Letter #138: Chetan Puttagunta and Caryn Marooney (2023)
Partner at Benchmark and Partner at Coatue | The Investor Perspective: From Start to Scale
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Today’s letter is the transcript of a conversation between Chetan Puttagunta and Caryn Marooney. In this conversation, the two discuss how to think about investing in AI, Chetan’s portfolio company MindsDB, the concentration of AI talent in large enterprises, Caryn’s investment in RunwayML, the internet bubble and Amazon dot bomb, Caryn’s perspective on the similarities and differences between with Mark Zuckerberg and Marc Benioff after having worked with them through multiple cycles, the most common mistake founders make, getting your first customers, why you shouldn’t be scared of professional services. The conversation ends with a few words of advice for founders from Benchmark and from Caryn. (Note: this letter was released on a Wednesday, but will return to regular scheduling this Saturday.)
Chetan is a Partner at Benchmark. Prior to Benchmark, Chetan was a General Partner at NEA, where he invested in and served on the boards of companies such as MongoDB ($25bn market cap), Elastic ($7.5bn market cap), Mulesoft ($6.5bn acquisition), Acquia ($1bn acquisition), and ScoutFRP ($540mn acquisition). Prior to NEA, Chetan spent time in private equity at HIG Capital and investment banking at Houlihan Lokey.
Caryn is a General Partner at Coatue. Prior to Coatue, Caryn spent nearly a decade at Facebook, where she ran global communications for the Family of Apps (Facebook, WhatsApp, Instagram, Messenger, and AR/VR including Oculus and Portal - for more on this, see this research report [paywalled]) as VP Global Communications. Before joining Facebook, Caryn cofounded and served as CEO of The OutCast Agency, where she served clients including Amazon, Netflix, Facebook, Salesforce.com, VMware, EMC, and Arcsight.
I hope you enjoy this conversation as much as I did! Unlike most one-sided interviews, this was interviews, this was truly a conversation between two practitioners in Chetan and Caryn.
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Bill Gurley Compilation (652 pages)
Mitch Lasky Compilation (474 pages)
Sarah Tavel Compilation (300 pages)
Coatue
Tiger Ecosystem
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Transcript
Caryn Marooney: Thank you guys for having us. It's... so Chetan never speaks.
Chetan Puttagunta: True.
Caryn Marooney: This was a deal where I was like, let's do it, it'll be fun! And he said, Well, I never speak. And then he said, Okay. So...
Chetan Puttagunta: I'm doing it because... yeah, you're right. I don't usually do events, but here we are. It's great. And thank you for having us. I'll start by introducing Caryn and giving you a little bit of her background. I've worked with Caryn for a long time now. We're on the board of Elastic together. We also work on Airbyte together. She's a General Partner at Coatue, where she's led investments in some amazing companies, including Runway, Abacus, Supabase, Notion, Starburst, and several others. And before that, Caryn led global communications for Facebook and all of the apps of Facebook including Instagram, Messenger, WhatsApp, and Oculus. And before that, Caryn cofounded OutCast communications. And if you haven't heard of that name before, OutCast was the premier PR and communications firm in Silicon Valley. And so if you had made it as a company, you worked with Caryn. And so she represented communication strategies for companies like Amazon, Salesforce, Netflix, VMware, and basically all the best companies in Silicon Valley. So...
Caryn Marooney: And a lot of them that weren't, but we don't talk of them. It's one of those I only mention the other ones.
Chetan Puttagunta: Right. But aspirationally, you always wanted to work with Caryn if you wanted to do any PR and communications.
Caryn Marooney: That's so... thank you. I mean, okay, Chetan. Everybody has to know Benchmark, right? I'm assuming. Yes. Okay. So Benchmark is the premier early stage VC firm, period. Other firms come and go, other firms have lots of different focuses, Benchmark is it. And I think people don't realize that the secret sauce for Benchmark is that there are equal partners. And that matters, because when you work with Benchmark, you work with all of the partners. And I think people say that, but it's in the fabric of staying consistent, staying a team. And I've seen it for years and years and years. So I get to be on the board of Elastic with Chetan, we work with Airbyte together. But I've seen throughout the years, the most important companies in the world work with Benchmark. And to see Chetan and his partners in the boardroom is the difference between having one of those real coaches and having an investor. It's an entirely different level of input and strategic thought and care that I'm blown away by. So Chetan, we said Elastic, we said Airbyte. Modern Treasury, amazing. MongoDB, Mulesoft, like, really amazing companies. So I'm gonna jump in and start asking you questions now that I've done like, the love fest, which is, beyond I haven't even touched because it's amazing.
