Operators Ep 29: Dod Fraser (Opendoor)

  
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Dod Fraser is Vice President at Opendoor, which he joined right after the company closed their Series C.  Prior to joining Opendoor, Dod was an Associate at TPG and Perry Capital.

In this episode I talk to Dod about his initial ambitions in medicine and how that changed, his time at TPG and why he left for Opendoor, and the importance of underwriting standards. He also shares about why in the lending industry he’s always looking at the downside, his observations on the IPO process, and some surprises that came from the Covid pandemic.

I hope you enjoy the show.

Full transcript available here.

Operators Ep 29 Transcript

Delian:

Hi everyone. My name is Delian, and I'm a principal at Founders Fund, a venture capital based in San Francisco. This is Operators, where I interview non-VC, non-CEO, non-founder operators that make the startup world go round.

Delian:

Today, I'm interviewing Dod Fraser, VP of Capital Markets at Opendoor, which he joined right after the company closed their Series C. Prior to joining Opendoor, Dod was an associate at TPG and Perry Capital.

Delian:

I hope you enjoy the show.

Delian:

Dod, thanks so much for coming to the podcast. Excited to have you on today.

Dod Fraser:

Glad to be here, thanks for having me.

Delian:

So typically in these types of conversations, before diving into the very interesting work that you're doing at Opendoor, including all the... Honestly I feel like half our portfolio that you're advising. I always like to rewind and start early on in people's careers, which is you joined Lassarat as an analyst back in 2003.

Delian:

Was it the plan to always after college to get into finance? Or what led to that originally?

Dod Fraser:

Yeah, I actually I was Pre-med in undergrad and I fell off the wagon, got interested in economics and then out of school, I actually worked at Silver Lake early on. Got a taste for what finance was. Enjoyed that, and then from there made the jump to Lassarat to do the classic analyst program to get that core skillset.

Dod Fraser:

But finance, this was an interesting one. I went to Lassarat, I was there for two years, but then actually left Lassarat to go back to Columbia to do a Post-bacc Pre-med program, because I was like, "You know what? Banking is not for me." And then I fell off the wagon in Pre-med a second time, and actually joined Perry Capital at that point. Then I was like, "Ah, this is really fun. I'm enjoying this," and stuck with that for six years.

Dod Fraser:

So I oscillated a lot in those early years, back and forth, in particular towards medicine, which would have been quite a different path.

Delian:

I was going to say, what caused the constant hopping off the bandwagon of medicine? Was it just, "I'm not in for the 15 year grind of med school before I can make any money and get massively into debt? Or, was it the day-to-day of actually, I just don't like thinking about people's bodies all day?

Dod Fraser:

I did not like banking, I have to admit. That was not the most fun for me. A lot of good training there, but you come away with a couple of core hard skills, but that longterm path wasn't for me. And what medicine was something that I always enjoyed, like the people and the connections you get out of that, but the world of medicine, going back to this Post-bacc Pre-med program, I interned at a hospital, spent a lot of time with doctors.

Dod Fraser:

The world of medicine had really changed from when my grandfather was a small town doctor, GP. He was the town doctor. That didn't exist any more, so that same personal connectivity just wasn't... Well, what I wanted out of it, and so that plus going to work at a summer intern at Perry showed me a completely different side of finance. More the investment side, and I really enjoyed that.

Dod Fraser:

So the parts that I didn't love about banking were gone, and it was just pieces that I really enjoyed. And I decided to stay there for six years so I was there for quite a long time.

Delian:

Yeah, tell me a little bit about Perry. I don't know much about the Fund, just like the structure of it, the size of it. Sounds like you worked across a variety of different groups while you were there, the distressed capital, PE, the multi strategy fund. What was let's say, day one, where did you focus? And then how did that shift over time, and what were the parts of it that were most interesting and most attractive to you?

Dod Fraser:

Yeah, Perry was a $15 billion multi-strat fund, so think of Och-Ziff, or Farallon. Actually the three of the founders, Dan Och, Richard Perry and Tom Steyer, all were analysts together at Goldman. And then they each set out at the same time in the late '80s to start their fund.

Dod Fraser:

So multi-strat funds, and at the time a partner from Lassarat had been hired to build out a special fit illiquid private equity investing practice, and he was actually the guy who hired me at Lassarat. And so when he jumped ship, he was like, "I need people. I can't hire from Lassarat, but you're in this Post-bacc Pre-med program. Can you come work for me?", because he could hire me. And so I said yes. And then I stayed in it.

Dod Fraser:

The fun part for me about that role was really the variety. Our mandate was, we could be anywhere in the Capital structure, so credit, pref equity, full on equity, that's owning businesses, and any industry. And that broad mandate was both fun for me, but also was ind of eye opening to see, especially because everything went up to Richard. Like going to Richard and explaining the business. Seeing how Richard approached with the same framework, he could apply his investment philosophy to really any industry or any part of the Capital stack and seeing those common these and picking those out, was fascinating.

Dod Fraser:

It was like you'd go into these meetings and within five minutes, he'd stop you and be like, "Okay, here are the three things I care about. Answer these three questions." And it was almost always three. And you'd start to answer them. If you had good answers, it's like, "Okay, I'll do the investment." If you didn't have answers you'd go back and do the work and inevitably, 90% of the time, that was one of the three things that killed the deal and stopped it in its tracks.

Dod Fraser:

It's just the ability to see through the noise and get to those core nuggets of here are the big risks. And usually if you'd knock off those big risks, he'd assume that you got the rest of the underwriting right, and you could move forward. That breadth and variety, actually it was fascinating to... And I still draw on it today.

Delian:

Given the timeframe you were there was right before the real estate crash and then going through it. What was it like working at a... Was there distressed credit that you guys had to go through that was at the trough of this? What was it, I guess, like working through capital markets during such a volatile time?

Dod Fraser:

Yeah, so we looked at everything that was distressed in the subprime space. We had a very large CDS position on, so we had a lot of money there, and then we were buying distressed portfolio assets. So we bought four and a half billion in condo assets, actually near [Hometown 00:06:32] was 30% of the portfolio. We bought a lot of the condo towers that were under construction in Miami at the time because they'd been seized by the FDIC.

Dod Fraser:

And so we just were constantly looking for either platforms or hard assets we could latch onto. Platforms that could help us aggregate distressed assets, and so backing the equity in those platform plays, or buying them directly. I actually was only planning to be there for two years and then go to business school. Got into business school, deferred a year, subprime crisis [inaudible 00:07:01] me, it was such a fascinating time to be in that seat and watching the world change and shift, that I really ended up staying there, as I said, for six years.

Dod Fraser:

It was a fascinating time and we were one of the few funds that had capital that was very sticky. And we'd actually raised a dedicated fund too, that was private equity style. So it was our decision to invest that capital, whereas a lot of people were retrenching. We had the ability to still deploy that capital which was just a lot of fun and just fascinating to see the markets unfold as they did.

Delian:

Before that, was that an area that you were particularly focused on? These distressed hard assets? It sounds like it was sort of a mixed fund. Do you feel like part of the reason why later on it seems like you've now obviously focused on real estate ton over the past decade now? Was part of that because of the distressed subprime crisis and seeing the opportunity there? And is that what got you excited?

Delian:

It sounds like you were going to go to business school, but got excited by that crisis. Is that what spared this interest in the world of, in particular, RE, EO and hard assets?

Dod Fraser:

So, one of the things... We looked at aircraft. We were going to buy metal, we looked at containers. We did all these fun things, but the common thread throughout most of the investing I did at Perry was, businesses that did have hard assets, because you could underwrite the downside.

Dod Fraser:

And so yeah, given the timing, the massive opportunity in population assets was residential real estate or commercial real estate, like condo as an example. So I ended up spending a lot of time investing in those assets, so I did develop a expertise there, and that actually carried through to why I ended up joining TPG, actually, after Perry.

Delian:

As you say, before we dive into the TPG days, was it obvious, let say when you're buying up these half-built condo buildings in Miami, did it seem obvious that there was actually just this significant arbitrage where it was like, "Look, we have sticky capital. Everybody else doesn't, they're retrenching and prices are clearly just way, way off par. And by the way we'll be downside protected because this isn't just some random stock, it's a hard asset, an actual building that we can actually recover."? Or, did it actually feel like, I don't know, palpitating adrenalin where everyone's like, "We're actually taking a bet that no one feels, or everyone is saying is absolutely crazy, but we really believe in."?

