our network of customers, operators, and partners so that they can accelerate validation of their hypothesis. We try and surround them with as much high signal data as possible. And the goal would be to seed them, and build a small team to go out and prosecute an idea that they have.
Gené: How is the Entrepreneur in Residence (EIR) program structured?
Vas: At any time we have two to three EIRs. Their ideas will gestate for three to six months. We’re doing market exploration together. It’s very much a collaborative process. And the outcome of that can be any number of things. We could seed an idea. In the course of their journey they [could] meet a company that is in the Accel family that they want to join. That’s happened as well.
Gené: Do you have a scouting program?
Vas: We work with a handful of operators within our network, who will invest on our behalf. We call them starters. They tend to invest anywhere from $25k to $50k. It exposes us to diversity of opportunities. It’s a learning mechanism for us. It gives them an opportunity to participate in the success of their friends and their family that are going out starting companies. We keep it very small. It’s not a scale program by any means. We have 10 or 15 at any time. And these are the folks that we know very well, we trust, they are in our network. It’s a very collaborative process. We pull a group portfolio review a couple times a year. They begin to see what we’re looking at. We get a chance to see what they’re seeing.
Gené: Anything stand out about your network?
Vas: I have inherited a wonderful portfolio of companies that have been invested in, and founded before I got started here. And so if you look at Facebook in 2005, Etsy, Slack, Cloudera in 2008, those networks propagate and spawn additional sets of founders and entrepreneurs. A couple of the original founders from Cloudera were ex-Facebook. That network advantage is an important part of our platform. It’s the people that we get to know, and surround ourselves with.
Gené: How many partners in the fund?
Gené: What wave of technology are you riding?
Vas: There are a few broad forces that we pay a lot of attention to. We’re still so early in the migration to cloud. The cloud is redefining how end users are working together, and collaborating with one another. We spend a lot of time thinking about the future of work, the rise of new collaboration productivity systems, and how the cloud has been a major enabler for that.
Part and parcel with the cloud is the rise of the API economy, we call APX. The X means everything. What APIs do is they actually integrate multiple different subsystems. So data is no longer siloed. Workflows are no longer siloed. You can actually stitch together work across multiple different things. It’s allowed entrepreneurs to create new cloud categories that are almost super-sets of individual pieces of workflow.
I led an investment, along with my partner Steve, in a company called Ironclad, which is a cloud platform for contract management. A lot of the early value proposition was — let’s use the APIs that are now readily available to us to stitch together DocuSign, Salesforce, Dropbox, and Box. So now all of these subsystems can speak to one another because they all have a common language and they have a continuity to one another. Let’s orchestrate contract management across these different subsystems. If you’re a legal ops professional you’re locking into each of those different systems, and you’re hoping that everything coheres and connects. Ironclad sits above those systems, and makes sure that everything is synchronizing correctly. From there Ironclad can start to layer on its own logic, and start to deliver more of an automated feel to a legal team, so that they are not so burdened by the crush of work.
The rise of cloud, and in particular the rise of APIs are big themes for us right now. We think the combination of those two is going to create a next set of cloud companies, both at the application tier, but also the APIs themselves will become interesting businesses.
I led an investment in Segment which is in the customer data infrastructure space. They’re collecting, and cohering all the customer data that a company will collect. And through their integration platform, they’re structuring the data. Those API’s themselves are becoming big and important companies. And so between Segment, MessageBird, Algolia, Scale, and Checkr, we’ve probably invested in five to ten API companies that are becoming big businesses.
Gené: Two of the areas you invest in are collaboration software and workflow automation. So how do you differentiate?
Vas: Collaboration software to me is how do you stitch together users, data, and conversation in one single pane of glass so that they can be well coordinated and in sync. That is happening across many horizontal spaces as well as many vertical spaces.
I led the seed and Series A in Frame.io, which is a video post production collaboration system. Right now, video editors and post production teams are sharing files across Dropbox and email. The video files themselves are very dense, they’re large, it’s hard to move those into the cloud. And then when you want to comment or collaborate on those video files you actually have to synchronize your comments with a timestamp. So there’s another dimension to that data that is hard to parse out. It’s what Frame.io does. It pulls all of that content into one system. It pulls all those users into one system and then the conversation can be synchronized into one single pane of glass. And that’s what collaboration software is. It’s pulling together those three dimensions into a system that is much more coherent.
If you layer on cloud software plus APIs, what you now have is the opportunity to automate workflows. That software can now speak to other systems, and so work exists across multiple different subsystems.
In Ironclad if a contract might come in that has a specific clause, well, anytime we see this clause, let’s make sure that it fires off an event to Slack to notify our chief legal officer. That approval workflow can now be automated because you have cloud systems that can speak to one another through APIs. That’s what we think about from a workflow automation standpoint. It’s the ability to put work on rails, because systems can now speak the same language.
Gené: Who are Ironclad’s initial customers?
Vas: Ironclad is going after legal operations teams, general counsels, the legal team within a technology company like Dropbox, which is one of the early customers. The fascinating thing is that contracts touch every constituent within an organization. So you are signing contracts for procurement, offer letters, sales contracts. There’s so many different constituents that touch contracts within an organization. And companies themselves are built on a lattice of different contracts. We can insert with the legal team. But that legal team will then pull in so many other constituents. And that’s what’s really exciting about collaboration software companies is they almost sub-propagate within organizations. You solve a workflow for a specific set of power users, but then those power users ultimately have to speak with other people in the company. Those end up being additional seats that you can upsell.
Gené: Are there any other companies that you’re excited by and why?
Vas: I led the seed in a company called Blameless, which is a site reliability engineering platform. SRE is a concept that merges principles behind DevOps with principles behind product management. The whole concept behind SRE is that every company goes down. It’s in those acute moments that you need to synchronize the relevant users around your product stack, and make sure that they are pushing a fix as quickly as possible. If Salesforce goes down, if Amazon goes down, that’s millions of dollars of revenue, that’s upset customers. You need to make sure that the right people inside of your organization are coordinated and collaborating around how to get systems back up and running. And so what Blameless is building is a command and control for engineers, DevOps leaders, product leaders to be able to collaborate by Slack, pull in all the relevant metrics that they’re seeing from different infrastructure monitoring problems, and then push fixes as quickly as possible. And over time, they’ll allow you to build playbooks around those fixes, so that the next time you see an error, the next time you see downtime, hopefully you can automate some of those workflows.
Gené: And another portfolio company you are excited by?
Vas: I also led the seed investment in a very interesting company called Transcend. We’ve been fascinated by data privacy technology. The atmospheric pressure on privacy has been building for probably 18 to 24 months. Europe has codified GDPR. California is just about to launch CCPA. Nation by nation, they’re all starting to define their own sets of data governance laws, and data privacy laws. If you are a technology company, that is serving end users around the world, you have to know where the end user is logging in from, and you have to understand the laws of their home country.
Gené: The fund in India and in the UK are separate funds? Is there cross investing between funds?
Vas: Despite our global perspective our seed strategy is still very local. Every one of our companies that ends up being a long term investment, by year four or five of their journey, they’re probably doing 20 to 40 percent of their revenue or have 20 to 40 percent of their users in global markets.
My partner Ryan and I led the Series A in a company called VSCO, which is a consumer photography platform. Half of our users are global. And so we can’t just be thinking in the vein of Silicon Valley or the United States. We’re thinking globally from day one. And so that team at VSCO has access to our partnership in London, our partnership in India. They’re thinking about how they capture the global opportunity for VSCO.
Gené: Vas, thank you.
Crunchbase Links: Accel Portfolio Companies
Illustration: Li-Anne Dias.