Chetan Puttagunta: Great.
Caryn Marooney: AI. Like how can we not start with AI -- thoughts about AI and investing? So you invested in MindsDB, which is very... Okay, I won't... it's about ML into the database. And you invest a lot in open source companies, and some in AI and ML. How are you thinking about investing in AI right now?
Chetan Puttagunta: It's hard to not be dominated by thoughts about AI and ML right now. And I think... I'm sure you're all thinking about it, too. But it's one of those exciting moments in history where it feels pretty significant. And one of the things that's happening right now, which I think is very different than perhaps any technology that we thought about over the last three, four, five years, is that the value proposition, especially where I focus, which is selling to enterprises, is immediate. You can immediately go to an enterprise and deliver value, which is really, really significant. Whether it's cost savings, revenue improvement, whatever, on day one, you can show up and provide benefit, which is a pretty significant thing for enterprise software. As it relates to MindsDB, we invested in Q4 of last year and then announced it, I think, a few months back. It's a super fast growing, open source project that's an enabling technology. It enables application developers to use whatever application database they're using, and then integrate that with whatever ML models, training data, etc. they want to use. And like you said, I've been doing infrastructure software for over a decade now. And part of the sort of common thread amongst all of them is that I really think about what is the enabling technology application developers need to take advantage of the of the current and up and coming technologies. And of course here with AI and machine learning, it's pretty clear that Minds was the enabling technology.
Caryn Marooney: So when you think about... Sorry, did I--
Chetan Puttagunta: No, no. Go for it.
Caryn Marooney: I saw a stat recently that said the top five big tech firms like the Facebook -- I still call it Facebook -- Meta, Amazon, those guys. They have more AI talent than the top 40 large enterprises combined. Yeah. So with all that AI talent focused on the big guys, what does this mean to startups, in your opinion, as you think about startups and investing in AI, with this kind of talent.
Chetan Puttagunta: A lot of it reminds me of being a developer in 2008, 2009, 2010, right around when the App Store came out. And there was a huge rush to develop mobile apps. And then all of a sudden, there were stats at that time that the best mobile developers were all concentrated in big companies, and that the libraries that these big companies had built were so far ahead of anything that any startup could compete. But what ended up happening was, there was a whole new shift of technology that enabled the next generation of developers and companies to catch up and compete asymmetrically. So if there was purely a contest of who could accrue the most ML PhDs, startups wouldn't have a chance. Thankfully, that's not the contest that is being run. It's about providing value to customers, it's about identifying with your customers' problems on day one. And startups, as we know, are better equipped to do that than any big company, period. Which is that you can have founders, developers, engineers, whole companies, focused on your initial set of customers in ways that no big company will ever care about. And so... yes, there is a technical hurdle that you have to come over. And the underlying tools are getting better, the underlying enabling technologies are getting better. And so, they have the advantage, but you can overcome that advantage with customer relationships, differentiation, and stuff like that. But to turn the question back to you, you're on the board of RunwayML, you were ahead, frankly, of a lot of people in identifying AI and machine learning as the next thing to happen. How are you thinking about that, two years into that wave?
Caryn Marooney: Right, okay. So we did a lot of investments a while ago, like in HuggingFace and Weights and Biases, and Runway. And... I'm thinking it's sort of... I got distracted because I saw Harry McCracken in the crowd. Hi. So You distracted me. And I thought like, Oh my God, it's like the internet. So we're in a moment, I'm totally going off, because I just saw... So, remember when it was like, the internet's gonna be really big. And Oh my God... okay, yes. And there were a bunch of huge winners and huge losers in this. So like declaring it's going to be really big feels sort of stupid, but obvious. And saying there's going to be big winners and losers, obvious as well, but there really were. There was a Pets.com and then there was an Amazon. And some magazines put Jeff Bezos on the cover as being the loser, so they got that slightly wrong. Because he was not... it was actually not him that was...
Chetan Puttagunta: Yeah, Amazon dot bomb.
