How Accel Captures Companies Outside Traditional VC Reach

Great to be here.

Of course. Of course. Yeah, great question. I mean, I think if you think about Excel as a firm, you know, it started over 40 years ago, and it started around the core business of early-stage venture capital. And I will say, regardless of all the evolutions in the space, including our own evolution, that continues to be the focus of our firm, which is early-stage, seed, Series A venture capital. The two probably biggest evolutions for the firm over the last two decades have been this unrelenting desire to expand the platform and the reach. You know, with much of it being related to the fact that inevitably we want to hold ourselves accountable to being, you know, the lead investors or an investor in the defining companies around the world. And if you think about how much technology has shifted the last 20 years, there's tremendous opportunity to build those types of technology companies in Europe, in Israel, in India, in China, and, you know, soon to be obviously Latin America, Africa, you know, over the coming decades. And so we really globalized the firm, and one of the early, you know, Silicon Valley venture firms to make that choice. So we, you know, launched Excel London or Excel Europe, which also covers Israel, back in the early parts of the 2000s. We then launched Excel India in 2008, 2009, with a really unique focus of, you know, building our own team so that those regions have their own funds, their own early-stage funds, their own partners that are running those funds, canvassing those locations and those geographies for the, you know, the really interesting up-and-coming technology companies. And so that choice to drive globalization in the firm and try to intersect these companies globally was a really important step for Excel and one we're really proud of. Not only because it's, you know, resulted in being able to invest in some incredible companies and build the firm's reach into these markets, but also because we've built incredible partnerships and, you know, integrated ourselves into different cultures and got to know different people and all those things and built great relationships with our own partners and all the entrepreneurs in those markets. So globalization's been a big change for us and evolution. And I say the second thing, in 2008, right during the financial crisis, interestingly enough, we decided to launch our growth fund. And our growth fund, as we thought about it, really wasn't sort of what you think about as like late-stage venture. It was more wrapped around this idea of there's all these incredible bootstrapped technology companies around the world, and, you know, they don't really look like a traditional Series A, and nor can you attack those opportunities with a $500 million early-stage venture fund. But if we, you know, build a growth practice which, you know, leverages the Excel brand, the Excel knowledge of the early stage, and reaches out into the network and into the world to find really interesting, more mature companies, you know, we have the opportunity to make great investments and deliver great returns for our limited partners. And that was in 2008. And that sort of set off a chain of events that have led us to having a really well-established and large-stage practice where our core of that still is in the bootstrapped growth technology companies around the world, and many of those companies actually come from our early-stage practice. We're very fortunate to, you know, be investors in a lot of defining companies globally in the early stage, but also a lot of new opportunities that we wouldn't have intersected ever if we just had an early-stage fund.

You know, some examples of that would be Atlassian. You know, Atlassian was this incredible software business in Sydney, Australia, that was sort of far afield from Silicon Valley and everywhere else and had never raised any capital. I think Scott and Mike, you know, built their business on their credit cards. And, you know, we had tried for many years to intersect and, you know, open up a conversation to allow us to invest in the company. And fortunately, over time, we were able to structure an investment with our growth fund that was commensurate with their size and with the opportunity that was ahead of them. Qualtrics is another great example of that. Ryan Smith and Jared Smith, you know, that was another bootstrapped software business. Squarespace in New York City, in Manhattan, Anthony Casalena, bootstrapped business. CrowdStrike, another incredible company that we intersected with our growth fund. So that later-stage opportunity, which we practice globally, has really opened up the aperture for Excel to not only be in the best and most defining early-stage companies, but to leverage the platform, our knowledge, and our relationships to be able to become a partner even later in the gestation cycle for a lot of companies, which is, you know, companies are staying private longer, companies don't need as much capital, or at least pre-AI didn't need as much capital to get going and build their business. And so I think for us, you know, the Excel that was founded in the mid-80s as a venture firm, now is a firm that is multi-stage, is global, and I think we're really proud of what we built. Now, that doesn't come without challenges, right? You know, because anytime you add complexity to an organization and to an opportunity set, there's an obvious tax that one has to pay: communication tax, coordination tax, you know, right-hand talking to the left-hand tax, you know, strategy and, you know, what's your thesis in certain categories? Is that an early-stage category or a later-stage category? So it requires, you know, a level of cooperation and communication and a really strong sense of partnership between the global partners to make it work. But I think, you know, if you look at what we've been able to accomplish, whatever tax there is to pay, you know, I think we've been rewarded in the opportunity set that's been created.

