SaaS Interviews with CEOs, Startups, Founders
1063 How We Spent $7m To Spin Crunchbase Out of AOL
22 Jun 2018
Chapter 1: What is the main topic discussed in this episode?
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Good morning, everybody. My guest today is Santi Subotowski.
He is currently a general partner at Emergence Capital. But before going to the dark side, he had founded AXG TechnoXO, which was a SaaS e-learning company in Latin America. He expanded the company to 150 employees with operations across Latin America and the US.
He also is a founding board member of Puente Labs, an organization that finds and selects the best founders and high potential growth companies from Latin America and helps them scale globally. It currently serves on the boards of Civitas Learning, Crunchbase, High Alpha, Quasar, Restoranado, Top Hat, Zappo, and Zoom, the popular video conferencing software.
Santi, are you ready to take us to the top? Yeah, thank you very much, Nathan, for having me. It's a pleasure. All right, so pick a baby here. What do you like more, being the founder or being on the VC side? I mean, being a founder, heads down. It's like being, I mean, running a startup, it's my passion. And I want to think that Emergence is still a startup. We operate like a startup.
We operate like a company. And the minute that we become an established venture capital firm, you're going to see me doing something different. Yep. So how does Emergence operate? Tell me about deal sizes you guys are typically doing and what your thesis is in general. Sure. So we've been investing for the last 15 years. We're focused exclusively on B2B cloud.
We don't do anything outside of that. We love doing B2B SaaS investments. We love working with those entrepreneurs. We love partnering with great people. And we like to get involved when the companies have already that early product market fit and they're looking to scale sales and marketing. So it's typically a handful of employees. They have a product. They have a few customers.
Customers are loving that product. And the founder is looking to scale sales and marketing. That's when we jump in. So typical check size is anywhere between... five to $10 million going in. It's a series A and our ambition is to become the most important partner to the most important enterprise cloud company. So you're leading typically a series A. Yeah. I mean, we want to be that first call.
When the founders have good news, bad news, they just want to chat. They want to talk about the weather.
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Chapter 2: How did Santi Subotowski transition from founder to venture capital?
They want to talk about whatever. We want to be that first call. On paper, is Zoom your biggest win personally so far through the firm? I mean, it's like asking me, I mean, I have three kids. Pick a baby. Yeah, exactly. I can't pick a baby. I have a ton of fun with Zoom. Zoom is probably the later stage company that I'm on the board of. I have a ton of fun.
I also have a ton of fun with earlier stage companies like Crunchbase. Everyone's familiar with Crunchbase, and that's a company that's trying to build a business based on an asset that has been around for a long time. So I have fun on both ends. Tell me more about Crunchbase. What asset are you referencing? So the database.
So Crunchbase has become the system of record for private companies, and they have done that organically without any... Any major investment or any defined strategy, it just happened overnight, over six years or seven years. And it was not a business. It was just a database that everyone used. So when we spun it out of AOL, we had the thesis that we could create a next-gen AOL. B2B database.
So think of next gen data and branch rate with a much more efficient and organic data acquisition model. So think of LinkedIn, but for companies instead of for people. Asante, how did you, I want to understand the economics of how you took a core piece of technology and spun it out of a much larger company, right? Where this is like a rounding error for AOL.
How did you identify the opportunity and structurally, how did you actually spin it out? Sure. So it was a long process. It took us, I think, nine months. So it's a baby, as you can tell, nine months in the making. That's appropriate. Yeah. I mean, I think a lot of us identified that asset because we used it every day. The challenge was that for AOL, it was very hard to
Paint a picture where they could be winners in this new strategy. Because if we spin it out of AOL and it becomes a great company and AOL sells it for, I don't know, a couple million dollars, then people are going to look back at AOL and say, oh, you should have done it yourself. And then if we spin it out and we screw it up, it's again, why are you killing this great asset?
So there was no incentive at AOL to make this happen. So what we did, and this is where my startup scrappy entrepreneurial mentality kicked in. We flew out to New York and we scheduled a meeting with Team Armstrong. who was running AOL back then. And we just chatted with him and told him, look, this is what we want to do.
We feel that there's a great opportunity here and we want to do it together. So if this becomes a great company, then... you're going to have a great success. It could be Yahoo had Alibaba. This could be your Alibaba. It could be a stake in a great company. And that's why we structure a deal where we said, there's going to be part that investors are going to own.
We're going to do a lot of the heavy lifting. That's your part, right? You were in that cohort? That's our part. Yeah. We were the investors, the lead investors there. Then there's going to be a chunk that we're going to give to a new management that we're going to bring on board. And then there's going to be a chunk that's going to be AOL.
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Chapter 3: What is Emergence Capital's investment strategy?
We're going to help you track cap tables. investors are not a great market. I mean, we're very cheap. We don't like to pay for technology. And it's a small market. So it's going to be very hard to build a big company if you're just targeting investors. So that's why at Crunchbase, we're building something that we expect everyone to use, not just investors.
And when we looked under the hood, what we noticed is that more than one third of the use case for Crunchbase, the lookup use case, original Crunchbase use case, We're not investors, we're salespeople. They were using Crunchbase for prospecting. And that's what got us excited. One third was HR related, people in the recruiting space.
