#29 How They Built It: Greycroft - Investing Along the Frontier of Cloud Platforms and Enterprise Software | Mark Terbeek, Partner

Mark Terbeek is a Partner at Greycroft, a leading early stage venture capital firm focused on investments in consumer, enterprise, and media companies. In this episode, Mark and Daniel discuss lessons learned from 20+ years of investing, insights into investing in enterprise companies, and advice for entrepreneurs and investors.
Last updated
August 14, 2023
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Mark started his investment career at Goldman Sachs and McKinsey.
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#29 How They Built It: Greycroft - Investing Along the Frontier of Cloud Platforms and Enterprise Software | Mark Terbeek, Partner

“When customers ask for it, it's almost too late already. You should have already done it.” – Mark Terbeek

In this episode of Outliers, we’re talking with Mark Terbeek about his investment process, advice for entrepreneurs, and the power of coaching.

Mark Terbeek is a Partner at Greycroft, an early stage venture capital firm focused on investments in digital media. With experience as an analyst at McKinsey & Company Chicago, a board member for companies like Kontiki, BladeLogic, and Icertis, and a managing director at MK Capital, Mark has helped make Greycroft a leading investment firm in the media and technology spaces. Greycroft manages $1.1B and has made over 120 investments in companies like Thrive Market, Huffington Post, Shipt and Trunk Club.

Chapters in this interview:

  • 00:00:22 – Mark’s background at Goldman Sachs and McKinsey
  • 00:07:59 – Mark’s foray into entrepreneurship and the VC world
  • 00:16:43 – How the world of venture capital has changed over the past 20 years
  • 00:20:01 – The patience needed to be a great investor
  • 00:22:21 – Comparing enterprise vs. consumer venture capital investing and their trends
  • 00:28:05 – Greycroft’s focus areas, including intelligent enterprise and vertical SaaS
  • 00:35:15 – Why being API-forward is so important in modern tech companies
  • 00:39:45 – Icertis and contract intelligence
  • 00:46:19 – The allure of system of record software businesses
  • 00:49:17 – Mark’s fundamental investment beliefs
  • 00:55:45 – Advice for entrepreneurs and investors: it’s okay to be honest and vulnerable
  • 01:02:11 – Resources for entrepreneurs and investors

Links from the Episode

Mark Terbeek's Favorite Books

Key Takeaway

A bit of advice for entrepreneurs: It’s okay to be honest and vulnerable. Acknowledge when you don’t know the answer. Surround yourself with amazing people who have different skills and will constructively challenge the status quo. Work with a coach to gain clarity on yourself. The best athletes in the world (including Serena Williams, Mikaela Shiffrin, and LeBron James) are the most heavily coached. If you want to be a top performer in your field, be humble and direct, surround yourself with incredible people, and focus relentlessly on improving yourself.


Daniel Scrivner (00:00:00):

I'm super excited about today's episode. With me is Mark Terbeek from Greycroft. Welcome to the show, Mark.

Mark Terbeek (00:00:06):

Thank you very much. Thanks for having me. Fired up to be here.

Daniel Scrivner (00:00:09):

I was looking forward to this conversation for a bunch of reasons. I think one of the biggest ones is to help everyone have a more nuanced understanding of what it means to invest in early-stage enterprise companies. Because I think that's a space that's not talked about enough, or at least as much as the consumer component. I think it'd be helpful to backtrack and share a little bit of some of the formative experiences at the beginning of your career. To kick things off, I wanted to talk about your time at Goldman Sachs and McKinsey, and a little bit of lessons learned experiences there that you carried forward.

Mark Terbeek (00:00:37):

I grew up in Chicago and went to college at DePaul University in Greencastle, Indiana and as part of my degree, those four years, I worked in a business program there. The highlight of that was a semester long internship. I did mine the second semester of my junior year and then stayed through the summer. I started in January to work through August, it was 1992. I joined Goldman Sachs and worked there as I jokingly called the analysts analyst. I was lower than the analyst, being a precollege degreed intern in New York.

Mark Terbeek (00:01:12):

I worked at the time that was in ... They had an energy in telecommunications group, because it was the regulated industries. That was before telecom deregulated and the internet took off. It was totally fascinating. I had an amazing experience getting an indoctrination into, not only business, but the many, many tasks that an analyst fulfills in an investment banking role.

Daniel Scrivner (00:01:33):

Can you talk a little bit about that, and I think just share a little bit of color around the culture you observe there, anything that stood out to you, anything you took away.

Mark Terbeek (00:01:42):

At the time, in '92, Goldman was still a private company, before they had gone public. It was much smaller today. It was pre a lot of the big mortgage scandals, all that stuff. Both Wall Street and Goldman particularly had this aura about it that was different. It was at the time it was the only major player in Wall Street that was still private. The first thing I noticed were the senior partners were incredibly balanced. They all looked great physically. Obviously, they'd already gotten to a point where they had become successful. They had perspective.

Mark Terbeek (00:02:18):

They could talk to people all the way down to guys like me as an intern, the assistants in the office. They were just incredibly great on the EQ scale. Then once you got down to the vice principals or vice presidents, all the way down through the associates, they were just haggard and working like 140 hours a week. They look like they were aging four times faster than ... There was an aura of it was a dignified grace of the partnership at that time. It was really incredible to see how they built relationships and play that relationship card and invested, play the long game on everything. I never forgot that it made me realize how important those relationships are to the basis of all business relationships as well as, of course, your personal relationships.

Daniel Scrivner (00:03:03):

Talk a little bit about your experience at McKinsey, because I know you worked with some fascinating, super different companies while you were there. What was that like?

Mark Terbeek (00:03:11):

After college, I had a chance to go back to Goldman, but I decided to try something different. My dad had been a longtime partner at Accenture. I always had a fascination with consulting. I ended up taking a job at McKinsey and Chicago. This was in '93 fall. McKinsey was much smaller than it was today. Even back then, it was 27 years ago or whatever it is now. I got a chance to work in the Chicago office, which because where Chicago is located, it had a really broad set of clients and financial services clients classic retail, consumer clients, and had industrial businesses.

Mark Terbeek (00:03:43):

I ended up getting an interesting sample. I worked on Sears at the time and Sears credit was this particular product that I worked on, which was actually pretty fascinating. Then I spent time with a company called continental baking, which was the holding company that own Wonder and Hostess.

Daniel Scrivner (00:03:59):

What was that consulting work?

Mark Terbeek (00:04:00):

The one thing we did find out is that Twinkies amazingly are not on shelves longer than seven days before they timeout. That was a guess an old wives tale that was put to bed. Wonder Bread was only three days on the shelf before it was sent to the thrift store. That was a fascinating business because it was right at the time when mass merchandise store of Walmart and Costco and those guys were coming in. There was a lot of pressure on the classic grocery store. That business was in a world of trouble given the caloric intake of those things, too.

Mark Terbeek (00:04:28):

We were trying to figure out how we could stem the losses on that. Then I spent another six months actually on electric utility, which despite how dreadful that sounds, at first glance, hearing me even say that, actually, it turned out to be a totally fascinating project. I got a really broad sense of trying to be a business doctor across different patience in different industries, which I thought was pretty fascinating.

Daniel Scrivner (00:04:51):

I'm curious from an experience like that, did you take away a sense that there's a lot more commonalities than there are differences among those businesses? Or was it more maybe the opposite point where it was appreciation of just how unique and different all of these businesses challenges were?

Mark Terbeek (00:05:04):

Each of them had very different challenges. Actually, the one thing that was really fascinating to me, and I took this away from me was, I remember sitting down with one of the senior partners who recruited me after I'd been there about six months. I said, "How do you guys know how to solve these problems?" Because they're so different in each of these industries, and what they're facing. He said, "Look, all you have to do is go around and ask everybody at that company in middle management. They all know the problem."

