George Jagodzinski (00:00):

Today we discuss SaaS, early-stage venture capital, and private equity. We also explore the difference between investing across cultures.

(00:08):

I'm joined by Kenneth Thomas who has his pulse on the early-stage SaaS community. Kenneth is a principal at BackFutures, an early-stage SaaS startup fund. He hosts The Mergers Podcast where finance meets forward momentum. He is also heavily involved in SaaStock, a community and ecosystem for SaaS founders, and he's an expat in London. Please welcome Kenneth.

(00:32):

Welcome to Evolving Industry, a no-BS podcast about business leaders who are successfully weaving technology into their company's DNA to forge a better path forward. If you're looking to actually move the ball forward rather than spinning around in a tornado of buzzwords, you're in the right place. I'm your host, George Jagodzinski.

(01:04):

So you are plugged into the early-stage VC community, and here I am plugged into the enterprise private equity, and I feel a little bit like the old man on the block. Kind of curious, what are the kids up to on the early-stage side? And I guess we'll just start there. Just broadly, what are they like right now? What do they care about? What do they fear?

Kenneth Kashif Thomas (01:28):

I guess the larger thing is that it's gone away from venture in a lot of ways, and I think there's also a deeper fragmentation on that. In Europe, a lot of folks are just not with the venture vibe, which I get. They have a lot of bad stories and stuff, people losing control, things of that nature. But then I guess in a more localized sense here, you have folks that founders just don't want to be dealing with UK investors at all.

(01:53):

I mean, we were doing an event with another VC fund and they were like, "Some of our founders are seed or Series A," so I'm like, "Hey, if you know anyone that's at the stage that you're at as well, let them know. Bring them through." And there were folks that just said, "We don't want to meet UK investors," point-blank. And one of them, a Series A company, went so far as to say, "We'd rather close our doors than take UK money." And I was like, "A bit of"-

George Jagodzinski (01:53):

Jeez!

Kenneth Kashif Thomas (02:17):

I was like, "A bit of a hyperbole there, but I guess everything has a kernel of truth somewhere, right?"

George Jagodzinski (02:20):

Yeah. I mean, things change when you actually are shutting the doors, but what is it about UK investors versus the US that turning them off?

Kenneth Kashif Thomas (02:28):

I really hate to do this age-old American-European thing. I mean, I don't-

George Jagodzinski (02:33):

And we won, we won Canada. That's behind us.

Kenneth Kashif Thomas (02:37):

Yeah. Well, the thing is we're more vision-based. I think a lot of us understand what it means to... how to start from nothing or very little so we can underwrite that, what we typically call the napkin deals. But really, napkin deals means we just have a framework that we can work through really quickly in how we underwrite something at an early stage. Still getting stories about five-year financial plan requests and deep data rooms for a pre-seed deal.

(03:02):

When I was in San Francisco, one thing I also noticed is living history to venture and tech they could speak to. I always had an opportunity to speak to people that were 25 years in the space, people that worked with Steve Jobs, Reid Hoffman worked for one of them back in the day at Sun Microsystems. And that living history is hard to get out here, so maybe that has something to do with it as well.

George Jagodzinski (03:22):

Interesting. It's still that American spirit that's built in, "Let's go conquer the wild west and do some crazy stuff." And maybe there's just whispers of that still, even within the financial worlds, huh?

Kenneth Kashif Thomas (03:35):

Someone made a very interesting point. From a historical context, who are the people that went to America from the old world? Absolute nutjobs. And of that population, who went further west to California? The nutjobs of the nutjobs. So I mean, I think it's in the genes there, in the blood a little bit.

George Jagodzinski (03:54):

Yeah, those parts of culture really last. I did a bunch of work with a couple of Icelandic companies and they still have this Viking mentality where they just hate... They have a word. I wish I'd memorize it, but the word, someone will have to post it to me, it means basically, "We hate process. We don't need process. And everything, we'll just kind of figure it out because we have to and we've always had to." Right? And it's neat how each of those cultures permeate through.

(04:21):

Now, you've gone from America over to Europe and you're trying to build. First of all, tell me about the type of community and ecosystem that you're trying to build and foster over there.

Kenneth Kashif Thomas (04:30):

Well, I think it's started when I'd gone into partnerships in tech because it's very obviously relationship-based. These things don't... If you're lucky, they activate six, 12 months, on average are activated in 18 to 24. So this very much requires activation, building people together, deepening relationships and what that looks like. And eventually, I feel like the end result of that is community in some form or fashion because you can't activate everyone. You activate those who you really align with.

