David

Okay. Said, what brings you to a blackout? And you mentioned just before we start recording that, that you basically landed about an hour ago.

Sid

Landed an hour ago. You’re my first feeling, David. I’m super excited to do this. Super excited to see you in person. You know, we’ve been one of these Zoom connections in years.

David

You know, I mentioned that. You look taller in real.

Sid

Life, though. Well, you’re very tall. You look exactly as handsome as I imagine. That’s the most important thing.

David

Thank you. And you’re here for you mentioned specifically meeting founders, meeting. Talk about.

Sid

Meeting founders. And obviously we can talk more about that. And you know what I do and what we do at foundation but really, really excited to spend time with founders. And then the second, the second area is really spending time with customers. C So CIOs, CTOs, as they’re thinking about what are the things they care about in security. But the biggest difference for me this year Blackard versus last year, because I did make it last year at the height of Delta, right. Was I remember walking in.

David

Good. So you mentioned you you walked in the height of Delta. You’re so brave.

Sid

You know, that was a year ago is August of 2020 and 2021. And yes, it was it’s certainly a brave thing to do because a lot of people canceled the week before. But, you know, I decided that I’d had enough of sitting at home and, you know, spending all this time on Zoom. And I wanted to spend some time with others. And there were a couple of people I knew who were going. I decided that it made sense. But I remember walking in to the same hotel, the Four Seasons Lobby, which is in Mandalay Bay, and there was one person, the entire lobby, one person. And coincidentally, I knew that person, and he was on a zoom meeting with a founder. So I remember turning to him and saying, like, what happened? You know, it’s not like I came early, I came on time, but it ended up being a fantastic blackout. It was much more reduced, I think only about 15% of what we saw in 2019. But, you know, that was great this time, though. Same lobby and it was full, not as full as 2019, but certainly more than one person.

Sid

So I’m excited.

David

And you have a very interesting background how you got into tech and specifically into, you know, venture capital. And you have some clout yourself, like you’ve done some things. So maybe talk to me about your background. So people are not familiar with what you’ve done.

Sid

You had no. Absolutely. So as you know, I’m one of the partners at Foundation Capital. I spend most of my time in investing in cybersecurity and I.T. startups. So basically startups that cater to the CTO, CIO, C so or one of their subordinates and typically a large enterprise, a global 2000 company. And you know, my background is an interesting one. So I kind of started my career looking at very, very large companies. I worked at Barclays as it was transitioning from Lehman Brothers to Barclays in the building that synonymous with the oh eight crisis, talking about a financial crisis and what’s going on right now and ended up falling into it. And cyber back then it was cyber was not considered to be a core area. This was a time when.

David

It wasn’t called cyber.

Sid

It wasn’t it was close.

David

It was started to it.

Sid

Was called cyber. But really, there were a couple of big names of Symantec, McAfee, Trend, Micro, Check Point, Fortinet, Imperva like that was it. And I guess Proofpoint and Mimecast were in there. But that would that was the market and it wasn’t obvious that there would be lots and lots of large public companies that would exist. And so nobody really wanted to cover it. So myself and two of my other colleagues ended up covering cybersecurity as probably the best thing that could happen. I mean, we helped the states, we helped to take FireEye publicly up to take source fire public. You know, we were involved in Palo Alto Networks IPO. It was just a lot of fun to kind of see all of these companies scale this.

David

So this is interesting. So no one wanted to cover it, but then you decided to go ahead and do it anyway.

Sid

You know, I was the junior guy. I was the young guy and I was kind of handed. It wasn’t an option. I wish I wish I had a better story to tell you that like I you know, I saw that cybersecurity was going to be the big thing. I didn’t at the time, you know, I was basically told you’re covering cyber and I ended up covering it. And this.

David

Is so I made the best.

Sid

Decision.

David

Because like, this is what happens. I think I’ve heard that before. People, you know, just ended up stumbling upon cybersecurity as is. Sometimes it’s, you know, by default, it just there was no one else to do it. Yeah. You know, as you mentioned, you were the junior the junior guy. They decided to hey, like, let’s throw him into the gauntlet and let him do it. You know.

Sid

I you know, I was the junior analyst and I was lucky to get involved. And it was me as the junior analyst. There was a junior associate and there was a junior at the time, director. And both of those other individuals are still covering this space in different capacities. Coincidentally, they’re both still at Barclays and, you know, they love it. And, you know, I’ve ended up moving on. But what didn’t have happening, I went from investment banking where we helped take companies public and then helped with acquisitions into private equity. And I ended up joining a firm which was. Then called Symphony Technology Group, now called STG, which is now coincidentally a major investor in cybersecurity company.

David

A major change.

Sid

McAfee has purchased RSA as purchase fire. I mean, the core part. At the time, that wasn’t their core focus. Their core focus was enterprise software buyout and most of that was application software. There was no in fraud. There was no middleware. That was also a shift for them. So again, got lucky and have continued to focus on the space and then venture.