Dod Fraser:

It was definitely the former. In that we were able to buy them at a discount. And at the time of our underwriting, we bought 101 condo towers at one time, and some of those we bought for 20 cents... Like one market, I won't be specific about the market, we bought for 20 cents on the dollar. 20 cents of costs.

Dod Fraser:

So the part that actually was misunderstood a lot of the time and this particular portfolio was actually most of the condo towers, they were built. So there actually wasn't a lot of construction risk. It was just sale risk. So then it really came down to, "Okay, what is the right, stable, longer term sale price, and what's the absorption? How long does it take?"

Dod Fraser:

So those were the two things we had to underwrite, and actually it was fun. It was Richard Perry, Barry Sternlicht and Kelvin Davis, who ran TPG Real Estate at the time. And it was the three of them and us doing the underwriting and a lot of these powers they knew personally. So it was a really fun, interesting underwriting. And in the end, to your question, we were buying them at a sufficient discount that we felt comfortable we wouldn't lose money. How much money, especially because it was a competitive process, how much money we would make was actually a big unknown.

Dod Fraser:

But we did feel comfortable we were getting in low enough, in particular in the riskiest markets, where we were buying at really low percentage of the cost, at least on an allocated basis, we felt good we'd make money and in the end, we did. It turned out to be a really successful deal. It took a little longer to sell some of the assets than we thought, although interestingly, Miami was one that came ripping back.

Dod Fraser:

And there were a lot of buyers that came in, and that significantly exceeded our expectations, which was at the time [crosstalk 00:10:59]-

Delian:

Who would have guessed that again, 13 years later, Miami would rip back yet again, during the COVID crisis?

Dod Fraser:

Exactly.

Delian:

Turns out people, no matter what, no matter how dire things are, people want to be on the beach.

Dod Fraser:

Absolutely.

Delian:

And [inaudible 00:11:12] happy to do so. So yeah, how did you end up switching over from Perry to TPG? What was that like, recruiting process? Was it again, somebody from Perry that got [inaudible 00:11:19] in TPG that you followed along with? Was it just this RE expertise and they were really looking to deploy significant capital and you had expertise in that? Or, how did that come about?

Dod Fraser:

Yeah, actually that deal I was just describing was a three way deal between Starwood, TPG and Perry. So I got to know the team, got to know what they were building. My wife is from the area, so we always wanted to make a move west, and the team, the special sit side of TPG at the time, which is now Sixth Street, was just getting started. And they had one of their three investing verticals was asset investing.

Dod Fraser:

They were building out that team. I'd gotten to know them, it seemed like an exciting time to help build up the platform. I was the 50th person of the whole entity and really the second person and ran US asset investing for the time that I was there. And we had two platforms focused on buying residential real estate and small amounts of commercial real estate, and then we also did a number of consumer asset trades.

Dod Fraser:

So my skillset, what I'd been doing at Perry dovetailed perfectly into what they were in the process of building out, so it was fortuitous timing.

Delian:

And it sounds like you and your wife wanted to move out to the West Coast at some point, but was there any even thinking at that time of, "Oh, there's this whole technology industry that's out there, and maybe there will be some opportunity." Did you apply my finance skills to the world of technology or was it just completely by chance you ended up in the Bay Area, that at the time, was going through this huge, let's say, boom of startups that were getting founded there?

Dod Fraser:

I had always been very... I did Basic programming early on, like actually language Basic when I was in seventh grade. I'd always been interested in programming. My brother at that time, had just moved out to start his company. He has a business called Fivetran that he started around the same time. So he had just moved out the yeah before, and so we just... It was definitely in the background there of this is another are of interest of mine, but I didn't really have a specific game plan to get into it.

Dod Fraser:

And this seemed like a very easy step because it was a clear extension of what I'd already been doing, and then once we got settled and we just figured out what that next phase, if there was a next phase.

Delian:

And it feels like during your time at TPG was the very first time that technology startups started to "get fat" per the fat startup framework, i.e., started to rely on debt as oxygen. Were you analyzing any of these things where there was like early days of Lending Club and some of the other "fat startups" really first started off purely in the financial services? Were you starting to track the fact that "Oh, there is starting to be this capital markets type role that obviously didn't exist in the days of pure software companies and the only types of capital they would raise are VC capital, i.e., the CEO raising it, versus obviously the Lending Club's of the world, is a very different type of capital stack."?

Delian:

Was that something that was on your radar that you were seeing given that you were in that sphere?

Dod Fraser:

Yeah, no. We were looking at backing those early startups and basically being the balance sheet for them. So absolutely aware of it, looking at it. We were deploying enough capital... We were very happy with the distressed investing we were doing, so admittedly most of my time did still skew towards that, but we especially towards the end of my time at TPG, had really started to look in some of these newer business models at the time that needed capital. So yeah, it definitely was on my radar. Making the jump took... There's a whole other story around how I made that jump.

Dod Fraser:

I was certainly aware of it, just hadn't really... It came up unexpectedly, the move.

Delian:

Interesting. Can you maybe describe how TPG assessed these types of, let's say, opportunities to be a part of the balance sheet vis-a-vis everything else that could be done? Was this totally net you of, "Oh, my God. This is completely wild that these companies are now relying on debt so much."? Was it like this is just going to be like 1999 again? It's going to be like pets.com, just burning through money like crazy. Why would we want to do that as a debt provider, versus just actually having equity in at least getting some of the upside?

Delian:

How did you guys actually think through some of those early startups that were coming up? Did it feel like a totally net new thing or a repetition of history?

Dod Fraser:

Well, in all those cases, they were dealing in assets that weren't necessarily new assets. So you could underwrite and you could benchmark against other things in the world today, or other investments we've done. So the concept of giving them debt capital against these assets, we could underwrite the assets. I think the big unknown actually was that what was the discipline on their side around originating those assets and were they good assets or bad assets?

Dod Fraser:

And that was the unknown part, because you didn't have the same track record. And so that actually was the hardest part for us to get comfortable. We were looking at one consumer platform that had been around for 20, 30 years. They lost money in one year of the subprime crisis doing credit card lending. They were just hyper consistent, same business model for decades.

Dod Fraser:

That track record gave us a lot of comfort. And so I think the shortness of the track record was the part that really made it harder for us to... And that really comes down to, "Do they have good underwriting standards?"

Delian:

Right. And how would you even asses that as that an external provider? Would you actually dive into, "Okay, let's compare this, XYZ started providing these personal, unsecured lines, vis-a-vis a Wells Fargo providing unsecured lines. Let's look through traditional underwriting schemas, here's what they're looking at. And basically let's make sure the startup is going through a similar underwriting process."

Delian:

Give us a sample of the book. Let's go through, gauge it and feel like we are comfortable with the level of risk we're taking on? Or, how would you as an external party actually go through and assess that underwriting?

Dod Fraser:

Yeah, I mean at a high level, there's tow things you spend your time on. One is look at the data they have. So look at the track record. The assets they've originated, and the bench market, too. Okay, they're originating this consumer unsecured loan. Let me go find data that I can then look at the same cohort curves and basically look. So for a six-month old cohort, are they underperforming or outperforming versus an industry standard securitization or otherwise?

Dod Fraser:

So there's the data piece of it, not to oversimplify it, and that's really coming down to, "Okay, what's the loss rate? What's the delinquency rate? What's the severity on the delinquency, so what does that mean in terms of losses?" That's one piece. The second piece though is the point you raised there, which is underwriting the process. Like what is their process? Who are the people that are doing it? How similar or different is it to when we've underwritten of the similar or same asset classes? Are they good or bad? Who have they hired to do it?

Dod Fraser:

That's more qualitative, but actually given the short track record, you have to weigh that pretty heavily in assessing the risk that you're taking and in the end, that's the place where a lot of them were falling down, from our perspective. At least they weren't hitting the bar we wanted, or I wanted to proceed.

