Sep 11, 2024, 10:06 AM ETInterview, Fireside Chat

David Schneider: Why the Worst VCs are "Seagull VCs" & VC Value Add - Is it Real? | E1200

Products are purchased for three specific reasons: to help customers make money, save money, or avoid negative press/security incidents.
Founders must articulate which of the three value drivers their solution provides to secure funding.
New enterprise solutions must replace an existing line item in the budget rather than simply adding a new one.
Investors should prioritize founders who demonstrate clarity of thinking regarding their value proposition over those in highly competitive but undifferentiated markets.
Market timing is critical; "there is no such thing as a bad idea, only a bad time," requiring validation of the "pain" being solved.

Spent nearly 9 years at Data Domain, growing revenue from $0 to $1 billion before a hostile acquisition by EMC in 2009.
The EMC acquisition involved a hostile bid that outbought a prior definitive agreement with NetApp by roughly 20–30% ($1.8–2.2 billion valuation range).
EMC utilized guerrilla marketing tactics, including full-page ads in the Wall Street Journal and trucks circling offices, to pressure the Data Domain team.
The company grew from $550 million in revenue to $2 billion within two years post-acquisition, driven by an 80% growth rate and high margins.
Initial product positioning as a "backup appliance" failed; pivoting to "data recovery speed" as the core value proposition was essential for market fit.
Successful integration relied on simplicity, allowing the product to plug into existing backup software without requiring customers to change their environments.

Joined ServiceNow in 2011 when it had ~$80–90 million in revenue and 16 sales reps; departed as a $170 billion market cap public company.
Scaled revenue to $5 billion by doubling the street price in the first quarter and hiring 150 reps in under 90 days to capture pent-up demand.
Achieved a $100 million in new business target within the first year, reaching IPO status in roughly 18 months.
ServiceNow exited the SMB market with "ServiceNow Express" after realizing the product was too complex for that segment; competitors were allowed to struggle in that space.
The company eventually expanded into HR, Security, and Customer Service by productizing how existing enterprise customers were already using the platform.
Rejected the traditional "Customer Success" department model in favor of a full sales lifecycle ownership model, citing 98%+ renewal rates without needing a dedicated CS team.
Implemented a "zero to $100 million in three years" goal for new product lines, successfully launching four major business units simultaneously.

Hiring philosophy favors "misfits" with a "chip on their shoulder," specifically those who have overcome significant adversity.
Sales teams should be built on "playbooks" that include customer transformation stories, objection handling, and specific target profiles.
Competitors who have lost customer focus and are merely trying to cut costs (e.g., BMC, HP Software in 2011) are vulnerable to agile cloud entrants.
Transparency and speed are prioritized; leaders must address issues head-on rather than artificially inflating morale.
A "beginner's mindset" is required for executives transitioning to investing, acknowledging that they are no longer the sole experts.
Frank Slootman's advice to "compress cycles" encourages making decisions quickly and fixing errors later rather than seeking perfection.
One documented hiring mistake involved bringing in a senior leader from a culture of "missing numbers" which clashed with ServiceNow's high-performance expectations.

Avoids "seagull" investors who fly in, offer distractions, and leave; seeks board members with relevant hands-on operating experience.
Management teams must control board agendas by pre-circulating "three greens" (successes) and "three reds" (problems) before meetings.
Investors should prioritize relevant experience over the quantity of previous board seats when evaluating potential directors.
Preferred investment size for board seats is typically $75 million to $100 million to justify the time commitment and impact.
Expected return multiples for growth stage investments are 5x–10x.
Early-stage founders should be advised to listen to customers for 100+ conversations before building a product.
Feedback should be immediate and direct rather than the "shit sandwich" method; bad news must be delivered quickly to allow for course correction.
Board members should identify their unique "spike" (superpower) to leverage on behalf of the company, such as networking or pattern recognition.

ServiceNow built a low-end product ("Express") that failed because the company was not prepared to act like a low-end vendor.
Market sizing is often underestimated during the transition from on-prem to cloud models as technology becomes easier to consume.
Companies that raise at peak 2020–2021 valuations face a risk of being worth more as cash for asset liquidation than as independent public entities.
Business plateaus often stem from a lack of deep customer understanding or a failure to navigate renewal cycles effectively.
A $10 billion company requires a founder capable of transitioning between strategic "chapters" or product acts.
Over-reliance on 3-year contracts can delay feedback loops; investors should look for evidence of ACV growth within the first 6 months of implementation.
The biggest regret involves potentially paying too high a price in the 2021 market, though missing good deals due to price is also a risk.

David Schneider fears failure, which drives a relentless focus on continuous improvement and preparation for all scenarios.
Trust is best built through face-to-face interaction; sending "flame" emails to engineering teams destroys culture and should be avoided.
Bill McDermott is praised for his ability to smooth executive relationships and his deep network of global C-level decision-makers.
Most founders can achieve success if they find the right environment to channel their hunger and drive.
Feedback is a gift that should be given immediately; waiting to critique behavior is less effective than addressing issues in real-time.
Pattern matching is easier when comparing founders at similar stages of their journey rather than comparing a first-time founder to a veteran CEO.