David

And you know, I want to double click on something that when you were doing it kind of the early days covering, as you mentioned, cybersecurity wasn’t really a thing that you had to. I mean, now it’s de facto people know what to expect from a report, from an analyst report. But back then, you had to kind of almost paved the way a little bit. Right. Because, you know, what did you do? Did you look at other industries and apply that to cyber or did you have to just, you know, kind of reinvent the wheel there?

Sid

It was a couple of different things. I think the one big area was really recognizing that you needed to see more innovation in cyber in most customers, i.e., CISOs just had not spent much time thinking about new startups. So the idea was always you purchased a Symantec or a McAfee and they provided you with total security, not just security at the endpoint of security for antivirus, but.

David

Also I think they call it single pane of glass.

Sid

Exactly. It was that was exactly it. And the CSO role, the chief information security officer role, was much more smaller. I mean, they reported to somebody who reported to somebody who reported to the CIO. Now, obviously, because of the number of breaches that we’ve seen happen, that role has become elevated. And I’d argue in most large companies, it’s equal to that of the CIO. But that has been a big change. But it was really trying to go and find out who ran security at these large companies and talking to them about, well, why are you buying the same thing? Like why using Symantec for everything? And and obviously that has changed pretty dramatically over the last decade in particular.

David

You know, I think, like anything is everything is cyclical. Right? It’s like, you know, there there was a move to, you know, to diversify the portfolios of security controls and so on, security vendors. And then after a while, it came back to say, well, we want one or two choke. You know, we want everything. And and now we see a lot of consolidation in the space. We’ll talk a bit about that.

David

So the shift on from, you know, to to private equity. What was it like? Did you have to again, I think you had to get out of your comfort zone and learn a lot. You know how you know how things are done, how deals are done. Yeah. Talk to me about that.

Sid

So maybe I’ll talk about the differences between investment banking, which is advisory private equity, which is large scale buyout and venture, which is what I have today, which is, you know, early stage and by the way.

David

Touch upon the fact that everybody, people here, investment banking do always have a little bit of connotation in terms of what that entails. Right. Is that is that true? True. Okay.

Sid

It’s true. So, you know, the first bucket investment banking as as an investment banker, your core job is advising a client. And that client is usually a large company. Sometimes it’s a private equity firm, but it’s typically a large company. And your only job is to get transactions to happen, right? Because you are paid a percentage of the transaction fees. So you’re not typically thinking deeply about, is this a good transaction for the company or not? Obviously, you think about it and you want to provide good advice, but your core job is to get transactions executed. So that’s a little bit of a different business.

Sid

Private equity, your core job and ventures, all of investing. Your core job is to make good investments that generate returns for your investors. So it’s a slightly different angle. So banking very much advisory driven, very much you do more transactions get get more things to happen. Private equity because you own the company, you think about private equity very differently. A You’re less willing to take a lot of risk because you own typically between 80 to 95% of the company. So that’s your capital at risk and then the large amount of that company. So you don’t want to have it go to zero. That doesn’t mean that in venture our job is to see investments go to zero. That’s obviously not what we do.

Sid

But at the private equity stage you’re coming in, typically when there’s an established company that’s generating profit at the very minimum, generating real revenue. And real revenue is typically over 50 million of annual revenue, as usually hundreds of millions in revenue. And they’re because you have a control position, you actually become a sub operator. So your job is very much to kind of decide who should we hire, who should we fire? How should we think about product direction? What market should we go after? Should we think about acquiring other companies to scale our business further?

Sid

And then the last one is Venture. Venture is very much early stage. Typically, I get involved when it’s just a founders or a handful of employees and you hope that the company scale. And because you are a small investor, typically I get you know, we have a foundation of about 20% ownership and of of the companies we are minority investors. We are no way majority investors. Yes, we have a seat on the board, but we’re not kind of deciding everything that’s going on. And that requires another level of thought process in that, you know, you have to listen to the founders and the CEO and the executive team and provide them advice, but recognize that you can’t take over.

David

Right. And this is point I mentioned that hope is not a strategy. Right. So you do have this certain selection criteria that you fall through and then you I’m assuming that because, you know, you have a lot of experience. You develop almost like a sixth sense kind of thing. How quickly today you meet somebody, you meet a founder, how quickly you know, okay, this is the real deal.

Sid

You know, typically in the first meeting, I have a sense for is this something that I’m really excited about that certainly if we talked about founders that you and I both know who’ve been very successful, I could tell you about those first meetings and and how excited I got in that first meeting, but that is usually a good indication. Now, that being said, I wish I could tell you that I know in the first 5 minutes whether this is going to be a unicorn or this is going to be a public company or not, I don’t think any of us know that answer. And those who are saying that they do are either lying or they’re being facetious about the simplicity of our business.

David

And do you have a fear of missing out, like in the sense that you because you’ve had cases. Right. For sure. Right.