Delian:

You'd actually compare the curing curves of XYZ tech company vis-a-vis the curing curves of Wells Fargo and be like, "Okay, well it's not clear how this portfolio will perform over the next five years, but at least in the first three months, it is not performing according to what we would ideally hope for."

Dod Fraser:

Yeah, exactly.

Delian:

And so then walk me through... So you're at EO TPG for roughly three years. And then came across this opportunity with Opendoor. How did that come about and what was the thinking around taking a pretty orthogonal hard left turn in your career at this point? You had been in, I don't know, "pure finance" for almost a decade. To go from that to operating at, I imagine at the time it was on the order, correct me if I'm wrong, 30, 35 people, somewhere around there, but pretty damn small.

Dod Fraser:

I think-

Delian:

Less than that?

Dod Fraser:

It was pretty small. Actually the first conversation with Eric... So well the introduction... Eric's the CEO and founder of Opendoor and it was around 15 or 20 people when we first got introduced. My brother was in YC, not to bring back my brother, he was in YC, Eric had a YC company. Eric was presenting at one point, George came up to him after the presentation and said, "You're doing something in residential real estate, my brother does something in residential real estate. You two should talk." So he made the connections. He gets credit for that.

Dod Fraser:

Then from there, we met for coffee, and they laid out their plan and their strategy and what they were doing on the funding side. And it was like, "Okay, well here's how I think about step one, step two, step three." This is how your capital structure will evolve over time. And like, "Great, thank you." And off they went.

Dod Fraser:

I forget if I met Keith at that time. I think I met Keith on the second go around. So we had that first conversation. I was still at TPG, and then about six months later, we talked again, and it was clear that there is, especially at the time, because this concept of the fat startup, as you called it, was very new. There is a specialized skillset there and there is this gap between how Silicon Valley operates and how East Coast lending operates.

Dod Fraser:

And those two really didn't overlap, despite TPG being based in San Francisco, there is this information gap where they just talk past each other, two ships in the night. And so that second conversation was where we started talking about joining and it was right around the time the company was closing the Series C. Literally, the day Eric and I were talking about, we were going through the motions.

Dod Fraser:

He was checking his phone constantly, he's like, "Sorry, I'm waiting for money to clear." That was the day the series that he was funding, and he was waiting for the check to hit. So basically, the decision tree for me was really threefold. There's three parts that really intrigued me, and anyone I've hired over the last six years probably has heard this from me.

Dod Fraser:

The first was Eric had this incredible vision for Opendoor and the clarity of that vision, to this day, it literally that pitch that he told me six years ago, is the same as it is today. So the vision for Opendoor was... And his dedication and commitment to it, it was tangible.

Dod Fraser:

The second was product market fit. We, at the time, we were converting around 20% of customers, I think, "Wow, that is crazy. 20% of customers of this itty-bitty company are saying, we were one market at the time, saying yes to this offer." If you look at that number that publicly, the other one like 2019, it was 34%. That number has only gone up, clearly. But it is an extraordinary conversion.

Dod Fraser:

So it's very clear customers wanted this product and the product market fit is there. And then the third piece was more personal, around what I could do, which is, "Yes, capital markets is something where, that was 10% of my job at Perry and TPG, but it was something I had the network, the connections and the understanding of how that world operated."

Dod Fraser:

But for me, the fun part about Opendoor actually, was the breadth of what I could do, because over the years... I mean week one, I got handed accounting, and then I got handed FP&A, and over the years, I brought up our partnerships team, a whole bunch of platforms for us as a company, which has been really fun. And our mortgage business, our title business, going, actually talking to Keith about those as a board member, and all of that was really fun for me.

Dod Fraser:

And it was, despite going into one company which I, like my big fear about working at one company, was it would be too small, versus, as I talked earlier, I love that generalist role. But working at one company with the breadth of roles has proven to be very fun and the part that I've most enjoyed actually is just working with different people and finding the right people for the right seats.

Dod Fraser:

That's been the most fun for me, and it was something I did get a bit of at TPG, but not as much of the day-to-day. So anyway, I kind of answered in a roundabout way your question. But it's been a fun ride and the three things that really brought me here are still true today.

Delian:

You kind of mentioned that they handed a lot to you when you first joined. And you also mentioned that Silicon Valley and TPG spoke past each other despite being in the same city. Can you walk me through one, what was the capital stack at the time, when you joined? I know that there's this early set of debt that came from SVB basically, alongside that initial round of financing. Had that already been expanded upon when you joined? And so, what was it when you joined? How did you think through, "What is the roadmap for...?" For sure, accounting [inaudible 00:24:33], we can chat about and mortgages, et cetera, but I feel like that is a segment of startup problems that maybe many more people can solve, than capital markets, you have one of the very rare skills is if you can both do the mortgage and the title and the partnerships and also the capital markets, which I think very few people have.

Delian:

So what was the status of it? But then, also what was the process of, let's say, making the two sides speak the same language, which I assume was mostly, maybe a crack in the whip on Opendoor to figure out how to understand TPG and how to speak their same language? I would love to hear that.

Dod Fraser:

Also, where we were at the time was, you're right. We had a line with SBV and that was about it, or that was it. And so the roadmap, I'd even told Eric that six months before, is you can start with those lines, but then pretty quickly you can get to uni tranche lenders that will give you a line, up to 80, 85, 90 cents, and they'll fund that whole part. But those would be the TPG's of the world, like that type of capital.

Dod Fraser:

Then what you pretty quickly want to do is migrate, as soon as you get to the right scale, to the bigger commercial banks, the Goldman's, the JP Morgan's, the Credit Suisse's of the world because their cost to fund is so much lower. But that comes with lower advance rates, so instead of for $100 home, instead of getting $80, you only get 60, or $70 from them, and you'll be able to move that up over time, so then you also need to add to that mezzanine financing.

Dod Fraser:

So we basically went through those stepping stones and we've gone through it over the last six years, but that was sort of, in my mind, the landscape, which is Silicon Valley being great at the beginning, but wouldn't hit the scale or cost to fun that we needed over time. Then it's about moving from those uni tranche facilities to the senior plus mode, to securitization. There's this roadmap that we've been on for six years now, and we're still on it.

Dod Fraser:

And so that was, in my mind coming in, that was sort of the path. And admittedly before I joined, I called a couple of my friends at these banks like, "Am I right about this? This asset should be very finance-able." And everyone agreed. And that actually is, to your second question about how do you get the two sides, the East Coast and West Coast to work together? And the thing about these banks or even the alternative asset managers, what they love to be able to do is latch onto, "Okay, you're giving me this asset with this risk, and it's very similar to this other asset I already finance." And if you can make those analogies and clearly articulate to them, "This is my business, this is the asset that you're going to own, and by the way it's, in Opendoor's case, it's very similar to single family rental."

Dod Fraser:

Basically, those warehouse facilities you have with single family rental is very similar. We're actually shorter duration and its listed homes. You don't have tenants in the house. You just have this listed home, so it's a better risk than single family rental and that has worked and we continue to use that today.

Dod Fraser:

So creating those analogies actually is, I think, the important bridge and, to your point, having sat in the investor seat, being able to pitch the business in a way that they understood. Early on, we would have... Eric would come in and for lender meetings, and he would do basically the equity pitch for Opendoor. Then we'd have a second separate deck. He hated the formatting.

Dod Fraser:

Second separate deck of here's how the lender... Take these slides and bring them to your credit committee. And that was the part where I was helping bridge the gap between the two sides, because they could understand the vision, which again Eric is truly exceptional at, and paired that with, "Let me explain the underlying asset that you're going to be financing." And it helped them have the knowledge they needed to then go to their credit committee and explain it clearly.

Delian:

And then maybe to flip the table a bit on your prior former self that would have critiqued this, with a relatively smalL SVB debt line. I would imagine there was limited performance history. At least there's relatively fast turns on these assets. I assume there's "cure and curve" occurs pretty quickly and you can run through a couple of transactions. But both, let us say the transaction volume isn't necessarily super large, it's not an infinite number of data points, but then also obviously, the operating history of the company was quite short.