Mark Terbeek (00:05:27):

The only thing is that usually the senior manager of these bigger companies either are unwilling or unable to hear the feedback coming from the organization about what's wrong and what to do about it. I thought that was really interesting, because that was not an obvious question. In our world today with startups, that's why they have such an ability to compete, is because they're not inhibited with that massive infrastructure, that bureaucracy. A lot of times, even a preconceived notion of what's right, they're just willing to listen and change.

Mark Terbeek (00:05:57):

Oh, that's what the customer wants, we'll just do that. That bureaucracy and that speed is such a weapon for small businesses and becomes a real challenge for these big companies. Most of the work ultimately was figuring out how to cut through that telephone game between the middle level managers who tend to be close to the customers and getting that up to the ivory tower, these big corporate headquarters for them to make decisions. That's probably an oversimplification, but that was what my takeaway of it was.

Daniel Scrivner (00:06:28):

Just before we move on, I feel like I, along with most people, listening have probably heard about what it's like to be an analyst at Goldman or what it's like to be a consultant at McKinsey. People talk, clearly, those jobs are attractive for a bunch of reasons, because people continue to flock to them. For anyone listening, that is interested in either working on the consulting side for a company like McKinsey or working as an analyst at Goldman Sachs. Any advice for them, any words of wisdom?

Mark Terbeek (00:06:51):

I think in the beginning of your career, it's just so important to just find people that you really respect and that you can learn a lot from. Both of those organizations, along with a number of the other companies, just have a spectacular talent in terms of people. Also, those companies are built, and they've invested massively into mentoring younger folks. Now you pay for it by working crazy hours and all that kind of stuff. If you put into that, you really get out a lot, because the people are amazing.

Mark Terbeek (00:07:21):

The whole educational mentoringship programs and just how they onboard people and ramp you up, you just go through this incredible steep learning curve that winds up being incredibly valuable across whatever you decide to do. I was pretty certain after nine months that I was at McKinsey that I didn't want to be a consultant for the rest of my life, because this didn't resonate with me, I wanted to get my hands dirtier and get closer to solving the problems for the execution wise versus just strategizing about them. It was incredible building blocks. I think a big part of the rest of my career was certainly set in motion or in those early days.

Daniel Scrivner (00:07:59):

Another transition, you have those formative early experiences, walk us through then that series of events, because I know you were a co-founder of a company and spent a number of years building a business. Then you've obviously spent almost 20 years now on the VC side. Just help give everyone a quick overview of what that looks like.

Mark Terbeek (00:08:14):

When I was at the end of the last project at McKinsey was for an old regional bell operating company called Ameritech, and they were trying to figure out what this internet thing was going to be and how they were going to make money from it. Because this is before Netscape had gone public. It was the early days. I basically got to spend three months just learning about all this stuff. Well, that's interesting. Then I ended up leaving from McKinsey and I got an opportunity to go into the venture business for the first time in the fall of '95.

Mark Terbeek (00:08:45):

This is right as Netscape was about to go public. The commercial internet, at least as we know it today, was just getting off and running. I was lucky because I had had that transition through that lens at McKinsey. Again, that's one of those lucky breaks that you just wind up with. I got really excited about the technology at the changing landscape of the world and just fell in love with it. For me, the part that I loved the most with the growth and the disruption was incredibly alluring as a market consultant right where my mindset was at the time having left McKinsey.

Mark Terbeek (00:09:18):

The part that I absolutely fell in love with was watching the entrepreneur's journey and how ... I mean, you just realize that every one of these companies when founders start companies, the odds are so stacked against any one of them ever working. Yet, a number of them do and it's just the raw determination. It's listening to the customers that we talked about before all that stuff somehow comes together. If you get it timed up right with the market, the magic can happen. I just was so in awe of that journey. I, then, went back to Stanford Business School.

Mark Terbeek (00:09:53):

When I left school, I started a software company with my classmates and an entrepreneur that I had back to my person as a venture fun. Because I knew for me, I had to go get that experience because I was so in awe of watching. People do it that I felt like that was something that I just had to be a part of my journey. We started a software company right as we left Stanford, that's called Jamcracker. Actually, one of my co-founders, John, still runs it actually today. It was an early SaaS infrastructure software app.

Mark Terbeek (00:10:23):

The way I would describe it today with the benefit of 20 years now and a lot more nomenclature that exists in the world is it was basically an app store for SaaS applications. An enterprise that wanted to avail themselves to a bunch of these different third-party cloud-based apps today, we call them back then, we call them application service providers. They could have a system where they could just select and turn these things up, and then integrate them together quickly.

Mark Terbeek (00:10:46):

Today, people do that using systems like Okta and Active Directory and Salesforce, their cloud and their marketplace and stuff like that. The markets evolved in some interesting ways. That was the idea. The journey was amazing. I still feel like if anyone ever wants to go, not only on a journey of building a company, but inward to yourself to find out what you love, what you don't love, what you are strong at things that you're not so great at, there's no better way to figure that out than to throw yourself into founding a company.

Daniel Scrivner (00:11:16):

Yeah, there's no hiding.

Mark Terbeek (00:11:18):

Exactly right. Emotionally, just have to be on all the time. Because all your employees, your customers, everybody is looking at you constantly as the source of inspiration. You can never ... It's so hard to have a moment of reflection and honesty and be vulnerable. Yet that's still so important to balance as well, because it's obviously, as a human, it's incredibly necessary and cathartic to do it.

Daniel Scrivner (00:11:41):

It's an incredibly challenging role. We've had quite a few investors that have then become entrepreneurs on the show. Something I'm always curious and interested, when someone's gone through that transition and is seeing both sides of that coin is what you take away from that experience. Because there are clearly investors that have never been operators or entrepreneurs, much more mainstream, or investors that have been operators. I would imagine you take away from that empathy. Is that all? What else did you take away from that experience?

Mark Terbeek (00:12:07):

I've thought about this a lot. I've come up, this is not a perfect analogy, so bear with me, but it's the best one I've been able to think through and summarize. The way I describe it is imagine you're in high school gym class and you're with 1000 of your fellow classmates. 1000 of you walk out through the locker room and to the pool and the gym coach says, "Today, we're going to learn to swim," and none of the 1000 of us know how to swim. The coach says, "Okay, the task for the day is to dive into the deep end of the pool and swim all the way across to the shallow end."

Mark Terbeek (00:12:39):

995 of the kids are like, "No way, I'm not doing that." They just turned around, they go back into the locker room. There's five knuckleheads that stay out there who look around and this would have included me thinking, I got this, I can make it across. Like, yeah, I don't know how to swim, but you know what, I like my chances. Five of them jump into the water to immediately just sink to the bottom and drown, two lash their arms around the lane line and just hang there. Somehow one makes it to the shallow end.

Mark Terbeek (00:13:05):

The one making at the shallow end, of course, is the Facebook or the Microsoft or whatever it is. The reality is, when you talk to founders, and if you sat down at dinner with that group of five, broadly distributed across amazing outcomes are the ones that sunk to the bottom of pool and you sat at dinner, including like with Bill Gates or something like that, none of them would ever talk about how much their companies were worth when they sold them or how much money they made.

Mark Terbeek (00:13:30):

They would all talk about the journey that they went through, what they learned about themselves, how hard it was, how enriching certain aspects were, the moments of shortened death that they face, and somehow by some miracle, they survive through. It's that. What I took away from the experience was, you're in that elite founders club, independent of whether the business worked amazing or not, and nobody can ever take that experience away from you, and what you learn about yourself, the good and the bad.

Mark Terbeek (00:13:58):

To me, that's the part that I feel like now as an investor, I get that. I understand what my partners is the founders of these companies go through. I always try to remember to have empathy and compassion for that and be level headed when things are tough. Also, to keep them grounded when things are going really great, because it can all change, as we know, very quickly.

Daniel Scrivner (00:14:20):

I think building off that, just what you said there is not typically ... It's not a story that's ever told, obviously in mainstream media. I think another aspect to that, that I've definitely witnessed that I think most people are just completely unaware of, I had this experience when I was at Square for five-and-a-half years early on seeing it through a bunch of transitions, is a lot of people look at a company like that and think like, oh, it's just as beautiful, upward, nice curve. It is not that at all.