Caryn Marooney: Exactly! That was the cover. And it was like a real close up brief. See the eyeballs? Not hairy story, by the way, just, you're just sort of taking me on this tangent. So I think that there's... when we look at this, who's gonna win here? And how do you figure out what to invest in? When I think about -- so I'm going to take Runway as an example. I was like, Okay, I'm not that smart. So there's a super pragmatic moment in time, where they're creating a video editing tool. So Runway creates a video editing tool using AI. So I can use it today. And then they have a vision for creating some foundational models that is going to change the future of video creation. And they just released Gen 2, which is a text to video, so you can say, Caryn, Chetan sitting on a beach working on their computers, and it'll generate a three second [inaudible] video with that that will get better. But I could picture it being very applicable today and yet it had a big vision. So it was like, Okay, there's enough runway, no pun intended, for it to be able to get to where it needs to be, but it's going to provide a real value today. And I think that is important in any investing, and true for AI, at least for me, about like, are you delivering the value today that will allow you to earn the right for the value you're gonna deliver tomorrow. And I think that was true back then in internet times, and it's true now. So, that's some of them.
Chetan Puttagunta: Well, let's connect -- I'd like to just ask you more about that. So you've worked with many iconic entrepreneurs, but two closely in Marc Benioff and Mark Zuckerberg.
Caryn Marooney: Two Marks.
Chetan Puttagunta: Yeah. And you've worked with them through multiple cycles. And... we're going through another cycle now, where the macro, as you all know, is tough. And the fundraising environment is tough. It's not the same as it was in 2021, or perhaps in the first half of 2022. AI is happening, there's tons of opportunity. How has your advice to founders changed, or stayed the same, as a result of these cycles?
Caryn Marooney: So... okay, have to think about that. So, the two Marks are really, really different, in every way, actually. Which I think is just a reminder to all founders: you don't have to be like anybody else. So don't try to be like another founder that is of the moment, because that's not the thing. Once you're successful, you'll be the founder of the moment. And it's amazing how history rewrites itself on that way. Both of the Marks went through an up and then a down. Zuckerberg with mobile that was a super existential like, we may not exist moment, because Oh, shit, let's go public with how much mobile revenue, it's easy to remember, because it was zero, and an unworking app and all that stuff. Oh, we got to really pivot if this is gonna... And then Benioff launched during the bubble. On a seat-based pricing. So every one of those customers was a startup. And then they went away. So you sort of forget, like, this was really tough. So I think some of this is like, be very aware, I call it like ocean and waves. There's some ocean about who you are and what your company stands for, and why you exist in the world that is constant. Facebook's was constant even through this change: connecting people. Salesforce's believed from the beginning, in the end of software and there was a new model of doing things. Those are constant. But then there's waves. And waves is what's relevant today, what you need to pay attention to, and what other people see. And I think founders and -- sort of confused -- is this a wave or is this my ocean? And you need to be sure in your ocean. And yet very willing to ride some waves, but understand that's not who you are. You're riding a wave.
Chetan Puttagunta: Is that the most common mistake that founders are making? Is that they're not -- they're sort of confusing the two?
Caryn Marooney: I think some... because you can just be like a wave, and then you like, go off. And it's like, Okay, well how does that connect back to why you exist in the world, or what it's going to be. And I think people forget that. And you need to tie back, like, you can't not pay attention to the world changing. But then it's got to tie back to what you're gonna deliver that you can be the absolute best in. You can't just do the thing that everybody else is doing. And I think they both... and then how do you turn that bug into a feature? So like, Benioff ended up going enterprise sooner, because all of a sudden, it was cost cutting versus a bunch of seats. So we thought that was going to take longer. And in some ways, it was like, Oh, okay, we can... sequencing changed a bit because the environment changed. So, paying attention, like, sequencing is a big deal.
Chetan Puttagunta: And I'm sure there's like lots of exec management and leadership pressures to either take a wave and turn right and go off into a direction.
Caryn Marooney: You see this, don't you?
Chetan Puttagunta: Yeah, of course! So how do you keep... What are your... sort of like, how do you keep it all together when there is a wave and there's a part of the team that says we should go all in on this? Whatever we were working on for the last two years is relevant.
Caryn Marooney: Isn't that hard?
Chetan Puttagunta: Yeah, of course.
