As an entrepreneur, searching for that ideal match and partnership in a future investor can be a bewildering process. But what’s often forgotten is that this sentiment can go both ways. Venture firms employ equally meticulous processes to ensure a corporate venture capital or traditional investment is the right one. To demystify what goes on in the minds of venture capitalists, we sat down to chat with a venture capitalist, Matt Garratt, Managing Partner of Salesforce Ventures.
Learn more about Crunchbase Pro.
We discuss insights on venture capital, values that build strong founder-investor relationships, and some career advice for future VCs.
Deciding Which Companies Are Ripe for Investment
What are the determinants of a successful startup?
“We look at a lot of the same qualities that other venture capital firms would – high energy, high intelligence. But I think one that is really important, particularly in the enterprise space, is a certain level of experience and maturity.”
It’s no secret that being an entrepreneur is tough. Matt reiterates:
“Managing customer relationships, managing partnerships is not always an easy thing. You want someone who’s committed. You want a team that can navigate everything from the product side to the sales side to the customer side. The founders need to effectively manage and have a level of sophistication and maturity to run a successful business.”
How does your team go about searching for its next investment?
Matt’s team is customer-focused. He explains how “the team spends a lot of time with our product executives and listening to our customers to understand the solutions they’re looking for.”
Photo Credit: Jerry Yoon
As a venture capital firm, Salesforce Ventures focuses on “investing in businesses that help make our customers smarter about their customers while having access to the latest innovations and allows us to connect with our customers in whole new ways.”
Distinguishing themselves from their traditional VC counterparts, Salesforce Ventures prioritizes “portfolio companies [that] are building integrations that empower our customers. Our investments extend the Salesforce Platform in exciting new ways.”
Strategy and Startups for Venture Capital
As a corporate venture capital firm, how is Salesforce Ventures different than your traditional venture capital firm?
“As a corporate venture capitalist, we start first and look for strategic alignment. Our investments provide cutting-edge solutions for our customers, help fuel our partner ecosystem, and drive innovation. We invest a lot based on what we’re hearing from our customers and no one knows our platform better than they do. We have tremendous insight into the new technologies customers love and that’s where we focus.”
But what really is “strategic alignment,” you may ask? Matt explains:
“The overall goal of our investments is to provide solutions for our customers and extend the Salesforce platform by building out our ecosystem partners. We’re partnering with companies to scale, whether it’s integrating them into our products or building a company from the ground up on our platform.”
What’s in store for Salesforce in relation to AI?
Salesforce Ventures is interested in what AI can do not only for Salesforce and their customers but also what it can do for enterprise software overall.
“We introduced Salesforce Einstein, AI for CRM, in September 2016. On the one year anniversary of launching Salesforce Einstein, Salesforce Ventures launched the Salesforce AI Innovation Fund, a $50M fund that seeks to accelerate the development of transformative AI solutions on Salesforce. This has democratized AI and made it accessible on our platform through an API. We now allow anyone who’s building an application to be able to utilize AI.”
Matt sees enterprise software utilizing this technology more and more. Matt believes, “AI is going to eventually allow enterprise software to move away from just being a system of record to a system of engagement.”
What’s happening outside of Silicon Valley?
As tech only continues to grow, we had to get Matt’s two cents on startup hubs outside of the Bay Area. Matt explains that Salesforce Ventures has had a long history of diverse regional investment.
Salesforce Ventures is actively investing outside San Francisco, and is “increasingly seeing startup ecosystems developing outside of Silicon Valley.”
In fact, in 2017, roughly half of Salesforce Ventures investments in the U.S. were outside of California:
“We launched a fund in EMEA a few years ago, and we’ve invested in Japan for a number of years. Just this past year, we also launched a Canada Trailblazer fund, a $100 million fund. The fund is dedicated to investing in Canadian startups and fuel cloud innovation and customer success in the region.”
Matt Garratt of Salesforce Ventures
Where does this shift come from?
As someone with extensive investment experience, Matt has no doubt tracked this long-awaited shift. The shift from focusing purely on Silicon Valley comes from “a number of things.”
Specifically, Matt explains how this is a natural part of the startup lifecycle. He elaborates that, “We’re finally at a point in the maturation curve where we have second and third generations startups that have gotten to scale and exited.”
Additionally, as Crunchbase News reported, many large tech companies are getting set up in multiple cities outside their core headquarters like Indianapolis, Austin, and Nashville. Not only is this beneficial for strategic corporate venture capitalists, but also the greater economy:
“As the overall economy is transitioning to more of an information economy, we don’t want that to be relegated to San Francisco and New York. You want that in cities like Atlanta, Indianapolis, Pittsburgh, and Columbus. The more that proliferates, it’ll create new opportunities and jobs for the overall economy.”
New venture investment is also driven by “the cost of having sales and engineering teams in Silicon Valley has also driven companies and individuals to find jobs elsewhere.”
Matt went on to describe how Canada is the perfect example of a hot and talented labor market waiting for an opportunity. “[In Canada] There’s a tremendous amount of technical talent. That combined with sales teams who understand how to scale companies is making Canada really attractive for investment.”
Becoming a Venture Capitalist
When asked about his own journey into Venture Capital, Matt reveals, “I’m sort of the accidental Venture Capitalist.”
Initially a Materials Science and Aerospace Engineer, Matt went to business school after college. While at the business school at the University of Michigan he “spent a lot of time learning about entrepreneurship and finance. I spent a summer in Africa doing energy investing. Eventually, [he] managed to find [his] way into a local VC firm in Ann Arbor and really enjoyed it.”
It’s clear that careers are full of unexpected outcomes. As Matt notes, “Based on the resume I had built, I was unknowingly a fit for a VC job. Then I met the Battery Ventures folks. They were looking for someone, and the stars aligned.”
“So when someone asks me how to get into VC, I wouldn’t necessarily say you should follow my career path because it’ll clearly lead you into VC. Instead, you should focus on doing the things you like doing and it may lend itself to a VC job. There are many different ways to get into venture capital.”
What about venture capital makes you excited to get up every morning?
“It’s a very privileged position in that you get to hear entrepreneurs share their hopes, dreams, and businesses with you in a very personal way on a daily basis. Being a venture capitalist is a position that has a lot of responsibility that shouldn’t be taken lightly.”
“It’s also incredibly exciting and endlessly interesting to hear about the next new innovative technology. It’s not just about, in the abstract, what a business can become, but it’s really this personal relationship with the entrepreneur. The extent to which you can be a part of helping entrepreneurs succeed is a humbling and rewarding place to be.”
Advice for aspiring venture capitalists?
Matt immediately explains, “I align myself with people and opportunities where I’ll have the most ability to see new things, help others and grow. Those are the best situations to be in.”
Matt emphasizes the importance of mentorship between investors and entrepreneurs. He recalls a professor at the University of Michigan who encouraged him to enter the world of Venture Capital:
“Mentors like him stood behind me and gave me the courage to believe I could do it. Thinking back to that has made me realize I was very fortunate to have people like him in those critical moments in life to stand behind me.”
Disclosure: Salesforce Ventures is an investor in Crunchbase as well as a part of the Crunchbase Venture Program.