Daniel Scrivner (00:14:44):

You go through incredibly trying periods, even when you're "successful" and even when you've unlocked this achievement, you're always going through battles. Maybe an example of that today is Facebook has an incredibly lucrative business, is it facing a ton of different challenges all across the board? Absolutely. Any thoughts, observations on that aspect of it?

Mark Terbeek (00:15:03):

Alan Patricof, he was one of the co-founders of Greycroft, and still is our chairman at Emeritus. He has a funny chart that he puts up at many of the events where it shows exactly what you're saying like, up into the right success. Then the second slide is what it really looks like, and it's this incredibly jagged squiggly line up and down with heartbeats and death signs. The reality is, even if it didn't quite look like that, it feels like that to the founders.

Mark Terbeek (00:15:29):

As a founder, I remember, every day, I'd wake up and somebody would send an email or there be the morning, Dan Primack's pro rata or whatever. There are some story of a new company that's founded that sounds like it's doing something similar, and your heart drops. You're like, wait, what? Somebody is coming after us? What do you mean? There's just so much emotion that goes into it as a founder. I think that ability to take a longer view, and remember, hey, we're playing the long game, here, we're trying to build something that's really durable, that's going to be a 10-plus year journey to take it where we want to go.

Mark Terbeek (00:16:02):

There's going to be some challenges, but keep the passion and the vision and just keep rolling and try to just stay level headed through the choppiness. It's hard to do. That's the part that I think the best companies are able to keep, as long as the vision is really compelling and big and there's progress, even if it's choppy, those seem to be the requisite things to keep people excited and fired up.

Daniel Scrivner (00:16:24):

You're heading in the right direction then and it's just grit and continue to put one foot in front of the other, not giving up. I wanted to step back for a second and talk a little bit about you've been in the venture business for a very long period of time. I imagine you've seen the space change, you've seen the relationship between investors and entrepreneurs change, you've seen the speed change, the size of the market change, maybe the size of the outcomes change, I just rattle off a whole bunch of things. Those are all my words. I'm curious for your take on the two to three things that have changed the most over the last 20 years.

Mark Terbeek (00:16:56):

I mean, look, I think just the overall awareness of venture capital and entrepreneurship is just so much greater. There was no TechCrunch when I started and all that stuff. There's no blogging. All of that stuff has just brought incredible awareness to entrepreneurship. Obviously, there's been amazing innovations like Y Combinator and people that can help entrepreneurs become more successful, because they jumpstart them through a bunch of lessons learned and stuff. There's been some amazing innovations in the space.

Mark Terbeek (00:17:26):

I'd say one of the biggest things that's different now is that companies stay private, much longer. The journey to build a business, it used to be a little bit of the early days, at least, when I got involved in that business, it was a little bit of a sprint to get public as quickly as you could. A lot of these companies were raising $30, $35 million when they were going public, and they'd have a market cap of like $300 million or something like that. That would be the beginning of their public life. Then they would flourish as a public company and raise a secondary growth.

Mark Terbeek (00:17:58):

All those rounds now happen as private rounds. Both the venture funds like Greycroft and many of the other top funds, as well as the big institutional investors in the public markets realized where there's a lot more alpha to gather and to capture for our investors, if we can stay investors in those companies, as private companies longer, help them grow a lot faster through those adolescent years or be really almost teenagers at that point, and take them public later when they're much bigger.

Mark Terbeek (00:18:29):

As a result of that, a lot more capitalists poured in funds like us have gotten bigger and raised growth funds, the big public hedge funds, and even investment firms like Fidelity have moved down and will now take big private positions prior to the public offerings. That markets matured a lot and got bigger. All of that, to me, means the most important thing for founders, is that the investor relationship that you choose, especially early, but all along these private rounds, a lot of these people end up joining your board and play a massive role with you in the ... Whether they really are incredibly helpful or not into the future of the company, they're involved a lot with you along the way, time wise, meetings, board meetings, all that stuff.

Mark Terbeek (00:19:13):

What used to be maybe a 2 or 3 or 4-year journey from when most investors would get in until the successful ones went public, now it can be 10 plus years for our best companies. We want the duration. We want it to go long. That to me, puts the onus on the investor and the entrepreneur to spend more time together. Understanding, is that relationship really going to be a reciprocally good one on a human level, besides just the terms of the deal and what have you. Either that's a really underappreciated part of the business and one that I focus a lot on, at least on my side.

Daniel Scrivner (00:19:48):

I think you said it really well. They're going to color your experience and they're going to be just all over the place. They're obviously going to be voting on things. They're going to be sharing ideas with you and that can obviously be, I think, colored a lot by just who they are and their perception. I'm curious, one other observation with that. If the time that a company is private, it's gotten a lot longer, clearly, that means as an investor, you're now ... Especially if you're an early investor and you've got a growth fund and you can invest all the way, it seems like it takes an incredible amount of patience.

Daniel Scrivner (00:20:17):

Maybe that's part of that finding that right fit, is entrepreneurs finding investors that are going to be patient at helpful parties. Talk a little bit about that, how that patience is just so important in the process.

Mark Terbeek (00:20:28):

For us, as Greycroft, the perfect serve for us as we meet an amazing team, whether we knew him before or first time, we made them early. We're able to start investing as early as their seed round, and continue to invest, whether we lead the round or collated or whatever, we don't have a heat. We're very flexible about how we approach that. We want to play a significant role in the company, and help them raise that round, and then subsequently keep investing along the way and continue to either lead rounds or support rounds, either with our early stage fund, and then again with our growth fund.

Mark Terbeek (00:21:05):

We want to try to be the perfect series. We invest in every single round of the company, whether we're leading it or not, is less important to us, but we want to play a significant role. That requires not only conviction, but patience. We want to help build a relationship with a company where we believe in their vision, we see them executing along the way and making progress against that vision that they're describing. For us, to be able to continue the event to help them either lead or support the round all the way. We're playing the long game.

Mark Terbeek (00:21:34):

We're looking 10 years out, thinking, is this the category leading company that's building a business that's got the legs to be a public business? Not all of them get that far. Sometimes they get snatched up between here and then. That's the ideal scenario, because that gives the founding team the big vision or the ability to continue to bring an amazing talent, because great talent wants the big vision too. They want, like you were saying at Square, you want to be at a company that's got a huge vision.

Mark Terbeek (00:22:01):

Those are the ones that we think are the most exciting, and therefore require patience to not say, let's just take it public early because we can. Let's take a public one that's ready. When the manager is ready and when the business has matured to a level where it's really predictable and reputable, is going to be the durable winner.

Daniel Scrivner (00:22:20):

I would love to now move and talk a little bit about, certainly, we're going to focus on the enterprise aspect. I wanted to start off by just having you compare and contrast enterprise venture capital investing versus consumer investing. We talked before this, you had a really great point that if you're a consumer investor, you're much more anticipating where the market is going. If you're an enterprise investor, you're more focused on pain. Flash that out a little bit more and talk about how those two things are so different.

Mark Terbeek (00:22:44):

At Greycroft, we're about half B2C, half B2B. As you mentioned, I spend most of my life on the B2B enterprise software side, but I obviously watch our consumer team who's very talented, has a great track record on this stuff. They think the consumer deals, of course, are more sexy, but I beg to differ with that. The thing that I find fascinating about watching how they analyze these deals, is they really spend most of their time understanding trends, where the market is going, and anticipating what that means for consumer behavior.

Mark Terbeek (00:23:14):

Really, a lot of the things that they're excited about or that they really believe in are things that are not necessarily intuitively obvious at the time. That takes some real conviction, because I think all of us as investors have a habit of trying to assume that we're the consumer on consumer investments. That's a very dangerous habit to fall into or trap. It's hard to not do, but our consumer guys were very good at this always remind us it's all the data. You got to really understand the data and the trends and what's happening. It's not, would you actually do this as a consumer?

