Hey everybody! Welcome to our one-on-one with industry leader Dan Scheinman. Dan Scheinman is a prolific angel investor for some of the hottest startups, including Zoom, Arista Networks and Sentinel One, to name just a few. He was the first person to write Zoom founder Eric Yuan his first check. Which of course we can talk about that multiple in just one second there. But before coming a venture capitalist Dan was General Counsel and Head of Corporate Development at Cisco. He knew the Zoom founder from when Eric started as an early engineer at Cisco Webex and worked his way up to vice president. He [Dan] later told his alma mater, Duke University School of Law, "we had planned that video would run the world at some point, we didn't plan for it to happen over a few months in 2020." So who would have known, right? And according to Eric Yuan, Zoom had been using AWS for a back office traffic, but that real-time videoconferencing traffic had previously been handled in Zoom's own data centers. In light of the pandemic, Zoom had to move some of its real-time traffic to a public cloud provider. So Dan with such an amazing background, both in big companies as well as now as a prolific angel investor, I'd love to just understand for our students here what has been the role of cloud in your career? >> Well, first of all, I just want to thank you so much for the kind introduction Nancy it's an honor to be on video with you and I hope we can add value to your students over the next several minutes. I also wanted to say thank you for my part on behalf of Amazon for what they did to help Zoom scale during the events of 2020, which were unprecedented and Andy Jassy [then CEO of AWS, now CEO of Amazon] and the whole Amazon team
were remarkable partners for Zoom and it's been an honor to see how Amazon works in crisis really well, so thank you for that as well. To your question, I think the cloud quite frankly has been the biggest inflection point in my career since client-server. Right? As you can see from the gray hairs, I'm old and I remember the client-server transition, which was a massive move from a world where IBM dominated to create opportunities for lots and lots of new companies to come in, including Cisco and create value. Cloud obviously is an even bigger transition and an even bigger disruption in part is the disruption of legacy client server people. But in part it's really an incredible opportunity to reimagine how technology gets done inside of companies and to create wonderful economics to create scalability and really, create more flexibility for companies and to me this has been like being in a second gold rush a little bit. >> That's awesome to hear and other companies that you review for potential investment, what percent of their product right now exists on the public cloud? >> I've been investing for 10 years now and what I have seen is that basically it has gone to 100% that in some way shape or form are on the public cloud. The level of trust and the feeling that this is really the only way to build a scalable system and not wanting to deal with the hassle of infrastructure has shifted development into the public cloud. And I think in technology, one of the things that's remarkable is that you think about it, you have the world's largest companies, Amazon, Microsoft, Google these are massive companies that are selling incredibly well to the world's smallest companies, five-person startups and the willingness of, Amazon to take it started customer seriously to work with them to help them, get going has really been an incredible game changer and it's something that I did not expect to see that large companies would be able to do this so smoothly and efficiently. >> That's awesome to hear in terms of actually, especially the trust aspect, because you're sometimes your companies are putting some of their most sensitive customer information and a big trend now has emerged, which is privacy. Right? And data governance, so along those lines, what new trends or innovations have you seen result in the cloud as a result of that migration? Yeah. So I think one of the biggest things at this stage of the migration, obviously we're not in the first inning anymore, a little bit farther along and one of the biggest things I have seen has been inside of companies, there's been a lot of technology that's been internally developed, particularly in large enterprises where they have IT staff and a lot of those processes were custom built for how a particular enterprise work. And I see now that one of the major thing that's going on is that either of those companies are putting that in the cloud and in some cases trying to productize, that to others. Right? Or that you see that SAAS startups are now coming along, trying to productize that for them and so increasingly, what I'm seeing an enterprise SAAS is the role of legacy IT, internally developed, beginning to transition to the cloud. What I worry about at some point is, if you're in an enterprise and you ask, how many SAAS tools are we using? And I think in most cases you're probably over 200 at this point. And at some point, I think it's hard to manage that and we're going to need a consolidation or some sort of, SAAS manager on top of things. But the reality is that I continue to see in the internal operations of companies as a spot where there's enormous opportunity. The other place where there is opportunity is going to still be in security, security when it was all your own infrastructure was one value proposition but now that you have data all over the place and, it's in the cloud security, as we all know, is becoming much, much more of a place where companies are going to have to take it more seriously and they have to rejigger their approach based on cloud based principles and architectures and I see a lot of opportunity there. >> Actually now going on the other side, Dan, is have you encountered any viable businesses that are not on the cloud as a result. >> Aside from my local ice cream store, I have run into too many non-cloud viable businesses. Occasionally I'll see some clever hardware startup or something but in general, I think 99% of what I see is based on the cloud. >>And so as the angel investor, right? And some of our students here might be familiar with AWS Startups, which is the group and team within Amazon that works very closely with startups, helps fund them with credits and get them onto the cloud, so if you look for good businesses to invest in, what are the top three characteristics that you usually look for? >> Sure and let me also say I've had the opportunity to work with some folks in AWS for startups and the level of professionalism and quality is really incredible and I think, that group should be very proud and it's a good flagbearer on behalf of Amazon. In terms of what I look for, what I would say is there's basically three things you look for in