Alex Kayyal speaks five languages: English, Greek, French, Spanish and Portuguese. He’s also fluent in cloud software.
Kayyal is a managing partner at Salesforce Ventures, the software giant’s investing arm, and joined the firm in 2015 to launch its European fund from London. Last year, he moved to San Francisco to lead the firm from its headquarters.
Salesforce Ventures thinks globally. When the firm launched in 2009, its investment strategy was more local but around half of its portfolio companies are outside of the U.S. now. It currently has $5.12 billion of assets under management.
I spoke with Kayyal recently about the firm’s strategy, what the biggest trends in cloud software are and what Adobe’s $20 billion acquisition deal with Figma could mean for the broader market for exits.
What is Salesforce Ventures’ investing philosophy is and how has it evolved since the venture arm launched?
There are three big evolutions that have occurred. No. 1 is the fact that we’re investing globally. We started in the U.S. Actually, started San Francisco, where our roots were. And obviously we continue to love that ecosystem, but we saw an opportunity to invest in companies globally. That was a big “aha” moment for us. We now have boots on the ground in the U.S., London, Sydney and Tokyo. And more than half of our investments were outside the U.S. last year.
The second big evolution has been that we became multistage. Salesforce Ventures started at Series A and Series B initially. Our portfolio companies were doing really well, and as a result, we were able to do follow-on rounds in those companies. As a result of that, we built the track record and more later stage companies that we hadn’t partnered with wanted us to help them. The third is that the aperture of what was relevant has continued to grow and evolve. It’s still very much software and cloud where we spend all our efforts and time. But within that we focus now on the best generational companies. When we started investing, there was probably a bigger focus on companies that were already within the Salesforce ecosystem. That ecosystem is always going to be the driver, but ultimately, we want the best software companies and to help them become even bigger.
And what about the Slack Fund?
What’s really exciting about what they do is two things. One is that it’s very much focused on the future of work through collaboration software. Companies like Hopin, Loom, Notion, Lattice. And secondly, they really do it even earlier stage than what we would consider our sweet spot. So, it’s a really great partnership where they focus on seed opportunities within that subsector. And what’s exciting is we had a lot of companies in common at the time that we joined forces with them.
What makes a founder stand out to you that makes you say, “this is somebody and a company that I want to invest in”?
No. 1: Is this someone that’s truly mission driven and wants to build this company? I think building a successful company, one that’s for the ages, takes a lot of hard work. We’re very empathetic around the journey, and how difficult it is to build a really big company. Just having that grit and tenacity and determination to build above and beyond what others might do. And there has to be this big vision. It could be someone that has a lot of domain experience, or it could be someone that’s approaching the problem with a completely fresh perspective. But you see that their whole world revolves around solving this problem. And they’re obsessed with “how do we make this better for the customer and for the industry?”
The second is a focus on building a great values based culture. We care a lot about companies that live and breathe their values. And we believe that’s the best way to build a great company. It’s not just to have a great product. It’s not just a big market. Obviously, the financial metrics are important, but the sort of underpinning of all that is a company that has a great foundation.
And then the last one is someone that’s really visionary. We love to partner with founders that continue to dream big and are really bold in their thinking and are not afraid to challenge convention and dream big.
What would be your biggest piece of advice for founders right now?
I just had a call this morning with an entrepreneur, one of our founders, and we were chatting about the current environment. I don’t have a crystal ball, but what I did say is, when you take a long-term view, we’re going to get through this and you’re going to get through this. It’s the perspective that these are challenging times, no doubt, but if you look at where we are in software, we’re still in the early innings of growth and transformation. When you zoom out a little bit, the fundamental opportunity is still so there, and so big. Don’t take your eye off the prize. That’s the beauty of having a mission-driven founder. They have the ability to put the blinders on and focus on what’s fundamental. They’re less distracted by the noise in the market, and they’re more focused on building amazing products and delighting their customers.
Is growth at all costs a relic of a previous era of tech in Silicon Valley? Or is it still there?
I think to help inform this answer, it’s important to think about what’s happening in the public markets, because ultimately a lot of private investors, including ourselves, are still looking at the public markets as a proxy for what investors value. One of the things that we’ve seen in the last six to 12 months is, there has been a shift. There are more and more public SaaS companies today than ever. Growth continues to be important, but the public market is no longer valuing growth at any cost. The market values efficient growth.