Sid

Tons of them are you know, absolutely. The answer is always yes. I everybody in our business is incredibly competitive. And I don’t want to indicate that I’m not I think you have to be competitive to be in this business. And certainly, you know, I’m constantly worried about did I make the right decision? Did I make the wrong decision? And that’s something that after a while you have to live with, that you have to stick to your Northstar and recognize when you make the wrong decision. Why did you make that decision? What did you miss and what can you learn from in the future? But yes, absolutely. I could go through a list with you, David, of all the decisions I’ve made that have been wrong. And on top of that, those those are ones that always haunt you. You know, there are always ones that you are thinking about because you get to know these founders really well. You know, the companies I didn’t invest in, I usually know the founders really well and I can do to help them. And, you know, I see them at events like this and I meet them on the plane. And I guess that’s hard.

David

I guess it keeps you humbled.

Sid

It definitely keeps you humble. This this business is is there is never a time when you don’t feel humble in this business. I mean, every time I tell my founders and it’s the same for founders, I tell them, when you have a high, just wait. You know, an hour, 2 hours, sometimes a day you will get, you know, a low immediately. Like there’s a high low.

David

But it’s funny because that’s the same is very true holds very true for for the whole startup scene. You’re asking the founder like, you know, if you are, it’s like you can have a good day and a bad day the same day for sure.

Sid

You can have good days and bad days. And they usually, as you said, on the same exact day and they’re usually happening at the same time. And as you become more experienced in this business, what you have to figure out is how do you keep an even keeled attitude as the good and bad days happen? Obviously recognize that these are good days and bad days or these are good hours, these are bad hours. But you know, how do you kind of keep some level of balance? Otherwise you’re going to go mad, you know, with just your job. You’re not you’re not going to be able to actually turn it off.

David

So what what is it that you do to develop that balance? Like, do you do you get into like a Zen mode? You do meditation, like feel a few minutes every day. Like what’s what’s your secret said.

Sid

I’ve, I’ve, I’ve tried, I’ve tried, I’ve tried. Headspace I’ve tried I think I’ve tried calm. You know, we have a company called Simple have it. I’ve tried them. I wish I could tell you that that they worked for me. They they have not they have not worked as well. You know, it’s a couple of things. One, I try to switch off at least one day of the weekend. So either Saturday or Sunday, I try to reduce email intake. I’m still on email. I’m still on text. If my founders really need me, I’m there.

David

And that’s a thing you deal with founders. It never does. Never, never off and never have. And by association, you were kind of never off, right?

Sid

For sure. And the funny thing is, as a founder, you may have a really, really good day and everything’s off. But, you know, if you’re on multiple boards like I am, you have over half a dozen boards. I one of those companies is always in trouble. There’s a fire burning somewhere. There’s never you know, in fact, if there’s no fires burning that I’m thinking maybe my founder is not talking to me about something going on because I’ve never actually experienced a situation where everything is set.

David

You know, this is this is what I love about having this conversation. People think there’s, you know, being a VC is glamorous and it’s all like. You put your money on red and it’s a home run, but it’s not like that. There’s a lot of grind, you know, throughout a long time. Some of these companies, you know, you follow them for a system for a long period of time. Yeah. And it’s not all like roses and sunshine and it’s always this. There’s a lot of work involved, right?

Sid

100%. And I thought that way, too, before I got into venture, I assumed that this was a job where you kind of went on to the golf course, and once in a while somebody would call you up and you’d make the investment. And that was the business. And it’s not like that. And I think look, I think it was different 25 years. So our firm was founded 27 years ago, in 1995. And when I speak to one of our three founders, Bill Elmore, who’s still around and comes into the office once in a while, he’s retired. Of course, when I speak to Bill about how his experience was like in venture in the early days, it was very different. I mean, there was no email companies with fax their pitch pitch decks to the office. The assistant would print it out and share it with Bill and then he would read through the decks.

David

I think the velocity of of business and everything else in general was much slower.

Sid

For sure, and it was a cottage industry. There weren’t that many firms. I mean, we were one of the few handful of firms that were around, you know, in Sandhill Road. And obviously that has dramatically changed now. There’s a lot of firms, there’s a lot of smart people in this business. There’s nothing we have certainly experienced in history, and we have hundreds of portfolio companies that we’ve learned from, but that doesn’t cancel out a whole bunch of new funds that have been started in the last few years. And those people are very hungry, too. So to your point on humbleness, it keeps us humble. It keeps us on the edge trying to figure out what are we missing, where can we learn, what can we do differently?

David

So when you get a phone call, what what type of advice does these founders typically need from you? Like, what is your value? Because and it’s again, it’s there are all kinds of different types of VC firms. There are some that are super involved or like, you know, day to day operation. And there are some that are like, hands off, which one are you? And why have you decide to take ownership over some of the kind of the every day to day operation?

Sid

That’s that’s a great question, and I’ll answer it in a couple of different ways.

Sid

So firstly, your last question around, hands off, hands on at foundation, we are very much a hands on firm. And the reason we are is because we’re looking at doing concentrated investments. So each of us as partners, we do somewhere between 1 to 3 new investments on average, not a hard number a year. So each of us individually 1 to 3 new investments.