Delian:

So can you talk through how did you get people around this? You've mentioned the analogy towards making it like an asset that people appreciate, but I assume at the time these debt providers weren't really ever buying listed homes. I can't imagine that that was a model that other people had one, maybe you would know.

Dod Fraser:

No, they hadn't. Definitely not. Yeah.

Delian:

And then second, maybe just talk through, I think I understand it pretty well, but it's just the risk levers and how people stack up their debt writeup, when you talk about 60 cents of the home purchase comes to the debt provider, well that protects their downside because the home needs to tank by north of 40% for the debt dollars to ever get lost. So can you talk through a little bit of what are the levers that you could use get those early lines that made those debt providers comfortable with the risk that they were taking on?

Dod Fraser:

So in terms of the first question, there were a bunch of conversations where it was just a binary no. It was like, "Your track record's too short, come back to us when you have 2,000 homes." And I won't name the names, they did come back. They're lenders for us today. But they're like, "You don't have the track record." So that piece was just binary for some. You just needed to get through that question pretty quickly because if it was too early, fine, move onto the next.

Dod Fraser:

That was layer one. If you got past that, then to your question on how do they box the risk? How do they differentiate the risk? There's a couple... The biggest probably is the time is the risk that you're dealing with in any asset. And as you have more time, you have more risk. So what we've done is, we've set up all of our facilities where there are the advance rate goes down over time.

Dod Fraser:

And so they have less risk over time. And that allows them to get comfortable with the fact that yes, you're dealing with this newer company, but if my advance rate is going down, I won't put absolute numbers on it, because that we don't disclose, but I know I'm getting less exposure to this risk over time.

Dod Fraser:

So to your point, if you line that up against the subprime prices data, which is the best example where you have real data, they could go to their credit community base and say, "We mathematically haven't seen a way to lose money here." And so that was a helpful way of boxing the risk, especially early on.

Dod Fraser:

And so that probably is the single biggest factor that they were able to use, to get their credit comfortable that this is a new asset class that they should be willing to lend against. The listed part was more about the... As a lender, you always think of the downside. So the downside is, you have to take back these assets and sell them. So in most cases, rental, fix and flip, the business we did, non-performing loans, you take back this asset, but you can't just go on and sell it, you've got to figure out what to do with it.

Dod Fraser:

You've got to figure out how to get access to that home to then list and sell it. And what we were providing them was literally that end state, the ideal end point of, "We have this complete home. Doesn't need more work. It's on the market today. All you need is a broker to liquidate." So it's very easy to liquidate the home and the balance sheet was the thesis.

Dod Fraser:

Now we had the... Well, COVID came last year and there was a proof point of, "Do the homes actually sell?" And we sold over 90% of our inventory in five months, which by most standards is incredibly fast. So we said for years that would happen, and admittedly during COVID, I was talking to our lenders every week saying, "It's happening, it's happening." And it did unfold in the way we hoped it would or expected it to.

Delian:

And I think one of the other complexities of managing this capital stack is that it only becomes more and more layers and stratification of the risk over time. Early on, it's just like SVB, XYZ dollars of line, that's it. Next time you get TPG, et cetera, on board. Next time you get TPG plus somebody and then you start to stack, stack, stack, and then by the way, each of these individual parts of the capital stack also have these decay curves on how much they're willing to front it, and also, by the way, the company's continuing to operate, and by the way, there are covenants on the deck with how much equity capital you need.

Delian:

And so you're balancing VC equity fundraises with this. Can you talk about just, I can't even imagine how one person or even how you would create a system to balance all of this stuff at the same time where it's like, this is unlike just having a hedge fund where you're going out, raising money from LP's or something like that. You're balancing the actual operating and VCs need to fund this stuff as well, and I feel like part of the trick is also getting the debt term sheets lined up but then you know that we don't have enough equity to fund the covenant. But then you take those debt term sheets and then show them to the equity investors and say, "Hey, here's why Opendoor is going to work great, because look at these debt term sheets that we have in the future." And then you kind of are doing this delicate balancing act of, you kind of need both sides in order to close either one of them, but you kind of have this chicken and egg, but then you kind of do them both at the same time.

Delian:

So I would love to hear how you balance that all in your head, and how you solve that chicken and egg problem.

Dod Fraser:

The solution's a lot of gray hair, actually. I get picked on for my gray hair and it definitely shows. There were a lot of very stressful moments in those early years, where those two things came to a head at the same time: equity and debt. No, I think the best way to counter that is just to have excess capacity. You want to have enough capacity to not have to worry about the lender being the constraint. That was really, I joked early on... Eric asked me, we did weekly sprints in [inaudible 00:35:00] and each team had to have a theme. And I was like, "Well, my theme is, do not run out of money."

Dod Fraser:

And for years, he kept changing it. It'd be like scalable debt facilities. But now it's like, "Do not run out of money." Capital markets should never be the bottleneck. So with that in mind, you plan ahead and you overcapitalize. You raise more equity than you think your base plan requires. You have more lending facilities than you think and early on, disappointing some lenders. The pace of utilization was much lower than they expected early on, because we had this excess capacity.

Dod Fraser:

So I think those over capitalizing businesses like Opendoor, is really important because it does two things : one, from a [inaudible 00:35:42], you never know what happens, or will happen, COVID being a prime example. But it also, especially on the equity side, having extra equity gives the lenders more comfort on the business. So you will get more lenders interested in the business because you have more equity capital. And they will actually charge you less for that. And they will give you higher advance rates. Like more debt against your assets.

Dod Fraser:

Even though all of our facilities [inaudible 00:36:06] is non-recourse. So they don't look to the parent, they only look to the assets. But they know that what they're focusing on for the parent is will the parent exist? Will the parent be there to solve these assets because the worst case for every lender is to take back assets. So that's where if you have plenty of equity, they're like, "Parents got plenty of run-way, I don't need to worry about in the near term taking back these assets. But let's really just focus on the asset risk and price for the risk and you can price it tighter because that parent is a source of strength, effectively."

Delian:

You've done a decent amount of advising across our portfolio in a couple of different startups. I'm curious, how do you decide which ones to work with? Have you primarily only focused on ones that are of a similar, let's say asset class, as you understand it? Have you stretched into others? And then maybe more broadly, because you have this very unique perspective, honestly there have been not that many "fat startups" that have been anywhere near Opendoor's level of success. What do you think is the future of fat startups looks like in the Silicon Valley technology ecosystem? Do you think that Opendoor's success has now opened its door, sorry, to more and more fat startups succeeding?

Dod Fraser:

You can look at the prop tech fundings base today. It's pretty extraordinary. So I think yes, there's absolutely... But I think that's more about the industry. That's more a statement about the industry that it is about needing to use balance sheet. So I think on the advisory point, I do think that figuring out how to have the East Coast talk to the West Coast, stands. Helping people understand what you need to be sane and explaining to people on the lending side to get them to say yes, is something that you can really do across... The same teams, especially early on, are covering resi and consumer and covering the different asset classes in the same way I did at TPG.

Dod Fraser:

So it's understanding the rubric, and once you have that, you can have those conversations. So I think the thing that I've found interesting on the advisory side is helping, like understanding the assets, like what is the asset risk? Figuring out what that analogy is and then figuring out for that analogy, who are the big lenders? Because the worst thing you can do is go to someone that doesn't understand asset lending. Like they say they do, but if they've never done that similar asset, you'll get into so many little problems that add up to be big problems.

Dod Fraser:

And that can be, they don't understand how to document the deal. So you spend three times the amount of money and three times the amount of time documenting because you go down all these little side threads because they've never done a deal like this before, versus you find someone that understands that analogy and then it's like right in their sweet spot. They've done this 100 times, so the change is actually more just understanding the asset risk, rather than how it gets documented, where you can get stuck.

Dod Fraser:

So going back to the first part of your question, how do I think about advisory? It's where can I be most useful to those companies? And do I understand and can I help them with thinking through, "Okay, this is the asset risk, and here's the types of lenders that would be interested in funding you, given your stage." And it's the same stages today as it was then, which is you can start with small scale facilities, but to get into the bigger scale, there's different people that are good at certain things and you just need to pick where you are in your life cycle for the right lender.

