Jason Lemkin was, by Silicon Valley standards, a successful CEO. He founded a startup called EchoSign, and six years later sold it to one of the big players in tech, Adobe.
But as Lemkin sets out with a new venture fund of his own, he says his own path isn’t the easiest to a successful career in venture capital.
“All founders are opinionated,” Lemkin says. “You can’t be a founder and not be, or you’ll fail.” That necessity to maintain a true north, personally and for the business, can be critical to a startup’s success. So it’s not a shock that when entrepreneurs seek out investors, they often gravitate to their own kind: fellow founders turned venture capitalists, who have the first-hand experience to work through common issues.
As the founder of the SaaStr brand (it’s got a blog that reaches 3.5 million viewers a month and an annual event that brings out a who’s who of enterprise software companies and their investors), Lemkin qualifies as a repeat founder. But with his new SaaStr fund, he’s looking to avoid a founder mindset with his portfolio.
Lemkin is the sole general partner of a new $70 million fund based on the SaaStr brand. His deal flow is its community, and his board meetings involve talking in the mirror. What the SaaStr fund promises is quick and measurable operational help. Lemkin says he’ll take responsibility for hiring a chief of sales and marketing and any other key management team members within 90 days of a founder signing a term sheet.
The role of an investor, Lemkin believes, is more vice president than CEO. “Founders don’t make better investors, but they get picked more often,” he says. “But then you’re used to doing things a certain way.”
For SaaStr’s investments—Lemkin has made 23 so far—he’s had to learn how to bring a different perspective. It hasn’t always been easy, as his short stint at a larger venture firm, Storm Ventures, can attest. Lemkin says that raising a fund by yourself requires a degree of reflection that the venture industry as a whole could follow.
“The meta learning is about when people will pick you. It’s hard to win if people don’t,” he says.
What Lemkin found raising his fund, a large one for a first-time firm with one primary investor: the market is busy, and limited partners in funds are getting more discerning. Many of the newer funds of recent years have since raised second or third funds, while valuations of private startups have led to many more boasting triple-digit paper returns. Would-be investors increasingly must prove they had a meaningful impact with the company through ownership of ten percent or more and by leading a round, Lemkin says. “You have to squint at these crazy multiples,” he says.
With the big funds raising billions of dollars to keep investing, that makes it tougher for new brands to succeed. Lemkin admits that his own will have to prove itself all over again, despite the SaaStr community he’s built so far. But he also argues that young entrepreneurs don’t keep score of firms, or even know their names, nearly as much as many of his peers would want to believe.
SaaStr was able to raise a $70 million debut fund because Lemkin worked his existing CEOs for references—companies including Talkdesk, Greenhouse and Algolia. Lemkin says that for others looking to raise their own funds, its those referrals that ultimately earn limited partner checks from hedge funds, educational institutions and even other VCs.
But Lemkin’s also optimistic about the market, despite a lack of a high number of recent public offerings and some doubt about “unicorn” billion-dollar valuations. “Funds haven’t raised money this year because the sky was going to fall,” he says.”They were trying to take advantage of how good 2015 was.”