David

And is that it’s just from somebody who is not aware like is that considered a lot? No, it’s.

Sid

Considered very little. So it’s a great, great, great question because it had very little if you ask the average investor, they would say, I do 6 to 8 investments a year. So that’s very different. That’s an individual here at Foundation. We do 1 to 3 individually a year and we typically our focus is really getting ownership and that typically ranges from 15 to 25% ownership. We typically take a board seat and we’re the lead investor in that round that we invest in. So that automatically makes us the hands on investor, right.

David

And it also puts a lot of pressure because you I think the reason why sometimes they do a bunch of investment is that, you know, they know a couple of these are going to have a home run. So you spread your risk. Yeah. But in your particular case, you decided that you take a very different approach where you concentrate the risk but have control over the risk because your have the hands on approach.

Sid

It’s true. Now I’ll caveat that by saying, remember, there’s 12 of us. So that’s that’s spread around enough people. So if all of my investments are horrible, I’m hopeful that one of my partner’s investments are fantastic. But you’re absolutely right. We are we are certainly doing that concentrated strategy. We’re saying, look, let’s not write small amounts of money in lots of companies. Let’s figure out what our unique insight, our depth of expertise is and pick the best companies in our respective sectors that we spend time in and really get ownership so that when hopefully one of those companies like for Drop one of our companies goes public last year, we’re a core investor. You know, we’re one of the top 2 to 3 investors in that company. That gives us a lot of advantages. Obviously, it gives us financial returns, but it allows us to be part of the journey.

David

And how long does that do that take for us?

Sid

So so it’s a war drugs case for us. From the time that we invested until the until the IPO, it was, I think, eight years. And for context, typically it takes about ten years to go public. And, you know, that’s that’s that’s very normal. And there’s actually two different types of companies in cybersecurity, the companies that go public in give or take 7 to 10 years, and then the companies that go public in about 15 years. That’s what we see that these two different types of trends. The first trend is very much a company that hits all the metrics from day one the second. It is a company that typically finds a space, realizes, oh, the space isn’t for us, and then finds some type of pivot. And that pivot results in the really massive astronomical growth.

David

So it’s definitely not a, you know, a get rich quick scheme. It’s it’s you know, you talk about some some large period of time. And then on top of that, you have to factor in like, you know, that, you know, it’s not a bubble and the market change all the time. The requirements change all the time. So when Ford Rock started, you know, they were assuming they were a different type of market. And both from from a technology perspective as well as economic perspective, as long as even the buyers personas are changes. So on how do you deal with with all those moving parts and making sure that you still stay on track to to be successful?

Sid

Well, because we have board members in these companies, because we have the large ownership stake, we have a good, good perspective around what’s what’s working and what’s not. And that gives us insight into, well, you know, is this category going to continue to be important or not? Do we have the right management team? Do we need to change the management team? How do we influence the founder to go and make that change? Because unlike private equity, you can’t just walk in and say, Hey, I don’t like this management team. I’m going to change it tomorrow. You have to get other people around the board excited about doing that, and that’s where we really inject our expertise.

Sid

But I want to go back to one thing that you mentioned earlier, which was around like when founders call you what, where do you help them? And in the end, it’s fantastic that you use that that phrase when they call you. For me, the single KPI that I think about on a yearly basis, I ask this of every single one of my founders, where I’m on the board at the end of the year is I asked them when something was a problem or you needed help. Was I your first, second or third call? And if I’m not there, then I haven’t done a good job that year with that founder. Like that’s the truth. And that can.

David

Be that is truly amazing because honestly, I don’t think that there’s a lot of VC firms that are, you know, that, you know, in touch and are like side by side in terms of the success of the business.

Sid

Right. Yeah. And we’re and the reason that that’s important is with typically the first or the second investor in our companies. I mean, we’re there when the founders are starting the company or they have just started the company, it’s typically when there’s no revenue in many cases with their before incorporation of the company. The last few deals I’ve done, I’ve helped incorporate the company.

David

That’s, that’s, that’s amazing. So, so what happens? They just sit down with you and they, they have the napkin thing where they do all like the kind of the ideas that.

Sid

I’ve seen it all. So, you know, I’ve had whiteboard in our offices where the idea has come about. I’ve had a call from friends who I’ve known for years was saying, Hey, you know, I’m thinking about this idea of what do you think about this? I’ve had a formal, formal pitch deck which was created in advance, but it really depends on the situation. But the main point is, is true, which is that at this point, the founders haven’t really thought through incorporation and they haven’t thought through how do I make this into a real business? And in those scenarios, my focus really is helping them to speak with a few customers, helping them think through the market, helping them understand the landscape, even identifying the first few employees who are going to be the first few, ten x 20 x 100 x engineers that you need to hire to go and scale this business.