founders. Right? The first is for me, I want somebody who understands, who their customer is going to be and how they're going to reach their customer. In startup language we call it "product market fit" and a lot of times what I find is founders spend too much time on the product side and not enough time on the market side to figure out how do you get to the customer? How do you sell to the customer? And so I think that is the most important thing is to have a clear idea of where do I find customers? How do I get to them? And what's going to be my repeatable pattern to reach customers? And these days without trade shows, it's a little more complicated than it used to be you need to have a little bit better understanding of exactly what we call the "persona" that you're looking for. Right? So that's one thing, the second thing I look for is, I really want high integrity founders who I like. There's a lot of folks for whatever reason, who can be a little bit challenging to work with or have high ego and I don't like that and I'm not very effective in dealing with those kinds of founders anyway. And there's a kind of a myth around founders that they all have to be like that and the truth is, they don't. Right? If you look at the founders of Zoom and Arista, these are tremendously nice people who also happen to be brilliant and they don't make people feel bad, they make people, they lift people up and I think that tends to be a very positive thing. And then the third thing I would say is I happen to look for business-to-business markets, where either the solution in the market isn't fully mature and ripe and ready or where the customers are unhappy with that solution and so both of those places are places where I found a lot of interesting things and let me just say, well, if I just add one more sentence before I turned back to you. >> Sure. >> Let's see what things that I don't care as much about. Right? I don't care about that addressable market size right at the beginning. Entrepreneurs usually have to present how big is this. Right? And what I've learned is, you don't really know, and the key is, it's not how big it is, but can you start small and build something big? And the joy of software in general is that you can, and so I don't care as much about that, and I actually don't care as much about engineering choices, i.e., what language you're coding in or -- those are all things that matter less to me. And I'm much more worried about, do you understand who your customer is going to be and do you know how to reach that customer? >> Those are certainly great things to keep in mind Dan and, it's clear that they have worked for your successful track record. So for aspiring founders or entrepreneurs who are watching this clip as well, is what advice do you have for startup founders who would like to pitch to you or who would like to reach you, Dan? >> Yeah. Thank you for the question. I think very much that the most important thing for any founder is your startup pitch that's your calling card. In general, early stage when I'm involved, you're not really going to have a lot of technology developed, what you have is a big dream and you may have a couple friends with you. And so spending time working on that pitch is really important and for people like me, what I want to see is obviously I want to see the most the important question early is "why you?" Right? Why are you uniquely qualified to win in this market? What are you building? How does it differentiate from the competition and why are you wedded to going this way versus that way? And then the most important thing, how are you going to market and sell to customers? What's your plan to market and sell to customers? Those are the three billion-dollar questions that I think most people need to focus on. What I see in a lot of [slide] decks is 90% of it is either on the market opportunity just generally. Right? Which would only be one slide, but it tends sometimes to go on, look, this is a really, really big opportunity and we really, really mean it and it's really, really big, did we tell you how big? Right? And you have nine slides on that just looking at deck this morning that was exactly that. Right? And so you missed that of this personal story of why did you choose this space? Right? And give you an example, which is I invested in a company recently called Spekit, which is really trying to revolutionize the learning management system space. And they, by the way, our customer of Amazon for Startups, a happy customer of Amazon for Startups and Amazon did an incredible job of working with them. The founder there said, "the reason I'm doing this because in my last job I worked with this problem and I can tell you the solutions were terrible and I had users who hated me and I couldn't deliver what I needed to, to my bosses. And so I wanted to fix this problem." And so that level of passion and energy convinced me, hey, we got the right person. Right? And, she and her co-founder were both incredible having scoped the problem and having seen the end zone and how to get there and so I think, that's the best advice I can give to aspiring founders. And then the second thing I would say is for a lot of folks who are technical who are thinking about doing something, spend time with customers, but the more time you spend with customers, the better off that you are. Industry legend Andy Bechtolsheim, one of the founders of Arista frequently when I hear from people that say, I was seeking information on Arista products and Andy was in the room. Right? Why? Because Andy wants to learn from the customers of what problems are seeing to make sure the product build is directed at what the customers are actually seeing and he learned in his career early to spend time with the people closest to the problem. Right? Spending time with the customer doesn't necessarily mean spending time with the VP of yada yada it means spending time with the person who's actually experiencing at at ground level. And so I would say that particularly while you're in a company and working, even if you're on the technical side, figuring out how to actually listen to what customers are saying and build relationships is critical to being able to launch and get a startup funded. >> Absolutely those are such good points and right now seems to be a really busy investing environment for you and other investors, so definitely recommend any startup founders who are interested in getting real unfiltered, an authentic advice and guidance to, to reach out to Dan. >> Thank you so much. >> Of course, and thank you so much Dan for joining us today folks and we will share Dan's Twitter as well as Linkedin in with you all who would like to follow him offline. >> Thank you Nancy and good luck to you and to amazon going forward. Thank you for all your doing as a company to support the entrepreneurial journey. >> Thank you so much Dan.