Delian:

And it seems like, correct me if I'm wrong, but the world of capital markets, especially for this asset-based lending, is actually a much more opaque world than the venture capital world. Sometimes when a founder comes and he's like, "Hey, I'm raising for a healthcare tech company." And you tell him, "Well, great. You need to find somebody that understands that 'asset class'. Just go and look at all the healthcare tech companies that have gotten funded over the past five or six years, all of them will be publicly listed on Crunchbase, and that's basically your lead list," versus, if I were to tell somebody, "Hey, you want to raise a $15 million line to buy a lot of CNC and mill machine, it's like, well good luck figuring out who is good at that, because it's a particularly opaque industry."

Delian:

Obviously, there's some of these let's say, debt-based deals that get announced, but it feels like most of the time, that stuff is typically behind the scenes. It's like an accurate portrayal, or how do you even go out and figure out for net new asset classes that maybe you're not familiar with or don't know immediately a lender that's experienced with them, how do you go out and find them?

Dod Fraser:

I think there's two answers, two parts to that answer: early on, you're dealing with these alternative asset managers where actually one of the single most important differentiators, we did this at TPG, we've done at Perry's, our sourcing engine is different. And here's why it's different.

Dod Fraser:

So sourcing is a differentiator, and is proprietary. So they actually are very careful because they don't want that proprietary edge to leak out. So I do think it is a quieter group that is out there trying to source it. Now, there's a lot of them, and some of them are better at certain things and not as good as others, but they're not very public about that.

Dod Fraser:

So I do think there is an intentional amount of minimizing the amount of discussion with each lender, where they're just not that open. And so there is a word of mouth element where I've talked to a lot of them, or they're friends of mine over the years, because I've worked with them, so I think that does help accelerate the ability to find the right person, or who do you start with because that can really, if you find the right person early, you save a lot of time.

Dod Fraser:

Instead of boiling the ocean and going to 50 people, you can be much more targeted in who you look to, and that in the end, shrinks the amount of time and increases the probability of success.

Delian:

And then, outside of capital markets, you mentioned a couple of these major projects you've been involved with, Partnerships being, is the one that I've been most excited by the title, mortgage, et cetera. Can you talk through some of the things that, let's say, came naturally to you as a part of helping spin up some of those initiatives that you could lean on your prior both TPG finance background versus areas that were completely net new and maybe you stumbled on, early on that didn't come as naturally?

Dod Fraser:

I mean I think the strategy side of it, like should we pursue this? Should we not pursue this? I think is something that was a strength of mine and continues to be a strength. So that part has been fun and continues to be fun. The execution side of it, I think, finding the right team, the core team that can focus on it, because in the end, I always was spread too thin. And so what's most important is early on, finding here's the right leader of this team and then helping then unblock them. Finding that person that's better at it than me.

Dod Fraser:

I think that actually is the single most important part to making any of those teams successful is, "Okay, I found that leader. I know they're better than me at this job. I'm going to go find them, I'm going to hire them." And I've done that on all of the teams. And I have made some stumbles over the years, but that to me is probably the single most important differentiator, because it's that focus and attention that you really need and then you want to build the team around that, which is good culture, good cohesion, I'm proud of the number of people that I've stuck with. That I've hired that have stuck with us for a long time or come back. That's really fun for me.

Dod Fraser:

In the end, I think that shows... That's how you make those pieces of the business successful, especially some of, as we were talking about, those examples were set up, siloed intentionally, because we were very focused on getting that core customer experience, as one board member analogized, like a racetrack. You just loop in the racetrack and everything... It's a clean, seamless, customer experience. And then these other things we needed over time, but we needed to get that core customer experience right, and so there was a degree of autonomy, which was a lot of fun for me, but also a need to not have a huge blast radius impact.

Delian:

And maybe, can you talk to me about one of those hiring processes? Maybe explain a little bit about what Opendoor Partnerships is and what was the profile that you're looking for, for somebody to lead that? And then how did that hiring process go? And how did you know that the person that you did end up bringing in would be "better than you", in actually running that portion of the business?

Dod Fraser:

So Partnerships has a huge BD component to going back to actually sourcing as an example. Sourcing deals, being out there, networking, talking to people, some people are just, there's a lot of characteristics for why people are good at that, and there's not one common determinant there, but someone that can develop those relationships and get those people engaged and excited and working with you is how you can and our Partnerships' role, really succeed and thrive.

Dod Fraser:

And then the other piece of it is the execution and following that up with, "I promise this and then delivering." And actually that delivery piece is actually a very different skillset. So that you need both of those for partnerships to be successful. Which is nominally the initial sell, but also the follow-through. So partnering the right people together to make that happen is actually, I think, the key piece on the partnership side that makes a huge difference.

Dod Fraser:

And depending on which Partnerships' team you're talking about, that has been repeated multiple times on different teams within Opendoor around Partnerships, where you get that pairing right and then it can really work well.

Delian:

And Opendoor obviously went public at the end of last year. Can you talk a little bit about how capital markets shift in comparison to being a private company versus now being public? I assume there are some things that are much easier and probably cost of capital cheaper in some ways, but then some things that are also, come with more scrutiny and maybe have more work than as a private company.

Dod Fraser:

It's funny, except for watching the stock price, which I do sometimes, probably too much. I actually think the biggest change is just the equity capital base, at this point, is at a place that allows us to really think very longterm about the business and the plan. And so you're not thinking about, "Okay, my next fundraise is around this time next year. Okay, how do I position the business to really be at the right point at that time?" Versus, "Okay, in five years this is what we want to be." So you can make longer term bets, longer term decisions and think longer term, because of that depth of capital.

Dod Fraser:

Now, that's not actually public versus private decision. It is a little bit in that public companies from a capitalization perspective, they have greater access to capital. But it's more about the capital base allows you to think longer term.

Delian:

Super interesting. And then, maybe as a final question, if there was a fresh college graduate that was listening in that had a bit of an economics background, like yourself and wanted to get into the world of startups and capital markets, into a role that you've had, what would be the ideal path? And let's maybe caveat that this is in the world of 2020, where there are fat startups galore, versus 2003. What do you think is the ideal path of learning about this whole ecosystem? Do you feel like you still need stints on both the East Coast and the West Coast now? Is that a requirement?

Dod Fraser:

So I think it depends on the stage you're trying to join. You can have less experience at later stage, but especially early stage, you do need to have a core skillset there and an understanding of what the other side is going to be looking for. I think there are a couple of core skillsets to be successful at capital markets. One is to just understand the math of it, the technical side. Understanding the trade-offs, which is the same thing as any investment underwriting.

Dod Fraser:

Then there's just the documentation of it, understanding how legal docs work, the basics there. And both those two buckets, it just sort of reps help you. And then the third is, you sort of combine those two and how do you negotiate? And that's something that you just develop over time.

Dod Fraser:

So having some of those hard skills is really important to being effective early on, and so to your question, if it's capital market specific, I do think that those hard skills are really important. And where you get them? There's a lot of different ways you can get them. You can get them from being an investor, you can get them from being a lender, a bank. There's a bunch of paths that these people find us from, but I do think that training to jump in and be one of the early employees is actually quite valuable, because it allows you to, going back to where we started, which is like how do you get East Coast and West Coast to talk? It allows you to see the other side in a way that makes you effective at your job.

Delian:

Well, no. Definitely. Definitely makes sense. Well, Dod, really appreciate you, taking the time to come on the podcast today.

Dod Fraser:

Absolutely. Thanks for having me, appreciate it.

Operators Ep 28: Jeanne DeWitt Grosser (Stripe)

  
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Jeanne DeWitt Grosser is the Head of Americas Revenue & Growth at Stripe.  Prior to joining Stripe, Jeanne was the CRO at Dialpad and also spent over seven years at Google.

In this episode I talk to Jeanne about her aspirations early on to be a global leader, how she thinks holistically about business, and what Google was like before it had a contacts list and still needed an invite to open an email account. We also discuss what it was like joining Stripe at 400 people, growing her team from 10-300 people, and why it’s important to not let your job description define your role.

I hope you enjoy the show.

Full transcript available here.

