Subscribed Podcast Ep #14: Jason Pressman on Investing in the Subscription Economy

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Guest: Jason Pressman

Jason Pressman  is a partner at Shasta Ventures and invests in consumer, cloud computing, SaaS and open source software. Some of his previous investments include Adometry (acquired by Google), Demdex (acquired by Adobe), Makara (acquired by RedHat) and iConclude (acquired by Opsware). Jason currently serves on the boards of Zuora, Crittercism, Nextdoor and Smule.Prior to joining Shasta, Jason was VP of Strategy and Operations at Walmart.com, where he took the online retailer from zero to large scale revenue in five years.

We talk to Jason on his confidence in the Subscription Economy, 2017 IPO trends, and what it takes to convince him to invest in a company.

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We think of you as one of the earliest and strongest advocates for the Subscription Economy… you’ve invested in many companies that spearheaded the change such as Zuora, the Dollar Shave Club, Nest, etc. Is there any industry that you’ve been most surprised to take a step in that direction?

I think that where it probably isn’t going to happen is in things that are truly episodic, episodic or one time, so I think Cement is probably a good example. You really would need to be building a lot of things on a consistent basis, which is obviously not what typically happens. So I think things like that that you do on a one off basis are unlikely to migrate to a subscription. But there have been a bunch of things that have surprised me and I’d say that two of the most are things around earthmoving equipment like John Deere and Caterpillar, and car subscriptions. I think we’re going to see even more of it amongst traditional physical assets. And it’s actually surprised me a bit as to how quickly that’s happened.

SaaS IPOs seem to be coming back after a hiatus – Snap, Okta, MuleSoft and many others predicted to file in 2017. What do you see for the rest of the year? Are we back to all about “growth at any cost”?

I don’t think we’re back to growth at any cost, I actually think we’re at a place that’s really healthy with regard to IPOs and I think what I see looking forward is a very robust 2017. There is a variety of reasons for that but probably the biggest are that a lot of growth stocks have been taken out of the market place. There was very significant M&A last year and a lot of the large institutional investors that were holding large positions in companies that were acquired, like Demandware as an example, and LinkedIn, no longer have those positions. And they want to deploy that capital, those portions of their large portfolios against growth stocks and so there’s a lot of institutional appetite for IPOs.

In addition to that we’ve seen pretty healthy IPOs this year already with MuleSoft and Snap. The word on the street was that the AppDynamics IPO, before the company was acquired by Cisco, had been really well received. So I think you’ve got large appetite on the part of institutional investors and a lot of companies that actually are at very significant maturity stage that are ready to go public. So I think we’re going to see a robust 2017 with regard to IPOs.

As an early stage investor, what are the primary KPIs that you consider before investing? Is it the product, team composition, market size, or a combination of all these?

For us at the earlier stage, and we invest at Shasta Ventures at the series A and B, we’re typically looking for the market opportunity. How good is the product? How good is the team? And of course want to see decent, good early metrics, but a lot of the companies we’re investing in are just ideas. They’re powerpoint decks with a vision. So there aren’t a lot of metrics or numbers to look at.

We’re really looking at what’s the true market opportunity, what does the competitive landscape look like, who are the incumbents, how good or bad are their products, and what’s the seam that we think we might have as a company to be able to insert ourselves and grow market-share significantly.

We believe the next big change in Silicon Valley is centered around the business model shift to subscriptions – traditional ERP systems such as Oracle and SAP vs modern subscription relationship systems. What’s your view on this?

I absolutely think the transformation is coming. The reality of the matter is that there are a lot of legacy providers who have very good legacy software that has solved problems very well for a long period of time. But, it is legacy and it was designed in a time period where things were different. For example, in SAP if you want to do subscription billing you call each month a SKU because you’d sell a January, you’d sell a February. Well that’s not because SAP is a bad product, that’s because SAP was designed for a SKU-based, product-based world and not for a subscription based world.

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