(04:58):

And then as I mentioned with SaaStock, this is a 10-year project in terms of bringing together B2B SaaS founders and operators and bringing them a very specialized, hyper-focused place for them to come together. So that's been an accelerant to what I guess my perception and understanding of what it means, and it's worked out well. I mean, you're able to bring this aspect of inclusivity, leading with value, and I think that's the biggest aspect I do.

(05:26):

And even when I'd speak to founders, it's like even if it's not something for me, maybe I could make an introduction to another investor or a commercial introduction, which I've done before that I've ended up adding to the top lines of certain companies that I've spoken to, and to do that without needing to be asked. You just see that alignment because if you speak to someone, you can underwrite a person to some form or fashion. So that's how it's come across and how I've built my own method, I guess, but yeah.

George Jagodzinski (05:56):

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(06:13):

Give us a shout. We'd love to hear your challenges and turn them into opportunities. Find out more at intevity.com. Now, back to the show.

(06:24):

I hate to generalize, but I'm curious, what's the general profile or profiles that you're seeing of these SaaS founders? Are they more bright-eyed, fresh-eyed, or are they people that have made their way through a few different enterprise SaaS companies and now want to start their own thing? Is it a healthy mix? What's it look like?

Kenneth Kashif Thomas (06:42):

It's kind of split in the same way you see funding round. You have really small, lean guys trying to do something in AI at $1 mil, but then you see it was just a round that was done not long ago with Lakestar and some other folks that was $12.8 million seed for basically adding AI to tax collections. I've seen people in that space, they've been either in that space for so long and now AI is a time where they realize they can automate workflows, really affect these workflows with AI and create a working product out of it, or you have someone that's young that hasn't really worked in this stuff before but had the entrepreneurial mindset, looking to do things.

(07:18):

But I saw an interesting aspect or analysis somewhere that said Gen Z, or was it Gen Z, I guess? Yeah, Gen Z, they're probably the age range now. They haven't known the pathway that, I guess, us millennials were sold, like you go to college, do this, X, Y, Z, da, da, da, da. Everything they've known has been absolute degradation of one's career and outcomes that if you don't have complete ownership of yourself. So they've taken that on their own. So you go west, you look at Cluely and stuff like that where people have just said, "We're just going to do this for ourselves, and whatever happens happens," and taking ownership.

(07:54):

So on the flip side, you have people that have been in it for so long, maybe this is the time they see to take ownership of their own stuff and they have the experience, the domain expertise. We've done both sides on the deal side, the domain expertise and the rebels, so to speak.

George Jagodzinski (08:08):

How is the topic of AI making its way through the investment world? And maybe, and I'm curious if there's unique between America and what you're seeing in Europe.

Kenneth Kashif Thomas (08:19):

So I guess from my own perspective, when we first started in '23, AI was kind of hot. It just came out. Everyone's like, "Oh, this is going to change everything." I chose to stay away from it because I just didn't know much about it and I had a feeling a lot of other people didn't know about it either. Then you see all these iterations of OpenAI and stuff like that and seeing what real value, well, at least fool's gold value was, I guess, in certain things. You see a lot of value wiped out.

(08:45):

Then I was like, "Okay." Then I started developing my own thesis about this. Okay, there's some domain expertise stuff you could get through. People have executed very well on it, and obviously then it becomes the only moat is expertise and execution at that point, right? That's what you underwrite.

(09:00):

And now I've gotten to this place where I just have a hard time getting excited about certain things, which means now just looking at non-sexy industries like tech-for-tech, AI is hard in my opinion. You see high-growth rate and stuff. If it's tech-for-tech, you see explosive growth, but then you have a churn issue. Revenue sustainability is always a major concern, but then people still do it. I think at what point do we become traders and not investors where then it's like, oh, seed investors are usually getting out at Series B, Series A, Series B not completely, versus taking your principal off the table.

(09:39):

So it's really just changing fundamentally a lot of how people will approach this, and I'm not here to say I'm long in the tooth in this stuff in terms of having been in the game, but having spoke with people that have been in it for a very long time, the game is changing very rapidly. So I mean, right now it's just asking yourself, "Why does this use case matter? Is this a real use case? Have you spoken to your customers?" And sometimes the simplest... Occam's razor, right? The simplest answer or outcome is probably the answer, you know?

George Jagodzinski (10:08):

Yeah, yeah. Just make sure you're not getting distracted by the fancy words and just get that back to the root of what the heck are we solving and who are we solving it for, right?