You also spent several years in the London office. Are there are any differences between the European market and the U.S. market for cloud and SaaS companies?
I’ve been really fortunate to see both sides of the pond and the evolution there. I think what’s happening across the world is really exciting. It was happening before the pandemic, but in some ways got accelerated in the pandemic, where entrepreneurs have historically fundraised in particular cities, particularly in Silicon Valley, where most investors were. All of a sudden, everyone’s a Zoom call away. So, we’ve seen is a bit of a leveling of the playing field. Silicon Valley will always continue to be a cultural inspiration for founders but we’re seeing innovation happen everywhere.
Historically, the big concern around companies outside the U.S. was, how big of a company can you build? And is there a big path to being a company? Anaplan is a great example. That was a company that actually started in the U.K., then went public. And it was a great outcome. All of a sudden, you’re seeing not only unicorns, but deca-corns that are European based companies.
The U.S. tech industry is still very dominant, but do you think there’s a growing opportunity for companies outside of the U.S. to be successful globally?
I think you hit on a really important point, which is how we think about our investment lens. Our goal, whether in the U.S. or anywhere else, is can they be the leading company? That’s the advantage of software. If you’re building a consumer company, you might be more localized. If you’re doing delivery or ride hailing, that’s a much more localized fight and what you do in one city doesn’t really scale. In software, that’s not the case. So one of the questions we ask ourselves when making an investment is, does the founder want to build the best company globally, or the best company in their market? If they want to build the best company in their home market, that’s less a fit for us. You really have to be global.
If you look at the Salesforce success story, 20-plus years in the making, we started in the U.S., but obviously became very international in our customer base. It used to be U.S. based companies expanding into other parts of the world. What is happening now — companies outside the U.S. are expanding into the U.S. with that global ambition.
The big news last week was Adobe’s $20 billion acquisition of Figma. What does that deal say about the current state of the market for exits?
In our experience, the best founders are not really looking for when their company’s gonna exit. They’re mission driven and want to build a company for the ages. Of course, sometimes an opportunity presents itself where the founder needs to make a decision about, “Hey, do I keep going as an independent company? Or do I join forces or go public?” And that’s a very personal decision for the founder and the board. To me, it really validates the opportunity in software. The Figma acquisition is the second largest in software history, and it was one of the highest multiples ever paid. I think it speaks to playing the long-term view. It’s a great validation point, despite all the uncertainty that we’re in.
You wrote a blog post looking back on 2021 and talked about how it was really a stellar year for cloud companies. That they blew past records across metrics like adoption, growth rates, customer deployments, year over year growth, revenue, etc. Do you think those growth trends have continued this year, or has 2022 been different?
There has been less funding activity, but I think the innovation opportunity doesn’t go to sleep. I think that’s been the most exciting thing for me this year. Great entrepreneurs are still going to start companies. We’re seeing that still happen. We’re still investing, and we’re still very much open for business, where we’ve invested both in new companies and in our existing portfolio.
CIOs are thinking about their spend on software, even in this environment, and it’s still growing tremendously. In the next five years, the cost penetration is going up significantly. There’s still so much growth in cloud. Sometimes it’s easy to forget how much of IT spend is still on premise, and how we’re still in this massive generational technological shift to the cloud.
Are there certain industries within cloud that you think present the biggest opportunities?
There are four themes that I would highlight. No. 1 is security. Security continues to be incredibly top of mind for every consumer, given the number of applications they need to secure in their environment, that need just keeps growing. And we’re all working from home. That adds a whole new level of complexity of what you need to think about as a CSO.
No. 2 is automation. The CFO is becoming the new CIO in some ways. CFOs are really focusing on spend and what’s the ROI for things that can drive better utilization and things that can drive better customer service at scale with less.
The third one is a focus on vertical specific applications. Whether it’s education or other types of services. A great example is Genesis which is focused on the financial services industry.
The last one is health and well-being. As we all make sense of this new reality of what the new normal looks like, there are other challenges. Better Up, for example, is about mentorship, and there are others around mental health and real challenges that companies are facing when it comes to their workforces and making healthy people productive. Another broad trend is probably the future of work and how employees do their jobs.
The Deets:
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