David

And again, I think you mentioned it’s really interesting you mentioned specifically that sometimes as need a change of management leads me on to to thinking okay, you know, sometimes we have to have some difficult conversations with some of these founders now because, you know, they’re after the tech. And I think also when you’re a founder, you are almost stuck inside a mini bubble where you you are in it every day. So you don’t see the outside. And how do you deal with those difficult conversations? And I’m assuming you now have a lot of experience doing some of that. Is there a certain methodology you take, you know, for you to to get what you want? Because essentially, as you mentioned, you’re not a majority owners. You still even though you’re advising and you have obviously you have you on the board, they still can can veto the decisions. And so how do you it’s a really fine balance.

Sid

Yeah, you’re absolutely right. And for me, the first thing is, you know, I’m trying to assess, are the founders learning? Are they are adapting? Are they recognizing where their weaknesses are and they actually adjusting their work? Are they trying to rely on other people? Are they trying to figure out how to improve that weakness? And if they truly cannot figure out any of those things, that’s when you have to start to go and advise them to consider potentially having somebody on board to help them.

Sid

And sometimes that’s just a career coach and sometimes it is truly, Hey, Mr. or Mrs. Founder, you need to go and hire. A formal CEO to take over your role. And maybe you do a technical role or you do a marketing role and you do a product role or you do an evangelical role. But, you know, that conversation is always tough. I don’t think there’s any easy way to have that conversation other than over time, helping them recognize where their weaknesses and where their strengths are. And certainly to your point, you don’t want to come in with this point of hostility.

Sid

But, you know, I tell this to all my founders when I start the journey with them, which is that my goal is for them to be the CEO if they want to be the CEO. My goal is for them to be the CEO. When the company goes public and ring the bell on the Nasdaq and continue to have that role, and I will do what I can to help them to scale. And all of us, at some point, we reach our maximum. And that always happens. And it’s recognizing when you reach your maximum.

David

Yeah. And I think I think there’s certain type of individuals even even in startup. Right. So there’s certain the core team has to have a certain skill set. And then once you hit like, you know, 5 to 10 million is is another course is skill set. And then once you scale to 100 million, you might be able to hire like just regular people right off the street so they can do the job. Right. So it’s type of individuals for each growth stage of the companies are great.

Sid

You’re absolutely right. The big difference, though, is the founder the amount of passion you have for the company never goes away. I’ve never seen a founder, even when he or she is no longer to CEO, not be the number one champion for that company. I mean, they have they have poured their blood, sweat and tears into that into those companies. They remember the company at the lowest of the low points. There will never be a point where somebody else at the company can beat them in terms of that excitement, that passion, that kind of untenable focus on trying to scale the company. That’s very different.

David

And isn’t it? One of the I would say the key pillar of success is to be able to, you know, to to be so gung ho about your your particular solution. And despite all the naysayers, you know, I mean, you have to you have to have a you know, your glass has to be full of it and everybody else.

Sid

You’re absolutely right. I mean, the best founders are constantly thinking about their companies. It’s the first thing they think about when they wake up. It’s the last thing they think about when they go to sleep. And my hunch is they’re mostly dreaming about their companies to like those are the best founders. They’re constantly thinking about, how can I make this company better? What can I do to make things better? How can I make myself better? How can I improve? They’re constantly learning. They’re trying to absorb as much information. There is no small amount of information or person that they they know or don’t know that they’re not willing to kind of listen to.

David

Yeah, absolutely.

David

So to make this topical, we live in some interesting times. You know, things are really you know, if you look at the same same date last year, you know, the investment environment was was very, very different. And we’ve seen some some take layoffs, you know, especially in well, not just in the cybersecurity sector, but overall in tech. You know, what’s your take in terms of that environment? And if you have kind of the ability to see was the you know, the near-term 6 to 12 months from now would look like in terms of investment.

Sid

I don’t think any of us know well what’s going to happen, but maybe I’ll give you some context. So I think we started off this year in the craziest of times. I mean, we have now over we had over 14 unicorns get created in the first half of 20, 22 over 35 plus hundred million dollar rounds.

David

I know. But isn’t it, you know, is because of the rounds that they were like, is the valuation really attached to the to their revenue or or was it attached to it? Was it the rounds?

Sid

You’re absolutely right. And sorry, I should mention this is all in cybersecurity. It’s not just tech, but all of this. I it was not in any way attached to revenue. I mean, you know, the growth stage investors were highlighting that these multiples, the er multiples on these deals were 200, 300 times 200 to 300 times revenue.

David

Let me ask you this. So for people who are not familiar, what’s what’s the normal for those? Because somebody has says, oh, listen to this. Well, yeah, 200 sounds like reasonable to.

Sid

Yeah, sounds reasonable. Yeah. I mean, the funny thing is, it depends on what you define as normal, too. So, you know, I think quote unquote, what would be considered normal would be what the better way to answer that is, what are the public cybersecurity companies trading at? So at the height of our bubble, they’re trading at ten, 12 times on median. That includes, you know, the Palo Alto is as a.

David

Revenue or revenue before.

