A conversation with Jason Lemkin of SaaStr

This is a series of interviews focusing on the untold stories of successful entrepreneurs.

Jason Lemkin has co-founded two successful startups. One of them was EchoSign, which was acquired for $400 million by Adobe. He also co-founded NanoGram Devices, which was acquired for $50 million just 13 months after launching.  Jason is now a Venture Capitalist and just raised a fund of $70 million.

Talked about: Overcoming challenges at EchoSign, difficulties raising a VC fund, mistakes made by SaaS founders, hiring executives, and starting a company today.

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Raad: At the early stage of starting Echosign when you were just getting started, what were some of the biggest challenges you faced and how did you overcome them? 

Jason: It was a long time ago in internet time. The biggest challenge we really faced 10 years ago when we got started where how tiny the SaaS markets were. I projected $2m in ARR in our first 12 months -- in 2006. I thought we were a failure for hitting a fraction of that, but looking back, we actually did well our first year. The markets are just 100x+ bigger today.

Raad: You’ve raised a pretty large fund this past summer, how hard was it? Where do you see the funding landscape going in 2017 for founders and investors? 

Jason: Raising a venture fund is very hard. Much harder than raising money as a CEO. It's a very small and nichey industry, and most of the capital there goes to "re-ups" in subsequent funds, not new funds.

I was fortunate to be able to raise a fairly large round in just a few months. While my track record helped, the incredible support I had from the CEOs I invested in, and also my co-investors, was what made the difference.  I owe a lot of thanks here. My NPS was very high.

Raad: You get a lot of pitches, meet with a lot of companies and make a selective amount of investments each year - what are the most common mistakes that you see from early stage SaaS founders? 

Jason: Everyone makes the same operational mistakes. Hiring the wrong first VP of Sales is the classic SaaStr error 70% of them make (or more). Waiting too long to hire a VP of Demand Gen / Marketing (do this at $20k MRR, not $200k MRR). Hiring one rep to start, not two.

At a strategic level, with my VC hat on, the big mistake is not thinking big enough. I know it's almost trite or annoying to hear, but I also need to see how your business looks at $300m ARR -- not just at $3m in ARR, or $300k in ARR. 

I need to believe you can at least be the next Zendesk. If you aren't dreaming at least that big, I can't invest."

Raad: You have a lot of experience in hiring for executive sales roles and marketing roles, what should founders look for when making a key management hire?

Jason: Hire someone who has sold successful at your target average price point for last year. And for a VPS, make sure you hire someone that has at least directly hired a handful of successful reps. Not just managed them -- but hired them. People don't do enough reference calls on folks their VPS hired. Talk to their team members. That's a key diligence step founders don't do enough of.

Raad: What books or resources do you spend a lot of time reading that you think would be helpful for founders? 

Jason: The SaaSter and From Impossible to Inevitable :) Also, beyond the obvious SaaS folks -- follow and read Auren Hoffman (@auren), who had $1B in exits last year. He has some of the best thinking for founders I know of. I learn from him every time I read something he's put out.

Raad: How would you start a company today, knowing what you know now? 

I think the bar is higher on the dev side. You need a better engineering team, earlier, solving bigger problems. AI and ML and Deep Learning may sound like buzzwords, and they are. But automating a business process often won't be enough in 2017. You need to do something important with the data you generate and analyze. That's harder to do with a hackey-app.

Put differently, if your app is just a hack -- I have to believe that hack can get you to at least $10m in ARR. Then, we can bolt on the 20 engineers from Palantir.

Raad: Awesome, let's end here. Thanks for the time Jason.

Jason: You got it.

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Jason's Suggested Resources

The Saastr Podcast by Saastr, Jason Lemkin and Harry Stebbings - One of my favorite podcasts when it comes to scaling and operating a SaaS business.

From Impossible To Inevitable: How Hyper-Growth Companies Create Predictable Revenue.

Auren Hoffman (@auren) - SaaS founder with $1B in exits last year.

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