Mark Terbeek (00:23:47):

Because we're hardly ever the target consumer for most of these companies. Occasionally, occasionally we are, but almost never. On the B2B side, it's a little bit different here. Here, to me, B2B investing is all about pain. It's pain identification. These big companies or other small companies, whoever the business buyer is, for them to go with a startup over the myriad of other choices they have of third-party vendors that are more established or trying to build something on their own internally for people that have resources to do that, the pain has to be so high for them to give a small unproven startup a chance.

Mark Terbeek (00:24:23):

That's the number one thing where you start, by looking for it. Is that serious pain? Then we look for major macro trend currents, so like big mega trends, like the movement towards the cloud or interoperability of data across AI, these big mega trends that are moving the markets in certain directions. I think of it as like a river if you're trying to get from point A to point B data river, you really want to be paddling with the current, not against it. We start by looking at those big mega trends. We'd have a sense of the current and how fast it's rushing in the water.

Mark Terbeek (00:25:02):

Then we look for pockets in those markets where the pain is really high. Then we try to find the best player. Ideally, it's a seed stage company. We can get it early right all the way. Sometimes we're a bit late. We noticed that the best player is actually a little bit for long, and then we'll try to jump in with our growth fund there. We take a very sector driven, mapping based approach of these different pain areas. Then we figure out, what's the best player? Should we start a company back or very early stage company?

Mark Terbeek (00:25:29):

Or should we find the best player who's in the ... They may already be reasonably big in the valuation, might even be reasonably high. They're not even through the first inning of a nine inning game and they're already the unquestioned leader. It's gotten massive running room. We love those too. That's how we think about it.

Daniel Scrivner (00:25:43):

Just to dive in a little bit more on the trend identification piece. To me, I'd be super curious to know how you think about that. Because even for myself, I'm definitely trying to have a folder in my mind of these trends that I think are playing out. I piece those together from blogs, from research papers I find online, from interviews, from books that come out that are, I think, like Hallmark pieces of where things are going. What are your inputs into figuring out what those trends are?

Mark Terbeek (00:26:11):

We do the exact same thing. We read a ton. We have both long form, blog form, articles. We have tons of feeds that come in from different sources. I read all of the major How to Deal memo Axios. We're an investment for Axios. We love that. A bunch of the other ones and read in the morning, the digest and stuff, and we're just trying to synthesize through what does all this stuff mean. The other thing, once you become a bit more established as a fund in the industry, we have a large portfolio.

Mark Terbeek (00:26:40):

We see across our portfolio, what's working in certain companies, what are some that are, for whatever reason, have pointed into the wind a bit now? Just because their industry trends have shifted in their industries. We're looking at not only what's working with our companies that are really performing well, but some of the other ones that either haven't gotten through the early stages of product market fit or maybe some other industries that have shifted and a shock came and it's a little bit different than what we thought we invested.

Mark Terbeek (00:27:04):

We're triangulating all those different elements into where's the current going, the direction going? Now how do we hook up as many of our boats to that current as we can. That's probably an exercise that we step back. Even internally, probably every quarter or so, we do like a refresh of all of our sector maps. It's interesting, because even surprisingly, sometimes even like listening to our consumer guys and them going through their things, actually gives us insight into some of the enterprise models that we're thinking about or whatever.

Mark Terbeek (00:27:35):

That just cross-functional, disciplinarian action of our firm is pretty helpful. That's where the partner is really, I think, associates to all of us together. Spend a fair amount of time really thinking through, are we right on those trends? Because if you start there, it makes a lot easier.

Daniel Scrivner (00:27:51):

It sounds super helpful, obviously, to have Greycroft be a firm that does both consumer and enterprise investing. A fundamental view I have is everything's connected. I'm not at all surprised that you talk to the consumer guys and see trends bubbling up that feel linked to the enterprise space. I would love to talk a little bit more about some of the focus areas that you have. I know we were talking before, you talked about revenue value chain, talent value chain, vertical SaaS, intelligent enterprise. Can you flesh those out? I guess talk a little bit about how you got to those and maybe give a little bit of color on each of those why they're interesting.

Mark Terbeek (00:28:22):

They macro trend qe have inside enterprise software. We think of them as intelligent enterprise applications. These applications are fundamentally cloud-based. They have incredible interoperability. They're mostly API first type of businesses or at least are amazingly API accessible, both in their ability to allow people to connect to them, as well as their ability to pull data from other sources, and to have that be part of whether their workflows plus the data analysis around it, those are a number of the big trends.

Mark Terbeek (00:28:54):

Of course, with all that data, comes AI and machine learning. We look at that as a necessary part of almost every app that we're investing in at this point, as opposed to necessarily its own thing. Although there are some that are almost pure play AI businesses, we feel like almost every business should have some AI component to it at this point, or at least the ability to do it at some point. Those are the attributes of what we think of as like intelligent enterprise applications.

Mark Terbeek (00:29:18):

We think enterprises, in the future, are now past wanting one monolithic piece of software like SAP to run everything. They're still probably going to use SAP for a lot of their stuff. They're also now matching best of breed, I wouldn't really call them point fryers, because they're broader than that. Best of breed providers that bring a certain level of functionality to the table, but can still now integrate with the general ledger and the CRM system and the other core systems of record. That's how we think about it at a pro level.

Mark Terbeek (00:29:46):

Then with underneath that, there's about four or five core themes that we're investing in. The first one we think of is revenue value chain. That, for us, is efficient acquisition of customers and revenue and then the ability to maintain that revenue over time. That could include everything from literally like a modern CRM system to analytics around sales efficiency, training reps better. Once you've landed customers, how do you do insightful analytics around your customers to make sure that you're not seeing problems developing before they develop?

Mark Terbeek (00:30:21):

Then churn all the way through customer success, customer onboarding, how do you get customers indoctrinated onto the product successfully, even training, all those models. Post-COVID, a lot of those models used to require, or at least were still personally deployed using real humans and in-person meetings. Now it's all gone into the cloud and online. Some of those systems, we still think are completely getting rewritten for the next 10 years. We feel like every company, no matter what industry you're in, you have to be good at revenue acquisition and retention, or you're going to be in trouble.

Mark Terbeek (00:30:54):

The ones that really are great at it spend a lot on this to try to maintain an advantage. The ones that struggle end up whether it's that current management team or the new one that comes in to replace them has to spend a ton of trying to catch up. That's great opportunities for startups in that ecosystem.

Daniel Scrivner (00:31:10):

Yeah, it's like the ultimate compounding, where obviously that's something that literally has a massive direct impact on your bottom line. If you get that right early on, it's just going to compound and compound.

Mark Terbeek (00:31:20):

Guys will spend. If you can show them that they can benefit from it, they will spend aggressively in that category. That's the first one. The second one is talent value chain. It's the exact same thing, but people. It's the second massive arms raise that's underway besides customer acquisition, there's talent acquisition. We see this particularly in categories like software development, where there's millions of unfilled jobs in the US alone of people that are trying to hire to fill these roles, and they can't find them.

Mark Terbeek (00:31:46):

Again, from identifying what you need to be successful, hiring those people to giving them a great experience joining, to onboard them, to career path them, to make sure they're happy in performance, how do you indoctrinate culture in a business now that's mostly remote or distributed? All of these things function around acquiring and retaining the best talent in the world. The battle for talent is global battle. Again, guys that are great at that, like Google spend a fortune on it, guys that aren't so great at it have to then spend aggressively to try to catch up.

Mark Terbeek (00:32:17):

We love that category, too. We're investing in a bunch of areas there. We have a similarly modern supply chain, similar to the talent value chain, or the revenue value chain. We look at this as really your inputs value chain, and you're building your products and sourcing and procuring. These are all similar and that's all a networked business now, and the cloud is making it a lot easier. We're spending a lot of time in that category. Then we also look heavily in vertical SaaS, so different industries that are rewriting their foundational software to power and accelerate an industry that probably has not historically had a lot of underlying software attached to it.