Sid

Revenue revenue of 10 to 12 times medium. Right now that trading about six and a half times median multiple. Revenue multiple. So 200, 300 times. Now, of course, there’s always a premium for companies that are at the early stage because that growth is faster. Right. The median growth rate of public companies in cyber is about 30, 35%.

David

Right. And I think the expectation is that they eventually catch up. Social and revenue will catch up to those multiples for sure.

Sid

That is that is the that is the expectation. But 200, 300 times was well ahead. I mean, it was well ahead. My personal opinion is that the real multiples at the time should have been about 50 to 70 times. So it was a it was pretty crazy. The market was, you know, at its peak at the beginning.

David

And it was crazy to these rooms were huge.

Sid

These rounds were massive.

David

I looked at some of those, you know, these rounds, and I was like, listen, what do you do with all that money? Like what? You know, you receive 200 million. Like, what’s the. What do you do then? I mean, there’s so many massage chairs that you can get, you know, for the office and developers and so on. I mean, you can hire. I think that’s what people went out and did are hired. You see, this is sometimes on LinkedIn, you see like a hockey stick to the hiring.

Sid

Yeah, you’re absolutely right. They hired a whole bunch of people, particularly around growth and marketing and sales. So they really hired around trying to figure out how to scale that revenue really, really quickly. That was that was difficult to do. I mean, that wasn’t an easy experience. And in many cases, companies failed in that approach. And right now, we’re in this unique situation where there’s a whole bunch of these companies that have raised hundreds of millions of dollars, sometimes billions of dollars of private money, and they have to go and grow into those valuations. I mean, there were companies that were worth more than public cybersecurity companies.

David

When you say grow, is there a chance of them to actually go ahead and do that? Because you’re looking at 200. So again, if you if you convert an to revenue, so let’s say they did, you know, 5 million in revenue, they have to do 200 x stat to map to catch up. That’s that’s a significant growth in revenue for sure.

Sid

It is a significant growth. Will they be able to catch up? Anyone’s guess. Now, the advantage that those companies that raise lots and lots of money hopefully have is they haven’t burned all of it away. Some of them might have. But my hunch is the vast majority of them still have hundreds of millions of dollars of cash on hand. Now, the big question is, what do they do with that cash and what? And you described layoffs. One of the things that they’re doing is significantly reducing that growth of employees. And they’re trying to do that to conserve the cash and figure out, well, what should they do with their current situation? How should they think about growing the business? Should it be growing at a half the pace?

David

And since your sits on the board and you get those phone calls, did you get those calls to say, hey, it’s like, what’s your what’s your take? You know, I mean, environment is economic conditions are changing. What’s your what should we do yet?

Sid

You know, luckily, because we’re investing in foundation at this very, very early stage, the vast majority of my companies are very early seed, series A, Series B, so they didn’t have the situation where they had hundreds of millions of dollars that they were pouring money in, and suddenly we had to correct the ship. And so that was one one advantage of not having this craziness. And generally, the foundries I invested in did not go into that ultra crazy mode. So the advantage that all of those founders have right now is if they’ve been, you know, conscientious with the capital that they’ve used relative to the revenue that they have earned, they’re in a very positive position. And in fact, I’ve in my company so far, everybody has had a successful fund raise despite the craziness of the market right now. Last five weeks, the market has been almost frozen.

David

Yeah. And and you also you mentioned specifically, it’s it’s sometime is is timing. It’s amazing like five, six weeks make a whole difference right in your mind. You know, they say that downturns create more millionaires than than upturns.

David

Do you find it is certain opportunities that is you know specifically for cybersecurity that presents itself from a downturn economy?

Sid

Yeah, I think the biggest the biggest advantage that you have is, you know, when we had the upturn, the advantage of what made one company successful over another was how much capital you could raise. I mean, that was the answer. If you raised a lot of capital, you’d hire a lot of people, you’d spend a lot of money. Conferences like Black Cat, where we are today. And then, you know, you try to go and get as many customers as possible. You’d be the big dog. In an environment where there are days capital is scarce, suddenly it’s not purely just raising the most amount of money and winning. So that can help. But now investors care very deeply about your product, your metrics, the team at hand, who you’re going to hire in the future. How do you think about the next year?

David

So it sounds like it’s almost back to the basics.

Sid

Exactly. It’s back to the basics. And my hope is that this will deliver better companies. For all of us, for for the broader industry. It will help customers and help other investors. It will help the founders. It will help the employees who work at these startups.

David

So it sounds like we almost you know, again, I think it’s everything is cyclical. So it sounds like we’re getting into almost like a cleansing, you know, environment where, you know, the best will win right through through attrition or not. But, you know, it will eventually will. Doug, they’ll get their act together. They’ll they’ll fix what needs to be fixed and they’ll they’ll, you know, they’ll play nice in the marketplace and figure out.

Sid

Yeah, absolutely.