Operators Ep 28 Transcript

Delian Asparouhov:

Hi, everyone, my name is Delian and I'm a principal at Founders Fund, a venture capital firm based in San Francisco. This is Operators where I interview non-VC, non-CEO, non-founder operators that make the startup world go round. Today I'm interviewing Jeanne DeWitt Grosser, head of America's revenue and growth at Stripe. Prior to joining stripe, Jeanne was a CRO at Dialpad and spent over seven years at Google prior to that. I hope you enjoy the show. Sweet. Well, Jeanne, thanks so much for coming on the podcast, really excited to have you on today.

Jeanne Dewitt Grosser:

Thanks for having me.

Delian Asparouhov:

Well, with these types of conversations, before we talk too much about Stripe, I'd love to dive into the earlier stages of career where you actually started off at Google in 2004, in an ops manager-type role. Can you talk a little bit about how you ended up there, after getting a BA at Duke?

Jeanne Dewitt Grosser:

Yeah, absolutely. My father had worked in technology. growing up, I got to see him travel all over the world and I always found the conversations he would have about it really interesting. That inspired me to want to go into tech post undergrad, which at the time, it's just so weird to contemplate this, but that wasn't a normal thing to do. I don't know that there was a single other kid from Duke that year who went to Google. Times have certainly changed. Then I just got lucky in ending up on Gmail. I applied actually to try to be a junior sales person in ads organization. For some reason, they plucked my resume out of the queue and stuck me on this to be launched product, Gmail. When I was interviewing, they literally had to send me an email invitation to my AOL account. Again, that's what we're talking about.

Jeanne Dewitt Grosser:

I wound up on that team, joined the product two months or joined the team two months after the product had launched and was literally answering support tickets, people asking, "Are you reading my email? Why does the email product not have a contacts list?" which believe it or not, Gmail did not at the time. This is also before the days of Zendesk, right? You're manually answering all these emails in a fun little tool called tracking that we had at the time, but that was how I got started at Google.

Delian Asparouhov:

Wild, I remember that first big Gmail announcement. Invites went crazy, so I'm sure that team was going through quite the heyday.

Jeanne Dewitt Grosser:

$200 dollars on eBay to get an invitation to a free consumer service.

Delian Asparouhov:

That's absolutely wild. You ended up staying there for about four years and then decided to go to grad school at Stanford. I guess, what made you want to go get your MBA, and then ultimately also, what brought you back to Google in 2010? I'm sure there's a pretty interesting time to be going through an MBA program during this financial crisis and then out on the job market afterwards, so what was that all like?

Jeanne Dewitt Grosser:

Certainly, what had happened was, I joined Google and Google went through this rapid period of scale. During that period, the problems we were solving were increasingly complex and more ambiguous. It wasn't obvious what the answer to them would be. When I looked around me, there are a lot of leaders that I really admired who were just great at breaking down really complex problems. I felt like they had a set of skills that I just didn't have yet and wasn't learning as rapidly as I wanted to on the job. In most of those cases, they all had MBAs. I also at the time, I think how I went and state my goal is like, "My goal is to be the CEO of a company equivalent to Google, but not Google because I knew I would never get that job."

Jeanne Dewitt Grosser:

I thought it would be a good idea to go learn a thing or two about finance, accounting, some of the other functions I didn't have any insight into. Left to go get my MBA. Literally, so I left in 2008 pre-financial crisis, so actually the peak of the economy was buzzing. I cried the day I left. I really had no desire to leave Google at the time, but I felt that if I looked at where I wanted my career to go over the next decade, this was something I had to do to get to where I wanted to go. It actually was always my intent to come back to Google because again I didn't want to leave, I just felt like it was an Important to do this. I was super fortunate at the time Google did have an educational fellowship program. I actually stayed an employee of the company while I was on educational leave.

Jeanne Dewitt Grosser:

It was always my plan to come back, although I had entertained the idea that I might not if an interesting enough opportunity arose, but when I looked at graduating, one, decent chunk of my classmates were dying to get in to Google and here I had my path right back into it. I just felt like my learning opportunity at Google wasn't over. They were doing really interesting things, operating at the scale where you would learn unique approaches, but I can also work on a newer product which was something I'd always focused on at Google, working on the "startup" within the big company.

Jeanne Dewitt Grosser:

I switched over to what at the time was known as Google Apps in what ultimately became the Google Enterprise Organization into a sales capacity. I did that because while I really enjoyed working on Gmail, I always described it as you were like playing with funny money, right? We got to piggyback on the millions and billions of dollars that Google was minting. You didn't really have to build a business. Since again, I wanted to be a senior leader at a company, it seemed pretty darn important to learn how to actually build a viable business. That was why I moved over into what's now G Suite to learn more about that.

Delian Asparouhov:

Jeanne, you came back and you started in G Suite, SMB sales and ops. Give me a sense of the status of G Suite at the time. What was the initial scope and what you were focusing on? It sounds like, in particular, you're focused on channel sales and driving freemium strategies. I'm sure we're talking about 2010 where it's like Salesforce has clearly proven out this software as a service business, but it's not like this playbook was super well defined how I'm sure even the world of like freemium wasn't even that well known or widely known of an idea.

Jeanne Dewitt Grosser:

No, not at all. I would say Salesforce had demonstrated that SaaS was a thing, but honestly, the unit economics of SaaS were really not well understood. I went on a little bit off tangent here just because I think it's such an interesting case study. This SaaS as an industry is now incredibly mainstream, we're over a decade into this, but at the time, you're core LTV to CAC payback period around SaaS businesses really wasn't well understood, right? A lot of SaaS businesses don't look all that attractive in the first couple of years, but then you hit this inflection point where your install base is big and just nicely printing money for you often with positive net retention and that offset CAC of the new customers you're acquiring.

Jeanne Dewitt Grosser:

Honestly, Google didn't understand that. The SaaS revenue model looked pretty darn different than the ads revenue model. In particular, when you think about an enterprise customers within ads, you have a shorter payback period because they can be like, "You know what? I'll give you 100k. If it goes well this month, then awesome, we'll turn that into a million next month," and so just has this really positive feedback cycle particularly when it comes to customer acquisition, whereas enterprise software doesn't have that. When Google looked at enterprise software, I think they looked at it as being like, "This is really darn expensive. You've got some established incumbents like Microsoft. Is this going to be an interesting business?"

Jeanne Dewitt Grosser:

It's sad to me because we were so well positioned to win, in my opinion, in 2010, through 2012 if Google had recognized that sooner and dropped $100 million into it, and instead, we let a lot of the competitors catch up and in some cases even really surpassed us. Now, Google is, in many cases, coming from a position of second or third and trying to overcome that. Anyway, at the time, I was serving the littlest guys, so small and medium-sized businesses and we had a really interesting dynamic where we had this freemium strategy. We had a midmarket business that was on fire, 300% year-on-year growth and then we had a small business that was flat year on year. That was what I was in charge of, is like, "Come in and make it grow again," and so really dove into our freemium strategy and some of the problems that was producing and change that and a year later had it growing triple digit.

Delian Asparouhov:

Then from there, beyond just working on the SMB side, you started to expand into international initially in Japan, Asia-Pacific, but then eventually into midmarket in North and Latin America. I'm sure SaaS was only just becoming a thing, more widespread the United States, but let alone convincing companies internationally to spend significant amounts of software subscription. I'm sure there's a whole other challenge, I guess, and I'm sure related to work that we'll get to at Stripe since Stripe obviously is a very international company. I guess, can you walk me through a little bit about some of the challenges that you had to face especially in some of this international expansion?

Jeanne Dewitt Grosser:

I took the role running APAC because I aspired to ultimately be a global leader. When I looked at global leaders, one of the things I was surprised by is actually how few of them have international experience. I thought it was really important to actually go have international experience, so that I could have appropriate empathy for what it means to work outside of headquarters. Let me tell you, it is pretty darn different. There's two sides of that coin. One is just actually put the market aside for a second, actually working there, it is so jarring to have to do your job. Most APAC leaders have to get up at 5:00 in the morning multiple days a week to get on staff meeting, forecast calls, etcetera. Literally the 18 months I was out there, I took a forecast call at 4:30 in the morning my time on Wednesdays and I took a staff meeting call at 5:30 in the morning.