Daniel Scrivner (00:32:57):

It sounds like when you say vertical SaaS, clearly, that's industry specific. Part of what I think is so difficult with that, at least in my experience is understanding when it actually makes sense for a company to be industry focused. That may mean just the market is large enough, that the need is different enough from having a general purpose solution. How do you think about that and vetting whether this actually makes sense as a company and as a business as a vertical play?

Mark Terbeek (00:33:23):

These companies are, they can sometimes look TAM challenged because the industry looks small enough that you're like, okay, does the plumbing business really need to have a better SaaS platform? Service type would argue that, yes, it does. When you first look at the TAM can be a bit deceiving on these companies. What's exciting about them is these software platforms, unlike the ones we were talking about before, that tend to be a bit more a functional solution to solve one certain thing, these can be like mind body, where it's powering the entire business, from CRM, through customer management, all the way through payments.

Mark Terbeek (00:34:00):

The percentage of revenue that you can get from a player in that industry, if you provide a soup to that, all the way through enabling them to take payment and "receive their cash," and it can be significantly higher. The revenue models can get really interesting quickly. Most of these have like an embedded FinTech components on.

Daniel Scrivner (00:34:21):

That's a fascinating way to think about it too is the total addressable market may seem small, but if you take a high enough percentage of that, because you're offering something, then obviously it gets really interesting and really lucrative pretty quickly.

Mark Terbeek (00:34:33):

If you look at like Salesforce, I mean, I have no idea what their average percent of revenue that they get of a Fortune 500 customer, but it's minuscule, in terms of percentage on the deal sizes can be tens of millions of dollars big. It's still on a relative percentage of revenue. It's probably not even one basis point, where is a vertical SaaS provider can take probably 5% to 10% of total revenue. That's a win for the customer because they're able to grow their business dramatically versus what they were with way fewer people and expand services that they offer their customers. They're grateful to pay that big of a percentage of revenue, to not have to hire extra bodies and do all that kind of stuff. They're just different dynamics.

Daniel Scrivner (00:35:15):

I want to go back to something you said that stood out to me, which is, you made the comment that, obviously, people are no longer adopting these one size fits all very large applications. You mentioned SAP. Then you talked about interoperability and API's, and I'm curious how those two things connect in your mind. Part of that to me is ... A trend that I've seen is there are now, I noticed this and talk about it frequently, with any of my friends that run companies, just the number of tools that companies now use has shot through the roof.

Daniel Scrivner (00:35:43):

I mean, I don't know, just throw out a rough number, I imagine if you were to go back 20 years in time and maybe 5 to 10 applications. Now literally, it's 40, 50 across the company, maybe more than that, is that why the interoperability is so important and being API forward is so important?

Mark Terbeek (00:35:58):

I think in a modern enterprise, what businesses want to do is leverage the investments they've already made, but introduce new capabilities to attack pain spots that they've got that are acute and that they have to solve, and they want to be able to do it with a specific short term time to value in mind where it's not this like 18 months and the hope that it works type in limitation. It's got to be see value in three months, six months at the most, and ideally, it's faster than that. That's the mentality that most guys have.

Mark Terbeek (00:36:34):

I was joking about SAP before, but I'm actually super bullish on that company long term, even though I think their business is going to change pretty significantly from today. I think if they play their cards right, they could have a little bit of a Microsoft like Renaissance under Satya's tenure, where they really become a cloud first company. They managed their own applications and migrate those to the cloud, but then they leverage and work with an ecosystem that works around them, where they can tap into these best of breed providers.

Mark Terbeek (00:37:06):

They can work with even applications that customers have built themselves in their own clouds and connect all those together. It comes back to what you're saying, it's all API driven, it's got to be that way. When customers ask for it, it's almost too late already, like you should have already done it to us. That's a fundamental view. There's very few companies now that our system of records. I mean, a few of them are, but most of them are actually taking data from lots of different systems, and then making better sense out of that, either through a workflow or through analytics. That's where a lot of the unlock comes is, is that ability to see stuff across different application sets and silos, obviously, with businesses.

Daniel Scrivner (00:37:46):

Just to build off that, the systems of record piece is fascinating to me, because we've seen a lot of really valuable companies in that space. It seems like now maybe that is less interesting. Maybe the take rate or the importance or the pain scale of that problem has gone down. Now it's more about making sense of the data. Is that true? Do you have a sense of where that pain is now in terms of in the enterprise?

Mark Terbeek (00:38:09):

If there were more system of record businesses to be had, we'd all be changed. We still do, chase after those when they do emerge. They're hard. I mean, if you think about it, there's CRM, there's HR, like workday, there's Salesforce's workday, there's Zendesk and ServiceNow. Then there's obviously the general ledger players. Then there is an ERP system, like procurement, what have you. Those are generally thought of as the five systems of record.

Mark Terbeek (00:38:36):

We're pretty confident we have a company that's the sixth, which is a service for contracts for enterprises, which stores all the actual contract data, which we think is a surprisingly untapped one still, at this point, the market. It's now getting filled, but there will be others. Most of the other players, look at a player like Gong and the sales analysis space, they're not a system of record, per se, in the sense that the customer records largely are still sitting in Salesforce or Microsoft CRM or whatever people are using.

Mark Terbeek (00:39:06):

That engine watches what reps are doing during calls and can understand and suggest improvements as to how to increase conversion rates and win rates. It an incredibly successful business growing very fast with a great valuation and will certainly go up further from where they are. That not a system of record business, but really is like a data analytics business around the CRM space. There's so many opportunities like that in different areas to, even without being assisted record because the ability to get the data through these API's now exists. You don't even have to necessarily be the system record player anymore to have an unfair advantage on getting that data.

Daniel Scrivner (00:39:46):

You brought it up, I'd love to go to it and talk about it. That's a service and as I was looking at the investments that you've made, you've made a ton of incredible investments. There were a few of those that are super interesting, but I seemed super timely. I'd love to start by just teeing up what it is. Because, obviously, at a high level, it's described as contract intelligence. Just the one thing that stood out when we talked before is a quote I heard a couple years ago, which is, I've heard it said before like, "What is the ultimate settlement system?"

Daniel Scrivner (00:40:13):

Meaning when push comes to shove and you've got two people that are disagreeing, what is that ultimate settlement system? The best answer I've ever heard is that it's a legal system. It's baked into contracts. Maybe expand off of that, and give everyone a little bit of an overview of what Icertis is and the problem that it solves.

Mark Terbeek (00:40:28):

The elevator pitch on it is, Icertis, as you mentioned, as a contract intelligent platform, that is a cloud-based system that enables you to author sign, manage, analyze, and optimize all contracts in a company or an organization. It doesn't even have to be necessarily a company. It could be a nonprofit, whatever. If you think about it, you step back for a second, think about it as a business, even for consumer business. really, as an enterprise, were a big organization, almost every revenue and expense item that you'll have that flows through your P&L or every asset or liability that you'll have as a company on your balance sheet is sitting in your contracts.

Mark Terbeek (00:41:07):

Those contracts are what underpaying how you recognize your revenue. When you're spending or buying things to buy for your products or to pay your employees or whatever, all those things are in contracts. In most businesses today, those contracts are authored through word document or something like that. They go back and forth between the lawyers. Ultimately, they're signed, whether they're signed electronically with DocuSign or something like that, or they're physically wet signatured. Once they signed their PDF, and then they at best sit in a file share.

Mark Terbeek (00:41:37):

At worst, they're in like a file cabinet. That underlying data is what is the underlying asset value of all those contracts, and therefore, your revenues, your costs, your assets and your liabilities. It's not accessible, it's not searchable, it's not understandable, it's not analyzable to improve your performance on them. What Icertis did was they created a system that enables businesses to author in and sign and close those contracts faster, but then to manage and optimize them and to watch him and to make sure that your contracts are renewing and that you can do better on your next negotiation because of these aspects. All of that intelligence that comes from that is what's in their system.