Sid

And I think the most important thing when we talk about layoffs, there’s this view that, oh, my goodness, we’re going into some kind of closed environment. That’s not the case. The layoffs that have happened. My hunch is that 80% of those employees that were laid off have already been rehired in new jobs. It might even be more than that. I mean, this is not an environment where, you know, we’re going into some place where there’s not going to be any opportunities for you to succeed.

Sid

And we’re very lucky, you and I, that we’re in an industry that is actually very important despite this environment. I mean, breaches are going to continue to happen. And you breaches that are popping up every single day, every week, there’s something major that’s happening. Individuals care about potential security risk. And so the likelihood that I industry will fail as a result of this downturn is very low. So the advantage, I’d say, is that while we’re having this cleansing, there’ll still be opportunities to join amazing companies. There’s still an opportunity to go start companies. I’m still very much investing. I actually signed a term sheet just last week with a founder with two founders.

David

Congratulations.

Sid

So thank you. So, you know, it’s as exciting as possible. This is not an environment where we’re all just switching off and disappearing.

David

Yeah, but I think the cyber security in general, like I think we’re collectively slightly morbid and because of what we deal with. So people like to see, oh, you know, it’s a downturn where, you know, some lay offs and so on. But again, I think if you look at the economy, the size of the economy and the size of investment. So even if the investment went down by 20%, the 80% is still left, is significant. And, you know, it’s a matter of national security. We are in a good industry. It looks like we’re just recently the you know, the kind of the Russia and Ukraine conflict is the first one that was combining the kinetic warfare with. Yes, with cyber. And so if things are not, you know, not changing, in fact, is it’s going to be more more security controls, not just for the public sector, but the private sector. And it’s regulations that are enforced right now. So there’s a lot of things that, you know, the same tide floats all boats. I mean, it is it’s the tide is still going on for for cybersecurity.

Sid

Absolutely. Absolutely. And I do not think our market is going to disappear. Sure. We may have a slow year this year. We may have a slow year next year. Maybe spending will stay flat. But do I think that the largest companies in the world are going to cut their security teams and reduce security budget? I would be very, very surprised.

Sid

And the better way that I describe this to people who are not in security, unlike you and me, is when they ask me, why is cybersecurity important? I highlighted I highlight to them that ten, 15 years ago you used to go into a physical bank and used to withdraw money from that physical bank. How many of us go into that physical bank anymore? We all log in to our mobile app or we log into the desktop app. Like how few of us of have spent any time in a bank and as we are, as our as our world is moving more from the physical to the digital, the same way that you have security guards at a bank and you have a security system at a bank. And, you know, you obviously have police. You’re going to have that equivalent group of people in the digital world. And obviously, you and I are lucky to be able to be part of the community that’s powering this.

David

Yeah. And I think that the dependency on, as you mentioned, the digital realm is is only increasing. Yeah. You know, the things that weren’t possible just and I think that the pandemic just accelerated all that, you know, the digital transformation, if you wish it did. Sorry for using the cliche, but but it’s happening more and more. And as as we become more digitised as a society, security is just part of it, for sure. And you know, and then there’s more devices, right? So we’re going to have more and more like, you know, the Iot devices, you know, as soon enough your t shirt is going to start talking to you and and who knows, maybe somebody’s going to hack that t shirt.

Sid

Exactly. And the more things that go online, the more things that move the digital world, the more risks that that creates for all of us.

David

So, you know, so you’ve had how many conversations with like founders do you think like total from from the moment you started doing like how many like I was just oh, 3 hours. Do you think.

Sid

That’s got to be?

David

Because, you know, that’s the 10000 hours you become an expert. That’s it. You have you have those for sure.

Sid

For sure. I would say on average, I see somewhere between 500 to 1000 companies a year, and that’s 500 to 1000 companies where I’m spending some amount of short period of time. I think I probably spend real time with a. About 400 to 500 of them. And then I spend a lot of time with probably about 50 to 100 of them. And I invest, as I mentioned, in somewhere between 1 to 3 of them. So I think I spend enough time of kind of, you know.

David

So that that leads me to the next question, which coming from you as a as a career is quite a bit of cloud. Yeah. So we talked about the enthusiasm, right? You know, they’re like belief that your whatever you’re doing is going to be successful. Well, out the what are the pillars of success in a founder needs to have as an attribute or if you can put people in like the top two or three things that make them successful, you know, and break through the odds because the odds are against you. Right. So what would those be?

Sid

Oh, that’s a that’s a.

David

It’s to everybody’s watching is this conversation is completely unscripted. So I see these doing a phenomenal job tackling these answers.

Sid

No, that’s that’s a thank you. There’s a great question that you’re asking me. So, you know, I wish that there were like one or two pillars. But if I was to say, like the most important thing is this earlier conversation that we had around kind of like constantly being on the best founders. They’re constantly thinking about what’s going on with their company. They are they’re never off. They are 100% on for the company, for the market, for that. So they.

David

Have to be a little A.D.D..