I think historically, you know, Sequoia had their India practice, they have a European practice, they have early stage, they have late stage. Index, I think, was, and I never love talking about other firms because they're all great firms, but I just don't know their strategy per se at the level that I probably should, but Index historically was Europe and US and Israel, unless I think, you know, Southeast Asia, India and those markets. But I think there is a contrast between there are certain firms that have stayed very, very focused on the early stage and that is their lane and they stay, you know, sort of a very similar bucket of fund size, $500, $600, $650 million, and they do early-stage investing. And then there's another bucket of firms that have, you know, decided to either globalize their practice and practice the business in different markets and expand that way, or also append and open up a more later-stage business. And those are two very different paths. And I think it all comes down to that. The great thing about building a firm and being part of a firm is, you know, there's a bunch of different ways in which you can take things. And it really, I think, what I've always admired about Excel, it's always been driven off of one or two partners' personal ambition. All the things that I talked about in terms of the evolutions of Excel over the last 40 years have been built around the idea that any one individual can raise their hand and say, you know what, I really think there's a great opportunity in Europe. And in many ways, that was, you know, Jim Schwarz, one of the co-founders of the firm with Arthur Patterson back in the early 2000s, raising his hand and saying, we want to go attack Europe. We think there's a great opportunity. It might take a little bit of time for it to harden and for the ecosystem to be ready, but we want to be first. We want to be early. Same thing in India. Partner Samir Gandhi, you know, raised his hand in 2008, 2009 and said, we need to be in India. There's a huge opportunity and there's a great partnership to be built there. And so that's one of the things I really love about Excel. And I think that's the same for a lot of firms. I think it usually is driven by the ambitions of one or two people who say, you know what, we want to go and do this and plant our flag in this new area. And, you know, it doesn't mean that it's always going to work. Sometimes you have to retreat. Sometimes you have to evolve and change paths, but it is a pretty malleable business and one that allows you to move pretty quickly into new opportunity sets.

Yeah, luckily, you know, just the sort of culture of the firm is to think long term. And I think if you think about technology's impact over the next 5, 10, 15, 20 years, it's our belief that there's going to be a tremendous opportunity globally, and there are going to be technology hubs or centers around the world where, you know, great entrepreneurship and great technology companies are going to be built, and we want to be there. And so I think we're firmly... We're in the camp of, and again, maybe we're drinking our own Kool-Aid. So, you know, I can definitely understand if that could be other people's perspective, but we're in the camp of believing in the global opportunity. And so far the results for us, it's not just like a, you know, subjective feeling. The objective results for us in terms of what really counts for our business, which is returns for our investors, have been really good. And if you look at like many of the defining companies in Europe or in India, you know, many of them we have luckily been a part of. And we think the number of those is going to only increase in the future. And, you know, there's a lot of uncertainty in the world today, obviously, and there's uncertainty around the current technological transformation that AI is bringing. There's uncertainty in geopolitical aspects of the world. You know, there's uncertainty in the macroeconomy as relates to trade and a bunch of these other things. But what is absolutely certain is that the march of technological transformation will continue, and it will continue at an increasingly rapid pace, and that is not just a US phenomenon, that is a global phenomenon, and one that we want to participate in.