Mark Terbeek (00:42:16):

We just think it's an incredible opportunity, because all businesses realize, especially even before the pandemic, once the pandemic hit, if I want to keep doing business, but all of a sudden, my employees are distributed around the world and working at home and stuff, how do I still do approvals and get budget authority and sign off on significant contracts when people aren't together and the general counsel's on saying ... They're a whole system that they can instantiate their workflows and security approvals and everything that enables that businesses to make decisions faster speed up time to procurement or time to realize cash from your customer contracts, because the systems are in place.

Mark Terbeek (00:42:54):

The big unlock, we think over time is all the data, the system records. They have all the data for their clients sitting in their system. Now they can start running analysis on why are the West Coast guys performing different clauses in the East Coast guys, or why you're buying next year's car model and you're buying the same seatbelt manufacturer, because the car model barely even changed, why are you renegotiating that entire contract? Again, it already exist. It's the same. Can't you use that as a starting template and save a bunch of time and energy and dollars? We're super excited about the business as you can tell from my voice.

Daniel Scrivner (00:43:27):

What stands out to me is, especially when you talk about it in the context of something like DocuSign, which I love DocuSign, I feel like whenever I get a paper contract, I'm like, please, can I get a digital contract just to be able to sign it because it makes my life easier. It almost seems like a really flimsy, not very valuable solution. When you think about something like Icertis, that actually can handle all of that, but then store it. It seems like it delivers much more value. I'd love to try to talk a little bit about some examples. One that we talked about before was I know Daimler or Mercedes Benz is a big client of Icertis and saw some huge improvements by moving to that system. Talk a little bit about that, so people understand the business impact.

Mark Terbeek (00:44:03):

Yeah, there's some pretty good videos. If you go on the Icertis website, you can see like, see, I think it's the CTO from Daimler or CIO who talks about a bunch of this stuff. At a high level, these numbers, this math may not be exactly right. If you've watched the video, that's probably more accurate. Conceptually, from when a car manufacturer looks at approving a new design of a car to when it actually becomes available, the first one rolls off the factory, it usually takes about five years.

Mark Terbeek (00:44:30):

It is because it's such a complicated engineering and sourcing and procurement project to put those millions of parts or whatever in a car to together before it rolls off the floor. That used to be okay when the competition set was pretty stagnant and it was a handful of luxury automakers that Daimler and Mercedes was competing against. Now, obviously, fast forward, 10 years and as we all know, you've got Tesla and a bunch of new electronic players that are in the market. Those guys, by the way, are creating their own electronic cars and introducing them.

Mark Terbeek (00:45:01):

Then you've got Uber and alternatives to having your own car, and probably an Apple Car, who knows what's coming? It'll be exciting and certainly will be wildly different than it was five years ago. I think those large automated fraction have just said, you know what, this is taking too long, we can't be strategic if it takes us that long to respond to the market from when we think we know what this back to we're anticipating consumer demand. We thought we knew what it was five years ago. By the time the car comes out, it's something totally different.

Mark Terbeek (00:45:29):

They said, we cannot compete this way anymore, we've got to shorten our cycle time. They did an analysis and contracting was the simplest way for them to massively increase the speed, take time to market. That it can speed up your supply chain and that can do all ... That's why this stuff is so valuable. It's not just that it has the analysis and save time, but it's the business value creation that comes from moving faster, responding more quickly, listening to your customers faster.

Mark Terbeek (00:45:55):

That's why this has become must have software over the last five years, not just in that category, but in pharmaceuticals and banking and oil and gas, you name it. They're all facing similar pressures.

Daniel Scrivner (00:46:06):

Well, I can't wait for it to go public so the rest of us can get a chance to invest. Who knows how any more years that could be. One thing I wanted to transition and talk a little bit about. Sorry, just really quickly, good outliers.fm, and we'll link to that video into the Icertis website. If you're curious, you can go and find that. One thing I'd love to transition to a little bit is part of why I was so excited for this conversation is so I've done very little enterprise investing. I've done some enterprise investing, but very little enterprise investing in general on the private side.

Daniel Scrivner (00:46:33):

If we think about on public market side, some of the most valuable companies, especially over the last few years, have all been enterprise players. Think about a name like Snowflake, a company like Salesforce has that incredible run slack. What are the most interesting public companies that are enterprise players that you think are either just interesting strategically, interesting in what they've been able to accomplish, and/or are interesting because of the opportunity to just get huge over time. You mentioned SAP, Salesforce, a bunch of others.

Mark Terbeek (00:47:00):

I still love the system of record software businesses. Salesforce, Workday, ServiceNow, Zendesk, I just feel like those businesses, once they get to scale, they tend to just keep going and they're so valuable. Then look, obviously, we've been seeing some rotation out of tech stocks by the big pension funds and what have you, because people perceive that the markets heating up, inflation may be coming tech stocks or growth stories, and maybe that hurts them a little bit. That's all true. I think that's fine.

Mark Terbeek (00:47:32):

To me, that's a buying opportunity, especially for the system records over businesses. Because the one thing that all these companies are going to be doing over the next five years, when the market is theoretically going to be getting hot globally and all this potential inflation driving activity that's going to be happening, is they're all going to be investing in tech. They're all going to be investing to grow their businesses. Those system of record businesses, while the multiples may be moving around a bit right now, the fundamentals on the buying side for those companies are amazing.

Mark Terbeek (00:47:59):

That's where they're all going to be spending this out. Look, I still love that category of guys. The second ones are the big data and data analytics players. Snowflake is probably my favorite, just because the story is really crisp, and they've done an amazing job executing. What they really did is they brought a simple consumption based model down for data warehousing and data analytics, which didn't exist before. It was complicated. The ability to maintain and have some all that stuff that was hard to do, they just brought a really elegant solution for the fat part of the mid-market.

Mark Terbeek (00:48:35):

They're crushing it. They have a great product. I love that. Palantir is a different play. It has a huge AI and big data play, a little bit more bespoky and less pure software as Snowflake, but still, I think is where the world's absolutely going. Then the last category I really love are these API driven companies. That would be like Stripe Twilio. We talked about the importance of API's before. I think people that can embed in really important functionality as part of other people's products are just like awesome businesses that. Of course, we've all been living on Zoom and other streaming collaborative communications platforms, and those aren't going anywhere either. That's a big play.

Daniel Scrivner (00:49:18):

I don't think so either. I don't think that's going to revert super heavily once we all start going back to the office. Start closing things out. One of the things that I wanted to talk about that loops back around to something you brought up early on, is I want to talk about some of your fundamental beliefs, and your advice for investors and entrepreneurs. I know something that you're super, super passionate about, we've talked about a little bit is just making sure and this is specifically advice for entrepreneurs.

Daniel Scrivner (00:49:41):

I'm sure part of this is for investors to hear as well, too, that the relationship between entrepreneurs, investors, especially if you're investing early, and you're going to be in the life of that company for a long time is super, super, super important. Talk a little bit about that and some of your beliefs around that and why you think that's such an important thing.

Mark Terbeek (00:49:58):

I go back to my fundamental premise where this is the Greycroft view of how we approach the world, is these great companies, you need to be prepared to be in them for at least 10 years. You want to be on for 10 years. That's like a professional marriage. I mean, that's a decade long relationship, that's two-and-a-half times longer than college. Or think about any relative metric, any relationship with a spouse, partner, friend, whatever, it's all based on respect, open communication, and enjoying being together.

Daniel Scrivner (00:50:30):

Which isn't talked about enough.

Mark Terbeek (00:50:31):

Yeah. That's so important. When we meet with entrepreneurs, we explained to them some of the core tenets of our investment philosophy, which is we're going to be incredibly flexible with you as an entrepreneur, because what you go through over the next 10 years, while you have a plan and a set of projections that probably go out a couple years or whatever, we have our own perspective on what we think your business is going to look like. None of us are going to be right.