Kenneth Kashif Thomas (10:16):

Yeah. Yeah, exactly.

George Jagodzinski (10:17):

Yeah. Occam's razor never fails. I will say in the past, this year, I'm hearing more CEOs say it out loud than they were last year as far as like, "We need to not be hiring as many people. We need to be doing more with less." I mean, we've always said, "Do more with less," but I'm seeing a notable trend of people not being shy about being very vocal about it. But ultimately, in my mind, it's never really about "let's get rid of people" and it's more about "how can we make our people more powerful, more successful?" Right?

Kenneth Kashif Thomas (10:54):

Yeah. Well, it's weird. My stepdad, he's done a lot of program management, worked in AI for a bit as well himself at an enterprise level, and now he's running these products specifically in healthcare and some other stuff. And to what you said before, a lot of the C-suite doesn't understand what it actually means and how to use and what the value actually is of it. They just say, "We need AI. We need to bring in AI."

(11:16):

And part of it, and part of you want it, is it just for them to reduce headcount and costs? So as opposed to hiring McKinsey, they could just ask AI to do it. And then yeah, there's just a fundamental misunderstanding of why they actually need AI in the first place, which is fine. It's a new technology. Well, I guess new on the stage we know it as, but I think you have a lot of knee-jerk reactions and we've seen this flowing through. It started with VC investors getting hyped about it, and now you have, I guess, regular people getting more in tune with what it actually means, right?

George Jagodzinski (11:49):

Yeah. Yeah, yeah, yeah. Maybe switching gears a little bit, I'd love to pull the thread on the founders and the common trends and themes that you're seeing out there. Maybe one interesting place to start is fundraising. Are you seeing things that maybe before fundraising, they have misconceptions about what it is? Are you seeing common mistakes? I just, I'd love to explore that topic.

Kenneth Kashif Thomas (12:11):

Well, a few things. I think, one, there's a lot more founders because with everything going on with layoffs, there's a lot of layoffs. Now the talent uptake doesn't necessarily correlate with or meet that. A lot of folks aren't going back to traditional industries or into traditional industries, so you have more founders. AI reduces the barrier to be a founder. I don't think everyone should be a founder. I will not be a founder. I think I'll be a great operator, but I don't think I'm the kind of person to be a founder, admittedly.

(12:40):

I guess with that, then obviously you see the 1%. You see, "This round's closed with" whatever story, "little to no revenue" or "no product," a massive round, but they're going to call it a pre-seed or a seed when in reality, it's quite close to a Series A-type deal.

(12:57):

So seeing a bit of that, but then that also confuses people where they say like, "Oh, well, I have an idea and I have a deck, so I should be able to raise this as well," because we all think we're the best. And that's fine. You need to have that mindset to be doing this. But I've been seeing a lot of that. You see these really crazy rounds coming out and people just think, "Oh, money's flowing like it used to be," but in reality, there's a lot of funds that are winding up. There's a lot of attrition going on in the industry. You have a lot of VCs that are going to the operator or founder side now because the pathway to partner was always very hard in a lot of places, but especially in this current market, that's also changing. So, you have those.

(13:33):

And then I won't claim this statement, but there was someone that said, "VCs-turned-founders know exactly what to say, but they might not know how to execute," which was a very interesting thing to say because there's a lot of ex-VCs getting funded for certain things, and it sounds good. You know?

George Jagodzinski (13:49):

Sure.

Kenneth Kashif Thomas (13:49):

I'm going to believe it's good, but a lot of these folks, especially in Europe, I think 1.8% of VCs have ever founded a startup, let alone worked in a startup. So, you could take from that what you will.

George Jagodzinski (14:01):

Well, yeah, I mean, they've seen a million pitches. They know how those pitches are interpreted. They know exactly the right things to say, but once you're in the kitchen cooking, it's a whole different story, right?

Kenneth Kashif Thomas (14:02):

Yeah, exactly.

George Jagodzinski (14:13):

Yeah. And I guess when money's flowing, you can get away with just sociopathic levels of blind self-confidence and that that'll carry you a shockingly, surprisingly far amount. But when you were saying some people shouldn't be founders, you don't want to be a founder, I'm curious, what are the traits that you see that really make people stand out?

Kenneth Kashif Thomas (14:33):

For me, and I've noticed this whether it's someone that's experienced in their domain or someone that's new earlier in their career, and maybe it's just the American in me, I really focus on the story aspect of things. I feel like a lot of people, well, I shouldn't say, "A lot of people." Because I've seen books that look like tombs, tomes, or however you pronounce it. They're very good at telling you the what, like, "This is what it is." A lot of times it's not succinct. I love succinctness, but then also, how does this story actually matter? Why should we care about this?