Yeah. Well, you know, I grew up in the Bay Area, actually in the North Bay, so in Sonoma County, and, you know, I grew up in kind of a traditional middle-class family. My dad was a general contractor, my mom was a homemaker, and had a great life. And went off to school and went to the University of Arizona in Tucson. My mom is from a big Southern ranching family in Arizona, and so there's a strong affinity towards the University of Arizona that we all had since we were born, basically, and went there. And I studied business when I wasn't studying, having a really good time, and met my wife there, actually, my freshman year. And when I graduated, decided to move back to the Bay Area and was really, really fascinated with the internet. Like this was, you know, I graduated in '98, and, you know, being in school with the rise of Mosaic and Netscape and, you know, Internet Explorer, and, you know, all of a sudden you could email to keep in touch with all your friends, and you had IRC chat, and you could read like the day's sports box scores or today's news on the internet. You didn't have to like wait to go to the library to unfurl the newspaper that was sent in by the Southwest Airlines plane that landed, you know, the next day. And so I just was fascinated with the internet from an information retrieval perspective and a communication perspective. So very, you know, consumerish-oriented use cases. And I said, I want to go work for an internet company, and I was completely unqualified to do that. But I was very fortunate and very blessed to have Yahoo accept my application, first of all, to actually be willing to talk to me, and then ended up hiring me. And I joined Yahoo in 1998, and the company was still relatively small, but, you know, pound for pound was probably the most important internet company at that point. And that afforded me the opportunity to work really hard and spend every day learning something new and creating something new. You know, a lot of people ask me about like, man, like early on in your career, you, you know, you ascended so quickly at Yahoo, like, you know, what did you do that was so unique? And part of it was like we were making this stuff up as we went along. There wasn't like anyone that you could hire above me that was like knew what to do with like internet business models. And so you might as well not pay me very much and let me create something or invent something along with all these other really smart people, then, you know, hire someone that didn't know what we were doing anyways. And so it was this really, really unique time where I just think about, man, if I had graduated five years earlier, like what would my life be like today? But very fortunately, I graduated at the right time and was able to work at an incredible company. And, you know, probably the blessing and the curse of Yahoo was that it was, you know, attempting to be everything to everyone. In many ways, it was attempting just to be like an abstraction layer of the internet of everything that you could do on the internet in one user interface. So mail, communication, search, news, finance, sports, real estate, automotive, you name it. Small business products. And obviously, part of the curse of that is you're spread really thin. And what are you great at? You know, Yahoo initially was known for the directory and being the place that you found interesting websites on the internet, i.e., search. And perhaps if we just would have stuck with that, you know, the company would have a very different trajectory even today. But the blessing for me as a young person was that I got to experience all of these things. I got to work in all these different segments of the internet and learn about messaging and communication and information retrieval and search and all the data center infrastructure required to be able to do those things and learn about the media business models and learn about music and movies and all these industries. And I think it just positioned me really well and drove that sort of that foundational intellectual curiosity that I think is necessary to be a good venture capitalist. You know, like you have to be curious about all these new things that are happening around you. And Yahoo was a great breeding ground for that. It also was a fantastic place to build a network because some of the smartest and brightest people of the time were working there. And if you look at some phenomenal companies that have come out of Yahoo, you know, henceforth, whether it be WhatsApp or Cloudera or Slack, MyFitnessPal, you know, there's many more that I'm probably missing, but that diaspora of people at Yahoo ended up being incredible entrepreneurs and creating a lot of really, really interesting companies. And that connectivity that I had, I think, helped really launch me into my venture capital career because I'm a believer in, as it relates to venture capital, it's one of those jobs that it's really easy to do on the surface. It turns out like it's really hard to be good at it. And I think in many ways, if you're not coming out of the gates, it's kind of like horse racing. Like if you're not coming out of the gate with a great start, winning that race is really hard. If you stumble or get behind all the other horses, it's just hard because it's a business where virtuous cycles are really important in terms of, you know, early success. And I was really fortunate in my venture career when I decided to join Excel in 2006, end of 2006, beginning of 2007, that I was in this position where many incredible entrepreneurs were going to come out of Yahoo and I was going to be able to back them. And so whether it be Stuart at Slack, it wasn't Slack to begin with. I'm sure you know the story. Everyone sort of knows the story of the failed game to a team communication platform, or Amr and Cloudera, or Albert Lee and MyFitnessPal, or what have you. Like that really enabled me to get off to a great start in my career, which I think, you know, gave me confidence because, you know, venture in many ways as well, you have to have a lot of confidence. I mean, everyone's like, well, you know, you're investing other people's money and how hard is it? And it's like, just do the deals. And it's like, well, yeah, well, first of all, like there's not that many great investments. And then you have to like position yourself to actually win them. And then you have to have the confidence to be like, yeah, I want to be a part of this. And I feel there's more pulling me towards like doing this than the fear of not doing it. But there's always fear, especially when you're young in your venture career. And so I think having some early wins gave me a lot of confidence to trust my instincts in the business. And it's been a lot of fun doing investments at Excel over the last, you know, like as you say, close to 20 years or 19 years. It's a real privilege to be able to do the job and do it at a place like Excel.