Mark Terbeek (00:50:55):

Even if it's wildly successful, it's probably not going to look anything like what we think we're investing in when we back it. That flexibility is crucial, because what their business will need over time could be very different than we're anticipating, even as we form that relationship. Even if I have amazing chemistry with a founder and we're just so fired up to go for 10 years, what he needs may not be mark at some point. Now, even if we think at the time it is and we, as Greycroft, need to be open to providing that company with the very best that it can get.

Mark Terbeek (00:51:28):

We've had companies in our portfolio where certain of our partners end up having better expertise over time in an industry or whatever in a company. We'll work with a company to switch our own roles, if that's better for the company, if that's what the company wants. We don't force them to do that. We want to be flexible. Trying to think through the number of twists and turns that the relationship can take up front is really important. We spend a lot of time in our courtship and dating process with entrepreneurs. Sometimes it's very fast, right?

Mark Terbeek (00:51:57):

Because the deal is very hot. The time pressure is really high. We still try to slow down and make sure that they're calling references on us. Obviously, we want to call references on them. We want to spend time understanding, what's your company culture? How does that relate not only to your employees to your customers, but to your board and to your investors? Ideally, it's a consistent philosophy. How do you think about that? We want to bring on our side that flexibility, but also a commitment that, hey, we're going to go through some tricky and probably some hard decisions at some point, even if it's all good.

Mark Terbeek (00:52:31):

The company is generally winning, there's still hard decisions to make. We always want them to feel like you can be direct. We're always going to try to empathy and compassion, but we're going to be direct with you and give you our perspective. You don't always have to listen to it. We're going to be honest with you. We hope you'll do the same with us. We hope, over time, that we'll be the first, if not, the first, one of the first calls they'll make on the great news and the really tough stuff that's happening that they wish they didn't have to call somebody to talk to about.

Mark Terbeek (00:52:56):

We want to be that call. We want them to know that we're going to be honest and open and compassionate and listen to it, and that at the end of the day, we're going to put the company's interests in front of ours. We hope that the founders, they'll do the same, they'll put the company's interests in front of even their own interest, if that's what's best for the company in the long run. If both parties are willing to do that, it all ends up working out. That's just a little bit hard to do, because there's a lot of ego involved on both sides, but it really is cathartic when you build those relationships that have that underpinning of trust, like every good relationship you have has.

Daniel Scrivner (00:53:30):

Yeah. To try to maybe dry out some of those things to reiterate them, it sounds like a part of your process is clearly over indexing on spending a lot of time upfront with entrepreneurs just getting on the same page, forming that relationship, that's going to be the basis of how you're going to work together over the next 10 years, then it's about open but direct communication, it's about sharing of good news and bad news. Anything else to add to that list or is that the big ones?

Mark Terbeek (00:53:53):

It's a commitment to them. One of the things that comes up a lot of times in companies is that there is a ... Depending on big outcomes, like an exit or a big fundraise or something, there's typically like a board vote and a shareholder vote. They're different. On the board, everybody, including the investors, have a fiduciary responsibility to all of the shareholders, as do the founders, the CEO, or whoever, depending on the founders who are still running the company at that time.

Mark Terbeek (00:54:17):

They also have a future responsibility to everybody, both as operators in the business as well as directors. On the shareholder vote, anybody can vote their shares, whatever interest they have. The board vote, to me, is the important one, because what we want to try to do is always think like, how do we make the pie the biggest? How do we help the company the most? How do we build the biggest, most enduring business and optimize it for the super long game? Most founders also are thinking the same way.

Mark Terbeek (00:54:44):

They know, because they've been hiring people all along and building an option pool and taking dilution to bring on other people. They fundamentally understand the relationship. When you keep thinking, what's best for the company, what's best for the company, both for the investor and the founders? It just has a magical moment where the culture of the business is around optimization of the pie. I think that's where the best, best outcomes come. There's hardly ever a split vote on the board. It just doesn't happen very often, and except for very corner KC kind of things.

Mark Terbeek (00:55:16):

That's generally because the founders build a culture. They execute. They're open about the challenges and they build consensus before any complicated vote comes up in the first place. That's what everybody wants.

Daniel Scrivner (00:55:30):

I love that you talk about building the biggest, most enduring business possible, because that's not something that I hear a lot. I don't hear a lot of people using those words. It seems like, generally, investors are trying to bias for more of a short term, bigger outcome as opposed to a longer term enduring outcome. I just wanted to say I think that that's an incredible. I'd love to ask you for your advice for both investors and for entrepreneurs. Maybe we'll start with entrepreneurs.

Daniel Scrivner (00:55:53):

If you take off your investing hat, put that entrepreneur hat, for people listening that are either maybe they founded a company and they're a year in, maybe they're in one of those challenging spots in a company's trajectory. Or maybe it's someone that's thinking about founding a business, what advice would you have based off your experience for entrepreneurs?

Mark Terbeek (00:56:12):

Always be okay being honest, not just in the obvious sense of honesty, but being okay being vulnerable, being okay saying when you don't know an answer. Because nobody knows all the answers, especially in these businesses, and being intellectually honest about what you know and don't know. It builds a lot of confidence with investors and even employees when you're open. You can say, look, we don't have the answer yet. Try your best to be direct and not give bullshitty answers. You don't have to sugarcoat everything.

Mark Terbeek (00:56:41):

It's fine when things aren't always amazing, they won't be always. People sense it, just like we talked about early on. The middle management guys always knew the answer, those big enterprise companies like McKinsey, employees, you're hiring these best people in the world to work at these startups. They're not dumb. They're extraordinarily intuitive. They know when there's challenges. It builds a lot of trust and empathy and a sense of cohesion if you include them. I see the best companies are really good at doing that.

Mark Terbeek (00:57:10):

Then I would say, surround yourself with amazing people and people that have different skills, and you don't want just yes people. You want people that will constructively challenge the status quo and push the business to be better. That includes both as employees and on the board. It's never too late to improve those things. Even if you feel like maybe you didn't get off to the start you wanted on those things, just like any relationship, you can always do a clarity, walk and reset, and declare that you're going to work on trying to get better.

Mark Terbeek (00:57:41):

Then I would say the last thing is, we do this at Greycroft. We all have coaches. We know we're not perfect. We're all trying to be better individually and as a team. I'm seeing this more and more often. Now, a lot of our founders, not even just the CEOs, like the founding teams and the leaders across different departments, are getting coaching now. It's a lot more available. It's excellent. I think it's really refreshing. It allows you to have these moments of clarity and vulnerability and understand how you can improve yourself as a person, as an operator carries over and all your life too beyond business, which is fantastic.

Mark Terbeek (00:58:17):

If you think about the best athletes in the world, they're the heaviest coached athletes. Whether it's Mikaela Shiffrin skiing or LeBron James or wherever, those are the ones that get coached ... Serena Williams, they get coached more than anybody. If you want to be the top performing athlete in your cohort YC or whatever to, why not look for the same thing. There's different ways to get coaching. I don't want to be preachy about it. I think it is an enabler. I think an area of that, even if it's once a month for a half hour just to check in, it can be a very unlocking dynamic to push yourself to be better.

Daniel Scrivner (00:58:51):

Reminds me a little bit of going back to that Goldman Sachs example and those most senior partners. No one shows up in the world polished and able to deal with challenges and having high EQ and being able to have difficult conversations. These are really, really, really hard soft skills. One of my biggest gripes just the way we're all taught is we never get ... There's no instruction ever on soft skills. Yet when you move into your career and move into life, most of the worst disagreements or worst outcomes come because of lack of soft skills. It's just incredible.

Mark Terbeek (00:59:20):

That's totally, totally true.

Daniel Scrivner (00:59:26):

To switch hats now and put on that investor hat, what advice would you have? I'm sure some of it we've already talked about, which is understand the nature of what you're getting into if you're backing an entrepreneur and a business and try to be empathetic for them. I'm sure some of it is getting on that same page early on. What other advice would you have for investors or would be investors?