When they were recruiting for companies, prospective candidates were checking Crunchbase profiles. to get a sense of how strong the company was. And just, I think less than one third of the use case were investors. Got it. Now, when you saw this, obviously to spin it out, had you introduced a pricing plan at that time or was it still free? It was still free.
And we didn't want to come up with a strategy for crunch-based. Our thesis was, There's a huge asset here that's growing organically without any direction. If we find a great CEO, they're going to come up with their own vision. So we didn't want to create a Frankenstein by deciding this is a strategy that we want to pursue, this is the asset, and then we're going to hire a CEO.
We wanted to hire a founder and we wanted that founder to come up with his or her own vision about what to do with CrunchBit. So we talked to over 85 CEO candidates for that process. And we ended up getting, I mean, we're fortunate to get Jagger McConnell from Salesforce, who came up with a great vision. And his vision was basically, there's a huge market with LinkedIn, who's created this massive
professional graph for people, there's nothing like that for a company. The closest thing we have to that is Dannem Bradstreet, which is a 100-year-old company. So if we could replicate the LinkedIn model and apply to companies within the Crunchbase ecosystem, that would create a system of record for every company in the world. That's extremely valuable.
As I'm traveling the world on planes, trains, and automobiles, you guys hear it, I'm closing loads of different deals, whether it's buying a company, closing a new account for getlatka.com, you name it, I've got to do it. And part of my issue is signing documents while I'm on the road. So I just found this new tool. I'm using it pretty aggressively. It's called SignEasy.
So you can get started for free at getsigneasy.com forward slash podcasts. you'll see contracts that I've signed there and boy, oh boy, are they big and they work and the app is so easy to use. Get started today at getsigneasy.com forward slash podcast.
How do you go up against the other ex-Salesforce guy competing in this space and Jim Fowler at Owler, which is basically crowdsourcing this kind of data? I think what Crunchbase has that not every other company has is the power of the community.
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Chapter 4: How did Crunchbase evolve as a business model?
So as long as I can convince myself I'm a sales rep, I'm going to be doing this long term. What's the fund size? What was the last fund you raised and how much of that is deployed? So the last fund was $330 million and we're about 60% deployed. So we're probably going to invest in another seven companies. So each fund, we invest in 20 companies. Got it. And give me the Crunchbase deal.
I'm curious for the AOL deal, how much did you put into Crunchbase to get it spun out? So we invested $7 million. Okay, and you were the sole investors there? We were the lead investors, and then we invited some other investors to participate with us. That's great. By the way, I have to tell you, because you're an investor in Zoom, I turned on before this recording the touch-up feature.
My gosh, this touch-up feature has you and me looking like Kim Kardashian. Yeah, it's pretty neat. People love it. I just realized it smooths out our skin. Yeah, people are very self-aware. I mean, it's like I'm seeing myself in there. Yeah, that's funny. At first, we refused to come up. I mean, we talked about Instagram filters. Should we come up with Instagram filters?
And then we said, no, that's going to be too distracting. But then when it comes to touch-up, you just create a small effect. Very little. Yeah, it makes people a lot happier. I know, it's obvious. All right, Santi, let's wrap up here with the famous five. Quick one-word answers here. Number one, what's your favorite business book? Favorite business book, Candid by Voltaire. Candid?
Yeah, by Voltaire. which is not necessarily a business book, but it's all about optimism. And in this business, being a founder or being an investor, you need to have that positive outlook on the world because you're going to get hit by a bus almost every day. Yep. Number two, is there a CEO you're following or studying right now? I'm studying Eric Young of Zoom.
I think it's a pretty unique leader. It's a different leader and I'm learning a lot from him. He created an amazing company, an incredible culture. And if we could have more of those leaders creating amazing companies, this world would be a much better world. If you want to learn more from Eric, just search on iTunes or on Gitlatka. Just search for that interview. He came on a few weeks ago.
It's fascinating to me, Santi, that Citrix didn't give him the freedom and now essentially he's cannibalizing GoToWebinar, which he also built and sold to Citrix. It's just hysterical. Yeah, we love those stories. When someone's frustrated and they want to fix a problem rather than, oh, I want to start a company because I want to make a lot of money. Yeah.
Number three, besides any of your portfolio companies, what's your favorite online tool? Now I can't do that. It needs to be within our portfolio. Give me a non-biased answer. A non-biased answer? Zoom.
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Chapter 5: What challenges did Santi face when spinning Crunchbase out of AOL?
I use it on my personal life. I use it on my professional life. I use it probably like 30% of my work time, I'm on Zoom. Even within the company. Number four, how many hours of sleep do you get every night?
uh six to eight okay and what's your situation married single do you have kids married i have uh married for 11 years we've been together for 20 years and we have three kids three boys six year old four year old and a nine month old baby and how old are you santi i'm 40 40 last year last question take us back to your 20 year old self what do you wish that he knew That Silicon Valley existed.
Growing up in Argentina, my only recollection of the US was, yeah, there's Miami, there's Orlando with Disney World, and there's New York, and then there are mountains all the way through the other side. I wish I knew Silicon Valley existed, and I wish I had moved here to Silicon Valley sooner.
There you guys have it from Santi again, focusing on his role as a sales guy, really at emergence, getting into great deals, supporting wonderful entrepreneurs like Eric at Zoom, the Crunchbase team in a $7 million spin out and many other super smart entrepreneurs. Santi, thank you for taking us to the top. Nathan, thank you very much. And I hope you have a great year.