Sid

A little bit A.D.D., and that is that is important. That’s that’s incredibly important. And, you know, that’s all connected to like hard working and a hustler. And, you know, all those things are interconnected, but constantly on. Second thing probably is never take no for an answer. And another way that people describe that is positive attitude. I mean, even when the worst of the worst is happening.

David

I think that the you know, the Israeli word for the almost.

Sid

That’s right. It is like huge. You’re absolutely right. Like they never take no for an answer. They’re always trying to figure out, well, what can I do? They they never go down when something bad happens and bad stuff happens all the time. Like all the time. Sometimes you your customer is so unhappy with you, they’re going to cancel the deal and you have to go and figure out what does it take? Do I need a gun? Fly to Israel? Do I need to fly to Europe and convince somebody to spend some time?

David

Yeah, it’s amazing. Those those amazing.

David

And again, coming from you. So we’ve done all these conversations and have dealt with so many of these, you know, carries a lot of clout. So any kind of it’s just before we part ways I know you get to go any exciting technologies you know any development in cyber that you are you know close to and see that is is an area for growth or for businesses.

Sid

Yeah. It’s kind of for me, what was what we’ve seen really grow over the last two years is cloud security. I mean, suddenly the cloud, everything has moved to the cloud and the like. This was being talked about for 5 to 7 years. This is not new information reinvent, which is another big conference that happens here in Las Vegas, as happened for years and years and years, over a decade of, you know, reinvent conferences that we have seen.

Sid

But what happened in the pandemic was two core things that completely changed how companies thought about infrastructure. One was the fact that everybody was stuck at home, which is obviously something that we had never expected to happen, at least in our lifetimes. And the whole world being stuck at home caused companies to recognize the value of the cloud, which at the board level wasn’t clear. And one of those value points was around kind of the ability to spin up and spin down infrastructure very quickly.

Sid

So United Airlines, which got us here in Las Vegas, likely of one of the other core airlines during the beginning of the pandemic, had no traffic. But if you had physical data centers, you couldn’t just close them down and have them disappear. If you were in the cloud, you had the ability to have flexible infrastructure increase or decrease. United had a very difficult time. The early part of the pandemic, the opposite of this is Instacart, which had an enormously good time. We were all ordering groceries on Instacart or DoorDash for delivering food.

David

It’s amazing how there was a digital divide like it did. You know winners and losers from this pandemic?

Sid

Exactly.

David

Credible.

Sid

But the core the core difference for for boards was really recognizing that cloud infrastructure allows you to spin up and spin down in front, which ultimately allows you to reduce cost very quickly. It’s this subscription service. It’s basically, hey, you don’t need to have a real estate footprint of data centers. Somebody else will have them. And they’re going to be companies that are doing really well when you’re doing badly and you can kind of transfer that data and that that pricing model.

Sid

The second advantage. With this flexibility that the cloud infrastructure provides you, which is that middle of the pandemic. If you had a physical data center footprint, you had to go and physically install a box for a new application. And that was impossible because you couldn’t leave your home to go to the data center. It was actually legal for you to go to the data center, and the opposite was true with cloud, which was that you could enable new SAS applications immediately. That was a huge, huge advantage. So those two combinations really allowed cloud infrastructure to become important. And of course, securing that infrastructure is completely different because you don’t own the data center. Yeah.

David

And we see a whole ecosystem of companies that are security, clouds, cloud and multi-cloud and so on. So there’s the whole environment is built on top of and top of those for sure.

Sid

And if you had walked and I’m sure you did our assays stage this year, two months ago, I think the big theme was cloud security. And my hunch is I haven’t yet had a chance to go into Black Hats Expo floor, but I’m sure it’s going to be the same, I think going forward. What’s next? Where do I think we’re going to see the next big focus? My personal perception is that it’s application security. The reason for that is as we’re moving to the cloud, we have to take full advantage of the cloud. I described those two advantages, but those advantages are more external there for companies.

Sid

There’s also an internal advantage, which is how you do product development in the cloud, and that advantage is very much so around. Well, now the engineers can access that infrastructure directly. Security doesn’t have to get involved. And right now security feels more like a bottleneck. So you will need a whole set of new security testing tooling to meet. You need to think about areas like API security. You’re going to have to think about the DevOps pipeline and how you fit in and how you embed into that DevOps pipeline to enable this agile development from happening.

David

Well, you know, we we recorded also next year at Black Hat, we’re going to have to come and revisit that to make sure that, you know, your your projections are true for sure.

Sid

I’m excited. Well, I’m excited. And my hope would be, if I’m right next year, the Expo Hall will be really focused on application security.

David

Yeah. And knowing you, you know, you probably put your money where your mouth is. Absolutely. Absolutely. Speaking as well. You know.

Sid

I’m investing in this. And you are absolutely right, David, that that is very much the last three investments I’ve done have been very much around this periphery.

David

Anyway, thanks so much for for coming over much appreciate it. And I’m looking forward to hanging out tonight, maybe the after hours.

Sid

So I’m looking forward to it, too.

David

Thanks for dropping by.

Sid

Thanks so much. Thank you. Thank you.