(15:06):

And I've tried to find very nice ways to ask it, but I've asked so many times, I just lay in that place, "Why should I or anyone else care about this? I understand what you're talking about, but what does it actually mean?" At the early stage, I think it's just the core of what that means. You know?

George Jagodzinski (15:20):

Tell me about the SaaStock community and the events that are going on with that. What are the general vibes and the themes that you're seeing there?

Kenneth Kashif Thomas (15:26):

It's a longstanding community. There's a lot of folks that have taken their entrepreneurial journey, founder journey with SaaStock. Like I said, it's 10 years old. I've seen people start and exit. I mean, for instance, Prasinio, which is a big healthcare company, health tech company out here, or benefits, I guess, they were in SaaStock when they were three people, and they did a few stories that correlate with that. And now we're at that point, which is also the ethos of our fund is folks giving back, BackFuture, back to the future, and we're at that cycle now where it's time for folks to come, give things back to the next generation and help them out.

(16:00):

And I guess from my own experience being an American, when we went to Austin, Texas, it was very interesting because there were people that I hadn't seen in almost seven years, five years that came to Austin to be a part of it. So that was really interesting and bringing all these people together, especially that I knew, and then you had this very intense two, three days, everyone's there, and then they've met for the first time. Then at the end of it, we're leaving, I saw people hugging, shaking hands. I was like, "48 hours ago, these people didn't even know each other. Now there's a true relationship there." People still keep in contact.

(16:34):

It's about B2B SaaS for sure, but I think the connections there speak a lot more to, I guess, the human element of things. And I think with AI and whether it was SaaS, whether it was AI, I think just that aspect of just that human-to-human connection is the underpinning of everything, and as long as you remember that, I think that's what SaaStock is about.

George Jagodzinski (16:55):

And you really accelerate those relationships when you're dealing with the same types of challenges and opportunities. I know when I go to events where it's other founders of consulting companies, professional services companies, there's a fast-forward in our conversations that we could just immediately bond and become immediate best friends, and I see the same thing in the B2B SaaS world.

(17:16):

I feel like a lot of those folks, those founders there, we're working with their companies after they've already had success, they've gone public. Maybe they started off selling to SMB and now they've pivoted to enterprise, and we're having to clean up all of the... Everyone says, "Break stuff and move fast," but then at some point, you do need to start cleaning up from all the breaking stuff that you had done, and that's valid because you don't want to over-engineer at the beginning.

(17:45):

And I'm curious, how's your view of it at the beginning? People are like, "Oh, we're going hardcore SMB, we're going hardcore enterprise," or are you just kind of... Do you just want to see them going in any direction fast or you want to see them truly thinking about it?

Kenneth Kashif Thomas (18:00):

I've noticed a lot of folks just building without a direction. Maybe it comes back to that whole point where lack of uptake of talent in the industry or in the space. And usually now I feel like I find myself asking founders, "Have you spoken to any customers? Are you building with a customer?" And more often than not, the answer is no. They'll typically say, "Oh, we want to get to X point, and then we will start having conversations." I'm like, "Well, you're building off a hypothesis, but you haven't even confirmed this in the conversation, at least one conversation. You want to have multiple ones, but not even a single one?"

(18:36):

But the ones that I see really making strides, they are selling first and then building second and I think that's valid because we're in a space where you can build a lot faster. AI is definitely good for helping that. If you're able to code, you can accelerate that. It allows us to get to the human aspect of things a bit earlier on. That's the biggest thing I've seen for people that have been successful. But then I'll see the folks that aren't talking to customers, and you could tell. You could just tell in the deck, you could tell in the pitch, you could... Yeah, they haven't written down what matters yet.

George Jagodzinski (19:14):

Yeah. It's funny because we'll see that same persona be successful or not successful at the more mature level because maybe they've had a ton of success with SMB over the last decade, made a lot of money, they've gone public, and now they're pivoting to enterprise. They'll spend a year or more building out all this crazy marketing and e-commerce and whatever, but no one's actually even determined, is enterprise going to buy this? Just because SMB did doesn't mean that they're going to, or if they are, maybe it looks completely different, not just a little bit different from what we're doing now.

(19:49):

And so I guess that's maybe a long-winded way of saying that that story is not just important at the founding level, but it's at the scale and the growth stages as well.