Yeah, I mean, I kind of, we talked about it a little bit. I mean, there's just so much uncertainty, right? Like what's, you know, going to happen in the foundational model space? What does commoditization in that space look like? And what does traditional, whether it be consumer or enterprise software businesses look like in a world where things are being disrupted from an AI point of view, whether that be from the interface to the actual product inputs? And so I would say it's a really difficult time to find your bearings and to make investment decisions. I would also say it reminds me a little bit, at least in certain sectors of it, a little bit like 1998 and 1999, because if you remember that time, which you're probably too young and you don't remember, so, but I'm sure, but you're an astute observer of history, so I'm sure you've read it wasn't cheap to start companies in 1999 and 1998, right? It's like, oh, we got to go buy Oracle and then Sun Solaris, and like we had to build our own data center, and like it wasn't cheap to go build these. So like when you raised a round of venture capital back then, a lot of it went to like your hardware and your infrastructure, not even the product or the go-to-market. And in many ways, I feel right now in certain categories of AI, I mean, the size of these rounds, the amount of capital being deployed, the amount of burn and spend in building these businesses is incredible. And I'm very hopeful that will result in the defining companies of the future. I think it obviously will, but make no mistake about it, there's going to be a lot of edits on the cutting room floor that don't quite make it to the Oscars, right? And so that is challenging because you have a couple of different challenges. You have the speed of innovation and the disruption. You have the size of the investments and the capital requirements of some of the things that are innovating at a very brisk pace, just given their gross margin structures. And then you have a little bit of a fear of the hollowing out of the traditional segments of investment categories where, you know, we've been really successful, enterprise software or security or any of those areas. And so, you know, you kind of look at those businesses with a little bit of a different lens, and then you look at these new businesses and are like, whoa, these are growing really quickly, and it's really exciting, but wow, they're burning a lot of money. And so I think our heritage is always to have a very thesis-driven approach to investing, to have this idea of what we call the, you know, prepared mind. And in many ways, that is just about having an idea and a conviction in certain categories. So really go and spend a lot of time in certain categories within artificial intelligence or within consumer or within defense tech or whatever it might be, and come up with a theory of the case of what we're going to be looking for in a company. And obviously that starts front and center with the entrepreneur themselves. I've tended in my career to probably overweight that maybe too much, but that's always been the most important thing for me because there's so many unknowns when you're building these businesses. But start with the entrepreneur and then think about the category that they're attacking. And then think about the shape of the business model. The business model will be immature, but as it matures, what is it going to look like? And then build a portfolio and don't be afraid to make investments. Invest in the categories that you've done the work and that you really believe in. And so that's our focus. And in terms of categories, I don't think I'm going to come at this looking like I'm some savant in terms of the categories that are interesting in today's technological landscape. They're going to be the same categories that everyone else knows are interesting. There's not, from my perspective, a contrarian idea around that. In AI, it's the foundational model companies. It's all the infrastructure and APIs around that. It's, you know, API applications. There are certain categories within API applications that I think are more hardened and are working faster than other categories. I think customer support, codegen, legal, some of these things, you see the ROI today and it's working. And there's others that I think are still TBD that will take longer and, you know, have more risk around what the shape of success looks like for those categories. I think the risk in those categories that I just talked about formerly, the risk there is just who's going to win. And I think the other really interesting aspect of venture capital today that, from my perspective, is pretty different than it was when I first started, you know, whatever, 20 years ago. Let's just round up for the sake of it. It's easier to say. And even at my time at Yahoo, like a big part of our belief system as venture capitalists and as startups was, wow, we sure can move a lot faster than the big incumbent companies. And, you know, because you have to be a little bit nuts to take on the large companies in all these different categories, but the bet was always like a focused team running really quickly, running on new rails from a technological perspective could outmaneuver just about anyone. And obviously I still believe that fundamentally, but I think I would be remiss not to point out the fact that the larger companies, the Googles, the Microsofts, the Amazons, all those companies, they're pretty good at building products and moving quickly and adopting new technologies. And I think you just have to take that into consideration now more than you did maybe 20 years ago. And so I think that also is an input or a variable as you think about categories that you want to invest in and something that we think about as a firm.