Jeanne Dewitt Grosser:

In both cases, my boss was like, "You're more than welcome to not do this or to do it every other week," but if you want to be in the know and relevant, you got to do that. Our folks in EMEA have a similar experience where it's like, 4:00 PM their days nearly over and all of a sudden their email just has blown up by all the Americans coming online, right? You don't know what that feels like until you have done it. I really think all American leaders who ever want a global role should be forced to do an international stint. Let's like [inaudible 00:12:07] that part. Now the market. The market is also like you can read all the analysts' reports you want, you will never comprehend any international market until you have gone out and seen it firsthand. There are a lot of interesting dynamics.

Jeanne Dewitt Grosser:

Often what happens is those markets can be either behind or in some ways ahead. As an example, when I went out to APAC, really in the US, we've started to overcome concerns about the cloud in general. When you were selling G Suite, you didn't have to convince people about the cloud anymore. You just had to convince people about the superiority of our product in the cloud, whereas when you went to Australia, people were still super uncomfortable with the concept of security, "Giving you my data." You actually have to sell the cloud before you could even go sell your product.

Jeanne Dewitt Grosser:

Then in other places, in other parts of Southeast Asia, you had a different dynamic which was a lot of these companies had never had on-prem services, right? They were getting online for the first time. Then you have a different approach where they're almost doing a technology skip and so it's really actually interesting. I think anybody who's run APAC in particular, it's crazy to think of it as a region because Japan to Australia to the Philippines, these markets really couldn't be more different. A lot of what you have to do is learn how do you understand and have a strategy for a place that has a lot of nuance.

Delian Asparouhov:

Jeanne, can you talk through maybe some of the more impactful projects that you've worked on while you're there? It sounds like there's out of restructuring, sales strategy, local pricing changes to adapt to local expectations. Can you talk through maybe a process to these regions, maybe one or two of the more impactful projects that ended up leading to international success?

Jeanne Dewitt Grosser:

Absolutely. Google at the time was pretty darn direct sales oriented. In Japan, anybody who's worked out there knows that that tends to be more of a channel-oriented country. In Japan, we basically had a direct sales organization and the other thing is it's a very face-to-face culture. It's not really an inside telephone sales, yet that's what we were doing because that was what was working in the US. One of the things I did out there was we had a really successful partnership in the enterprise space with SoftBank Telecom and so worked with my team to actually help SoftBank understand the opportunity in the SMB market and get them to spin up a team to support selling Google Apps through their channel.

Jeanne Dewitt Grosser:

That was a big one where we basically have to say, "As successful as this inside direct sales, online sales actually, motion is in the United States, that's not going to be successful in Japan. We got to go spin up this channel." Another good example was India. Our price point was ridiculous. At the time, there's a bunch of quantitative things you can use, but a simple one was the Big Mac index which is like, "What's the relative cost of a Big Mac in different countries?" and you use that as a benchmark for pricing. We were literally like five plus X what we should have been and so did a major pricing overhaul which enabled us to then drive online scale.

Jeanne Dewitt Grosser:

Now the thing that was really interesting about that, and something I overlooked, was I was very focused on the SMB market and needing to set up this self-serve online channel. The other thing that's true about India is it is a very discount-oriented culture. People really want to feel like they got a deal. In changing the price to enable scale for the SMB segment, we actually created some problems for the enterprise space who actually ultimately priced at the price that we went with online, but now we had crushed their ability to offer these attractive-looking discounts. That was a good learning and how you always need to think about your business holistically beyond just the portion that you personally are responsible for.

Delian Asparouhov:

I guess speaking of thinking about a business holistically, your next role after being at Google for almost eight years was joining as the CRO of this company, now back in San Francisco, Dialpad, and obviously, this CRO role, you have to think about the business like much more holistically. There's only a year long, but I'd love to hear, how did that opportunity come across your plate and what were some of the interesting learnings to now having perspective of dealing with all parts of a business?

Jeanne Dewitt Grosser:

This, how I got this role is a good story and the power of your personal network. Basically two things, one was actually in, I think it was 2006, Google acquired Grand Central which became Google Voice. The guy who ultimately became the VP of product at Dialpad had been the product manager for that at the time and he and I had interacted, not super deeply but enough for him to know me and have a sense for my work. Then the founder of Dialpad was very close to Dave Girouard who had been the original president of Google Enterprise who also knew me and my work. Basically, I got on their radar via those experiences with me. I talked to Craig and the Dialpad team. They weren't called Dialpad at the time actually, it was just UberConference, probably for nine months before I took that job, which I think is an also good insight for folks.

Jeanne Dewitt Grosser:

At the time, I wasn't sure that they were at a stage where I was going to be most useful, when it was just UberConference. He was figuring out the role and it wasn't exactly the CRO role that I wanted, but I felt like there was something interesting there. What I did was, every four to six weeks, I'd shoot Craig an email about some article or something relevant that had happened that I thought could apply to his business and passed along an insight. He and I maintained this dialogue for nine months. Then finally, he came back to me and said, "Hey, we're going to launch this product, Dialpad, and I actually think the CRO role would be great for you." That was when I decided to make a switch.

Jeanne Dewitt Grosser:

That one was super interesting. You talked about getting broader business insight. When I joined, they hadn't named product. I literally joined having seen a prototype. There was no website and we hadn't thought through positioning. Literally nothing was done and like by the way the product was supposed to launch 75 days after I joined. We were in the Google Ventures office doing like branding sessions. We're trying to figure out what to call the thing and then a lot of work done to map out positioning, where we thought we were going to sit in the market, what that like imply for the different features we were trying to highlight and carve out a space for us. I had an opportunity to really start building this marketing muscle.

Jeanne Dewitt Grosser:

One of the things I was very passionate about was having an aligned strategy across sales and marketing because I just so frequently see orbs where sales and marketing, they're both go-to market yet they have these overlapping but not the same strategies. That was one of the things I was passionate about building. Then the other thing that that role gave me the opportunity was to help fundraise. Craig and I drove the Series C investment and that also gives you a whole other perspective on what are investors looking for, what are the parts of our narrative that we have down path versus we didn't know from a sales perspective. You learn how to sell the vision of a company rather than just a product. That was all interesting too.

Delian Asparouhov:

Was there anything that you talked about how it's just so different, I imagine, selling something that is coming to life versus G Suite which is an already preexisting beast, that you were just figuring out the go-to market wishes for. What was the maybe biggest hiccup or thing that maybe didn't translate going from Google's not quite a big company back then, but it was definitely obviously much bigger than nascent startup? What didn't come as naturally?

Jeanne Dewitt Grosser:

Absolutely. I'll tell you one story that's not going to entirely answer that question, but still fun and then I'll give you another direct answer to that. One of the things that was awesome in this role was, like I said, when I started, the product was not fully shippable and we had this amazing opportunity with Motorola Solutions. Google was in there trying to sell them Google Apps and compete against Office 365. Office 365 had link. Google didn't have anything from a voice perspective and so they said, "Hey, can you guys come in and help fill this product gap for us?" It's my second week on the job and I literally flew out to Schaumburg, Illinois with nothing more than like a pitch deck. There was no product. Here we are trying to sell a 20,000-person global company on literally slideware.

Jeanne Dewitt Grosser:

One of the interesting things of that and it relates to your question is so they got really excited, "Nice slides," and as we're going through the sales process, probably a month in, I finally had to sit down with them and say, "I'm really excited you guys are excited about our product. I think you will never sign our contract. We do not have the legal and security constructs that I know you're going to want as a traditional enterprise and we're not going to be able to have them. We should talk about that now because it won't change. You're either going to have to get past that or we should probably call it." Ultimately, the solution was interesting enough to them that there were some things we wound up building and figuring out and then there were some things that, honestly, I have no idea [inaudible 00:22:41] sign the contract because Motorola certainly want them.

Jeanne Dewitt Grosser:

Anyway, six months in when we just barely had a product, we actually signed that deal, but then the other thing on your question was so going back to fundraising, of course, one of things you do is build a revenue model. We were building a revenue model for a product that was going to go to beta about two months after we were trying to close the round, so you had no data on how it was going to perform. When I built the revenue model with the head of finance, basically I knew the Google Apps conversion funnel called and we were going to start by selling to SMBs, despite this Motorola monster enterprise that we were working on.