Kenneth Kashif Thomas (19:59):

Yeah, and I guess it'd be interesting. I guess a return question is there's always conversation about the first billion dollar, the first unit coordinates run by one person and stuff. And my whole thing is we know how slow enterprise is to move. I mean, sure, and this is away from the SME side. Do you believe even a AI-ified, one-man company can even meet the procurement requirements of a large enterprise? How do you manage multiple enterprise deals at one time while managing a business at the same time, even if you're automated with AI? But it'd be great to get your thoughts on that.

George Jagodzinski (20:32):

Yeah, I think all big ships are hard to pivot. We still have fax machines, so that's still a thing. I think that there's going to be niches out there. That whole one-person billion-dollar company, I don't think it's going to be a common thing. I think there's going to be some, and especially in the early movers, maybe some niches here and there, but when you're making that much money, there are a lot of human things that are going out. There's customers, right? In theory, there are human customers out there that are paying something and they have their own human needs and desires, and AI and robots are not going to go 100% for them. Companies will be less bloated. That's a good thing, right?

(21:16):

And I don't know, in my mind, AI is the same thing as software. It's the same thing as just being more efficient. It's like I think companies will be forced to be more efficient, but it'll be very rare, those one-person billion-dollar companies, I think.

Kenneth Kashif Thomas (21:32):

Yeah, or it'll be like how people say, "Agents buying from agents," right?

George Jagodzinski (21:39):

Yeah, yeah. Well, there's going to be plenty of that as well.

(21:43):

So tell me a little bit about your journey from you were embedded in the American financial world and now you're in Europe. What are the fun, we're talking about humans, what are the fun human differences that you're seeing there?

Kenneth Kashif Thomas (21:58):

If you're able to move at an American pace in Europe, at least in my experience, you could go pretty far. You could do some pretty interesting things. You'll be given an interesting few shots at goal as an American versus anyone localized, but I think that's fair. I mean, when you look at the profile of someone that, again, we spoke about who are the first ones to go to the new world, we talk about who's the person to leave their own country to try to make it happen in another country? There's a level of risk, ownership, and initiative there that you can underwrite at a very early stage, which I think builds well in that direction.

(22:36):

But I think meeting people from countries I probably would've never, well, been to, there's been times where I've met someone and then we ended up going to their country and stuff like that. That's been an interesting aspect. In Europe, you can move around very quickly, but it's radically different from one country to the next in a lot of cases. So that's been... If I may, I know we say America's 50 countries masquerading as one or four regions, four countries as one, but it's all the same language, roughly the similar culture, but out here, it stretches you a bit. That's been very interesting, I think, to see myself become a bit more fluid in that sense and picking up on certain things and being able to interact in different ways.

George Jagodzinski (23:17):

Yeah, I mean, I'm in Boston, and not to throw shade, but I mean, Alabama is very much a different language and a different country than Boston.

Kenneth Kashif Thomas (23:24):

Yeah, yeah.

George Jagodzinski (23:25):

I'd love to finish with a fun question, which is what's the best advice you've ever received?

Kenneth Kashif Thomas (23:30):

The best one I've ever gotten is my mentor from undergrad, PhD economics, Milton Friedman actually mentioned him and he showed me through a lot of times as well. He was saying, "In life, you can either be a participant or a spectator, and if you're not a participant, then you're a spectator and someone's participating for you." That's the one I've kept very much well, and it's helped me with decision-making, speed to decisions, and understanding where my place lies and things because if you don't make a decision for yourself, someone else will.

George Jagodzinski (23:30):

That's great.

Kenneth Kashif Thomas (24:02):

That's the best advice I think I've gotten.

George Jagodzinski (24:04):

I love it, man. Speed-to-decision time, I'm a huge fan of. Ken, thanks again. I really enjoyed this.

Kenneth Kashif Thomas (24:10):

Yeah, thanks for having me. Appreciate it.

George Jagodzinski (24:13):

Thanks for listening to Evolving Industry. For more, subscribe and follow us on your favorite podcast platform and pretty please drop us a review. We'd really appreciate it. If you're watching or listening on YouTube, hit that subscribe button and smash the bell button for notifications.

(24:26):

If you know someone who's pushing the limits to evolve their business, reach out to the show at evolvingindustry@intevity.com. Reach out to me, George Jagodzinski on LinkedIn. I love speaking with people getting the hard work done. The business environment's always changing, and you're either keeping up or going extinct. We'll catch you next time, and until then, keep evolving.