Caryn Marooney: I mean, that's really hard. I mean, Mark Zuckerberg, famously... it's little things that make a difference. You talk about culture all the time. When it turns back, but... you can say things, but then like, how do you bring it into the fiber of what you do every day? He did something really simple, which was, we're mobile first. Everybody says this, back in the day, you can't ship a desktop product anymore. And people are like, Yeah yeah, but I've been working on this. You couldn't ship a product unless Mark approved it. And you couldn't get into his office unless it was on mobile. So it was this weird thing that you tried to show up with your product you've been working on for six months, and you couldn't get in. And you only need a couple of those where you're standing at the door for the rest of the company to get the memo that like this is legit. And people would just be sad, but then you're like, No, no, don't bother. So I think there's the sense too, and this is like, understanding where your customers are and what they're doing, I'm going to connect this, because Mark was like the world was going to mobile, Benioff was like people are tired of paying for things like this that doesn't work that way everybody's going. You talk a lot about product led growth, being connected to customers, the importance of customer service, like, I think people forget this, and I'd like to tie it back to that.
Chetan Puttagunta: Yeah, one of the things at the very inception of a company that I always think about is, Can you get the first five lighthouse customers? Can you establish patterns amongst those five customers that apply horizontally across the first five, and so that you don't become sort of professional services for one big customer?
Caryn Marooney: I think people just -- I sort of want you to say that again. Because I'm in these meetings, and you're in these meetings, and people are like, Professional services is expensive, and I'm not a services org, so I'm not doing it. It doesn't scale. And then I think they...
Chetan Puttagunta: Yeah, and so, you've heard me say this over and over again.
Caryn Marooney: And I think you're right.
Chetan Puttagunta: I think being scared of professional services is this weird dogma that's shown up in our ecosystem, that doesn't make any sense. It's... if you just look historically at whatever great software company you want to look at, and you look at the early days of what that software looked like, it looked a lot like professional services software. With the small caveat, which ends up being a big caveat later, which is that they never did anything for one specific customer. They did things they thought were horizontally scalable across their target market. And so... there are lots of examples of this if you go back in history. If you look at the initial revenue of Veeva, Workday, etc, etc, you can see that a lot of their initial booked revenue looked like professional services revenue. In fact, some of these companies had negative gross margin for a product company that's like, outrageous.
Caryn Marooney: [Squeal.]
Chetan Puttagunta: Yeah, exactly. But, what they were doing was super intelligent, which was that they were commercially engaging target customers in a very deep way, putting their platforms into these customers, and getting their customers live with them. And as we all know, your customers don't really have much time to become experts on your piece of software, they kind of just want to do a job and solve a problem. And they don't have much time to figure out how to do that on your product. And so part of it is you learning as a company, helping the customer learn how to use your software. And then once you do it a couple of times, the patterns start to become obvious. And I think this is where like, product-led growth, and letting the market pull you in makes a lot of sense. But first of all, you have to identify exactly what the customers want. In our board meetings, I often use the phrase, like, You just can't guess. Like, it's hard. And that's what most of our instincts lead us to, which is that we're just simply guessing. And we're trying to sort of like figure it out.
Caryn Marooney: Wait, wait. I'm totally going to do this to you right now. Because I know we have this group here. And I have a General Partner with Benchmark here. And it's just us. So, what advice would you give founders today from Benchmark? How has it changed? Like you've been doing this for a while. And I just think people are curious.
Chetan Puttagunta: With 30 seconds to go.
Caryn Marooney: I know. I was like, it'll be fine.
Chetan Puttagunta: I think one of the things that is... as far as us, we do early stage investing. We do the same number of investments regardless of macrocycle. So it's usually, call it about seven to ten [crosstalk]. Seven to 10 investments, and they're usually Seed or Series A. And one of the things that we always talk about is that there's a deep need to focus on the short term and accomplish the things that are right in front of you, while also setting yourself up for endurance, which is that you just kind of have to be around, for your stuff to work. And one of the things that we all think about is like, what was the time to get to $100mn in revenue? Or what was your time to get to $20mn in revenue? How fast does your revenue scale, and stuff like that. That actually doesn't really matter in the long term. It might take you three, four, five years to hit the initial revenue, and then scale.
Caryn Marooney: You're right. Ivan was here yesterday from Notion, he worked on the product for years before it had an inflection point. Like I really... sorry to interrupt.
Chetan Puttagunta: Oh, I was just going to say, You just have to hang around. You just have to be around for your moment to happen. And I do think that everybody will get to that moment, they just have to last. So anyway, we're now out of time.
Caryn Marooney: No. And I think that's the... like, don't give up, focus, and outlast. Outlast. There's something to showing up every day. There is something to it. Thank you.
Chetan Puttagunta: Thank you for having us.
Caryn Marooney: Thank you very much for having us.
Wrap-up
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