Mark Terbeek (00:59:44):

I think the reality is we try to do a lot of our work upfront before we've even met the company in terms of understanding the sectors and having a point of view already. Then when we meet the company that's doing something in that area that we mapped out, we have a feel how it fits. We've got a little bit of a running start. Ideally, not every company fits that, but we try to ... Hopefully, 80% of them are in that type of model. Then it's really about alignment, making sure that we're hooking our wagon up to the exact same wagon that the management team and the founders are on, and that we're either together going to go to the moon or we're going to sink to the bottom of the ocean together.

Mark Terbeek (01:00:17):

There's not going to be a divergence of our interests from theirs. That's the most important. Then after that, joking aside, I mean, I feel like our role is really like a third, trying to stimulate ideas around sales and marketing. We don't really try to get too deeply into products. That's really up founder's vision and founder product market fit stuff. Really, around helping to push on sales and marketing, provide them leads, opportunities, introductions, and help them on that. Then the other third is probably a psychologist.

Mark Terbeek (01:00:50):

The other third is probably, and this isn't necessarily booze related, but like a bartender. I mean, I feel like we're in a situation where we're encouraging and we're trying to be a jetpack on super founders' backs. We're not making the decisions on the business. We'll always give them our honest take, but they don't have to listen to us. Oftentimes, there's probably times when they're better when they didn't listen to us. We're always coming from a point of what we believe with some logic and with honesty, and with the company first when we're providing that feedback.

Mark Terbeek (01:01:17):

We're just one data point that they need to manage through along with the other people on the board. It's really trying to keep them, like I said, level headed when things are going amazing and keeping them pumped up and a sense of source of energy when they're in one of those trickier times in the company's life and keeping them believing and going down the road. Because we all need a little bit of an energy boost at times. I feel like that's really our primary role in those relationships.

Mark Terbeek (01:01:42):

That's the juice for us. I mean, obviously, we're money managers and we have to in return for our limited partners, ultimately. The day to day juice for us is seeing my phone light up when I'm driving somewhere in the car, while at least pre-pandemic and seeing one of my founders calling me and having no idea before I answer the phone, if it's going to be amazing news or something really challenging for them. The sense of adrenaline kicks in. It's the closest thing you can get back to being a founder without being a founder, I think. That's the part that I love the most about it.

Daniel Scrivner (01:02:11):

I think that's incredible. Great advice for both entrepreneurs and investors. You talked about that you read an incredible amount. You gave some examples there. I know Axios is one, Dan Primack, I'm sure you probably read his newsletter. I'd love to know a little bit of what are your inputs in terms of the things that you read, the things that you take in that you find super valuable. I'd love to frame it up in two ways. One of those would be the small things that you read daily, those could be newspapers, those could be blogs, and newsletters. Then another would be just any longer reads that are either things that you give to entrepreneurs or to your team or to people that you work with and/or things you've read recently, you're like, wow, that blew my mind.

Mark Terbeek (01:02:49):

The short form episodic stuff is a combination of most of those source you talked about, pro rata. I read like the Forbes morning letters. Then I go through my set of stock tickers and see what's up and down. I click into a bunch of those things. Then obviously, we're a bit lucky, because of all the different angles we have working at any one time at Greycroft. There's an incredible amount of email traffic and Slack traffic that's going back and forth. That's about company updates or things that are happening or updates from our platform team.

Mark Terbeek (01:03:19):

Those talking about events we're having or whatever. There's always a high amount of intelligence you can glean from what's working in some of our companies and what's challenging, whatever. I think of that as like the bursty stuff that's happening every day. One of the other investments that our investors in a company called Blinkist. I don't know if you know, but they do summaries of books and audio books and listen to a ton of the summaries there, which is really efficient. You can listen to any business book or whatever.

Mark Terbeek (01:03:47):

You can distill it down into like a 10, 20-minute listen and get the core of it. I do listen to a lot of podcasts including, sadly, some about the Chicago Bears, which is a little bit painful. I listen to a lot of that. Then the long form stuff, one of the things that I love are the ... I still read a lot of the classic novels. Just recently, I went back and re-read two of the books that I read right when I was leaving Stanford, when I met my wife. My wife grew up in Monterey County, and she got me into Steinbeck. I just went back and read East of Eden again, which was just amazing. Then Somerset Maugham, The Razor's Edge. They're just so fun to read and my life ... For the last time, I read those 15, whatever, 20 years ago, yeah, I was just out of school, I wasn't married.

Mark Terbeek (01:04:31):

I was dating my wife till now, whatever, 18 years later, with two kids, the way you read those books is so different now as a dad and as a husband for close to 20 years now, how I think about that stuff versus when I was younger. It's so crazy to think your own perspective changes how you read that. I guess that's my takeaway from a lot of these books, is what you take out of them often is your perspective. It just helps to level set you back on all the other stuff and make sure you don't get so out of touch with the world. My young daughters and my wife keep me running around a lot, which is fantastic.

Daniel Scrivner (01:05:07):

Those are fantastic recommendations. We'll link to all those in the show notes. I'm going to ask a different closing question this time that I typically ask. Sorry for the curveball. You've been married for nearly 20 years, you've obviously got a family. It sounds like that's a huge area of focus for you. When I think about entrepreneurs and investors, both of those can be very demanding, very time intensive professions. It can feel hard to balance family and these passions. Any advice for someone who is married, someone who has kids, that is in it as an entrepreneur and as an investor, just from your experience, any words of wisdom.

Mark Terbeek (01:05:43):

There are times when you, obviously, have to give a lot to your profession, either you're in a hot deal that's getting chased or there's a moment or there are companies, one of our companies might be getting acquired, and it's down to the ... and you're grinding away and ablate on board call ... There's all that kind of stuff. Obviously, it's an entrepreneur, it's a nonstop weight that's on your shoulders. When things are going well, you constantly feel that. It can be very easy to almost single track yourself. There are times you have to, in any profession.

Mark Terbeek (01:06:13):

Balance is really great for performance, for energy, for perspective. You need all those to be a great founder and CEO, and I think a great investor. When people are happy, or at least balanced, they're way more fun to be around. They're much more interesting to talk to. We talked about the soft skills. When you're just getting to know entrepreneurs beyond, hey, this is my CAC, LTV ratio, you're getting into like, who are they? What drives them? Why are they doing this? What is it that made them go on this mission to try to flip the odds and be that one guy that makes it to the end of the pool and trying to relate to them?

Mark Terbeek (01:06:52):

For me, I mean, that's what I love anyways, about the business, but I really think hard about that stuff. I try to understand what's driving them and then how can I be supportive to them in that mission. A lot of that comes from being able to relate to them about their kids or, hey, you know what, I can tell you're really ... You've got to take a break. Sometimes because we're not in the company every day, we have a bit more ability to see that, those moments. While it's hard to do, it's just really important for everybody.

Mark Terbeek (01:07:20):

I think the world's gotten better about understanding that over the last 5 or 10 years. I think we have a ways to go still. COVID have caused a little bit of a rethink and a reset of a bunch of these aspects, which is good. It's just important to try to maintain, you got to do some things for yourself during the journey to recharge. You have to be a little bit selfish every once a while for any of us, and that's okay.

Daniel Scrivner (01:07:42):

Making sure that you're putting emphasis on everything in your life is obviously going to be an overall performance boost. It's like so, so don't neglect that. That is a fantastic advice. It's a perfect note to end the show on. Thank you so much, Mark. It's been a fascinating conversation.

Mark Terbeek (01:07:54):

Yeah, you're welcome. Thank you so much. If I can help anything, let me know and love to do it again sometime.

On Outliers, Daniel Scrivner explores the tactics, routines, and habits of world-class performers working at the edge—in business, investing, entertainment, and more. In each episode, he decodes what they've mastered and what they've learned along the way. Start learning from the world’s best today. 

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