Shardul Shah
speaker
103 appearances
1 recordings
1 series
first heard Sep 2024
last heard Sep 2024
Shardul Shah’s voice in public audio — every appearance, attributed to the second.
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Yeah. I mean, the observation, when we started our first growth fund, Our hypothesis was probably three to five X over three to five years, right? I'd just come out of a private equity firm, as had some of my colleagues. And so we had that mentality. And when we looked at the performance of the fund, it turned out there's a power law. There were companies that were 5, 10x plus.
There were very few companies that were actually 3 to 5x over 3 to 5 years. And so we kind of accepted the fact that we're not value investors. We're venture investors at growth stages. We're driven by high conviction. And as a consequence, when we're building our investment cases at growth, we never, it's like, it's super dangerous, I think, to say there's a safe 2x. There's no such thing.
And you alluded to this with the memory of all the activity from 2021. There's no such thing as a safe 2x. And so what we're looking for is definitely 5x plus upside, even at growth investments at late stages at high prices.
I don't know why we're talking about averages. None of us are in the business of mean reversion. If we're making a Series B investment, it's by exception, like Elastic, Series B investment, terrific return, Confluent, Series B investment, terrific return, and the list goes on. So
No, it's not. I mean, we're mixing two time horizons, right? Like when you invest is not when you exit. So the multiples may evolve and change. It turns out the best companies get premium multiples, and again, are above the average multiples that you might be alluding to with multiples coming down. Second, the best companies that are category defining are going to be far more significant.
And so you can afford to pay up. If you look at the averages, I hear you. But from my perspective, there's no reason to look at the averages.
What's the hardest thing? It's kind of identifying if you're delusional or you have conviction. And sometimes it can feel like a thin line when you have such deep conviction. In what ways can you be delusional? You can be lazy. If you skip the details, if you don't do the work, if you stop asking questions and are surprised by new information, those are symptoms of being delusional.
When you have a culture, like an index, we invite agreeable disagreements, right? And it can actually steal your conviction. When I have so much respect for Danny, who we talked about, for Jan, for Martin, for Adriana, Nina, Carlos, Vlad. When they disagree, you take it really seriously. You sleep on it. And when your conviction is unchanged... it's crystal clear that you need to go deeper.
That said, with Wiz, when we were doubling down, we took multiple approaches to it. Top down, look, the cloud market is on a path to a trillion dollar transformation. There's probably $300 billion of spend on cloud service providers. That'll get accelerated by AI compute data demands, right? So we're talking about a trillion, potentially a trillion dollar plus market opportunity.
In comparable categories, there's 5% to 10% attached to security spend. So the cloud security market could be really significant. If you think about most software, like functional software areas, the market leader commands north of 25% market share.
So you do the math on how big could the winner be, and you can apply various discounts on penetration rates and time and so on and so forth, but you get to really significant numbers. Number two, you look at public comps, CrowdStrike, $50 billion plus business. Palo Alto Networks, I think now is like $100 billion plus business. Bottoms up, you know the business.
In four years, the company has grown faster than any company of all time with unbelievable productivity in different segments, in different geographies. From a team perspective, they've gone from strength to strength, adding most recently Dolly as their COO, who's an absolute beast. And so from every dimension, the story is profound. But I don't think it's obvious, right?
Did you get pushback with each round or not? Yes. On what? Price? Progression of company? On every dimension. Like we beat up investment themes, right? So... people, product, technology, competition, traction, market, like every dimension we debate.
Yeah, that's a really good question. You may have the advantage, if I understand correctly, your team's local, right? They're near you. All in person. The advantage of that is like conflict resolution is much easier. You can go for a walk. I really recommend walking meetings, by the way. I learned this from Steve Ward at the time.
He was the chief security officer of Tia Cref, and then he became CISA of Home Depot. Steve, in a prior life, was Secret Service and protecting 42 Bill Clinton. So he's lots of great Bill and Hillary stories. That said, one time, Bill was in a meeting with, at the time, the first female Secretary of State, Madeleine Albright. And they were at it like loggerheads. They were at a disagreement.
And Bill said, hey, Madeline, let's go for a walk. And she said, I'm old, my knees hurt, I don't want to do this. And Bill was like, if we're walking, at least we're headed in the same direction. So, I think when you have a disagreement or challenging conversation, walking, like movement plus heading in the same direction can actually help. be really stimulating.
So it's actually a really good tool. That said, the fundamentals are, I think, trust, mutual respect, and mutual admiration. There's no shortcut. Trust takes time to build and it's easily fractured. So I think it's fair to be really sensitive to that if you value the culture of your organization to get to high quality decisions, which is what I think you imply in seeking truth.
But it takes a lot of effort to nurture. It's especially hard in a venture firm in light of the power law, right? Again, very few companies are going to create returns, which means there's likely to be concentration among different investors, which suggests that you can have a skew of ego or insecurity, which can really fracture trust, respect, and admiration. So there's no shortcut.
You really have to be conscientious about cultivating it.
And what gets worse? Better perspective. I'll give you an example. Vlad, who just joined us, has an uncanny ability to read body language over Zoom. He'll literally Zoom in and look at people's facial movements to take a read on how they're reacting to questions and why. It's beautiful. I love having Vlad on Zoom, and it doesn't matter what part of the world I'm in. What are the disadvantages?
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