Jeanne Dewitt Grosser:

I knew all those analytics Coal and so I was like, "Okay, I'll just apply that funnel here and I'll take a haircut," because I realize I don't work at Google. Well, the haircut I took probably should have been an order of magnitude larger. Suffice to say, the level of inbound demand that Google can generate, given its brand and its ability to pour a little bit more money into ad spend was not what we had. We had to refine a couple of assumptions after we started getting the first few months of data.

Delian Asparouhov:

That's hilarious. I did not realize that slideware was a term, but I like that term for software that's not quite been built out yet, you're really just pitching it. Cool. Well, sounds like from there, you ended up switching over to Stripe as the head of North America sales. I would love to kind of hear how that opportunity came about and what the decision making process was around Stripe. At the time, they're not super late stage, but I think slightly later stage where Dialpad was out right there, maybe Series D at the time roughly, but I'd love to hear how that came about.

Jeanne Dewitt Grosser:

Another example of the power of network, so Stripe's COO, Claire, had been my first boss at Google. When she joined, she gave me a call. Unfortunately for me, I was happy at Dialpad at that point. We connected, but I told her I'd call if anything change. Ultimately, I followed up with her and wound up with Stripe. At the time, Stripe was about 400 people, about six months into having any sales organization. I joined, I ran a 10% team of account executives with the remit of, "Go figure out how to grow this." Here we are, we can talk through a bunch of the things along the way, but five years later, that's a little north of 300 people. Probably figured out a thing or two between then and now.

Delian Asparouhov:

Maybe as a little interjections/Easter egg, thank you so much for training up our dear friend, Eric Lasker who has now joined my company as head of BizDev in Federal ...

Jeanne Dewitt Grosser:

Awesome.

Delian Asparouhov:

... for quite some time. He says hello.

Jeanne Dewitt Grosser:

Eric Lasker is the best. He still actually owes me a dinner. The guy's quite a chef.

Delian Asparouhov:

He is quite a chef. He has a unique background and that he has a physics and quantum background, is a chef, also worked at Stripe in BizDev for five years and understands the aerospace world. He is head of Federal at Zipline. In some ways, I joke that he was forged in a kiln to build to work at my startup. I'm very excited that we got him and thank you for training him up, but I would love to understand a bit of some of the more impactful projects, and maybe some of the scaling challenges along the way. I'm sure going from 10 to 300 always is a bit messy. Maybe some of your more exciting areas, especially around recruiting and scale up as well as making data-driven, sales-related decisions around how to structure teams, comp, where to go to market, etcetera.

Jeanne Dewitt Grosser:

Yeah, all right, well, that's a lot to cover. Let's see. A couple things maybe tactically that I might highlight for folks. One of the first things I did when I came in was to build out what I would call an operating model. Company walked and have your top down revenue model, "We want to do 10 million ARs," whatever that number is, but a lot of people forget to build the bottoms up part, which is what actually needs to be true for us to get 10 million in revenue. When I joined, Stripe didn't have that model. One of the first things I did was to get data on our current funnel. We were very inbound driven, "How many inbound leads are we getting? What's the average size of them? What's our win rate? How long does it take to close? How long does it take to go live?" that whole end-to-end funnel.

Jeanne Dewitt Grosser:

Then basically from that, you can say, "Hey, if history is going to be predictive in the future, I think I can cover this much revenue with what's happening organically and what do you know?" We had a revenue target that was higher than that, so then you start asking yourself, "Okay, well, within this equation effectively, what are the levers that I can pull that would increase revenue?" and so then you break apart each chunk in that equation. One of the guys on my team jokes that this is the Jeanne version of conjoined triangles of success but I had this equation slide I always show people with a bunch of shapes on it, but it's not rocket science, right? It's just funnel math, but not enough people do it at the outset.

Jeanne Dewitt Grosser:

"On each part of that funnel, okay, well, how do we get more leads? We had a one-person marketing team, so it's probably not going to be through marketing spend. That means it's going to have to be outbound, right? What's going to be our prospecting plan? How do we do that?" Average deal size, we were working pretty darn small deals, so that meant you were going to have to do lots and lots and lots of them or you're going to have to work bigger ones. That was where we developed a strategy that I've talked about in a couple other places around buffaloes, which were basically like a Series C, D company. Those, you can go to Crunchbase or wherever and just be like, "Let's go get a list of all the Series C and Series D companies. Let's go put them on a prospecting list, work on that." Similar things of like, "What can we do to drive our conversion rate?" We didn't have any sort of sales process.

Jeanne Dewitt Grosser:

Now you go take a bunch of calls yourself, get in the trenches and then go talk to all of the account executives on the team, "What's working? What do you talk about? Who do you talk to?" and try to [processize 00:29:39] that into things that we can repeat and then learn from. That was the first thing that I did because what you're trying to get to as a revenue leader is basically with confidence being able to say, "If you give me X dollars today, I can promise you Y dollars by this point in the future. As long as that holds true, you should probably keep giving me X." That was what I was seeking to do.

Delian Asparouhov:

I definitely think the best executives manage their entire business just as like a math equation. It's just you start to understand what the inputs and the outputs are and figure out which levers are the most easiest to pull. I'd be curious, I think one of the things that Stripe was always, let's say, famous for in the early days was the "call us and install," right? Patrick and John would come over to your house and install Stripe for you. More well-known early on for hyper small startup and scaled with it, but it sounds like your team started to think about expansion in enterprise which is obviously a very different go-to market motion than the two founders, showing up in your house and go through your installation, the installation on a "buffalo." I imagine it's a bit more complicated than Patrick and John just sitting down at your kitchen table.

Delian Asparouhov:

I guess can you talk through some of the challenges of that transition of going from primarily SMB and bottom up driven to actually doing some level enterprise top down and not only the go-to market motion for it or the sales motion, but the actual, I assume, post-sale actual implementation, technical success, I imagine it's much more complicated than those types of implementations.

Jeanne Dewitt Grosser:

Absolutely. Certainly two things that I think would be helpful for people. One was, as you move up market, that's where role specialization becomes that much more important. One of the things I was really surprised by when I joined Stripe was we saw an API, we didn't have a single solution architect to the company, and mind blown, couldn't figure this out. Part of it was we'd hire these wicked smart account executives like Lasker who could go learn things about the API and actually be more somewhat credible with a developer and you have the dock. They'd be happy to go do that, but as you move up market, you're ripping out an existing architecture.

Jeanne Dewitt Grosser:

In order for companies to feel comfortable that they can do that, you have to be able to understand their current architecture and map it to what their architecture is going to look on Stripe to derisk the project. That was one of the things we had to start adding was solution architects as well as implementation engineers or integration engineers. Solution architects were during the sales process to give them confidence that, "Yes, if you sign a contract with us, you will in fact deploy and then the integration engineers were ... The other thing that's true about enterprises is while developers at startup like docs and being like choose your own adventure, "I want to go figure this out myself," enterprises don't want to make a mistake.

Jeanne Dewitt Grosser:

They basically would come to us and say, "Jeanne, our business model as a marketplace, you guys have deployed and emailed 100 marketplaces. What's the best way to do it?" We'd be pretty annoyed when we wouldn't be able to say, "Here's the template." We had to start doing documentation more oriented toward product managers as an example and slightly less technical audiences. That was one set of things. The other thing I'll say that I think is helpful both for the founders as well as the go-to market leaders trying to help drive up market was we were very, very thoughtful about trying to pursue the enterprise in a way that capitalize on what Stripe was good at.

Jeanne Dewitt Grosser:

In day one, we weren't trying to go out and win your most traditional enterprises because doing so was going to require building out a systems integrator, function much, much more rapidly, scaling some of these technical and post-sales functions I've discussed and a lot of the roadmap requirements were going to be pretty far afield of Stripe's core roadmap. What we tried to do was, as a go-to market team, say, "Here's Stripe's core roadmap. What are a set of larger companies that would find that their solution would be 80% covered by what we were doing already and the incremental 20% that we would need to build would also be applicable to all of these startups that were growing up on Stripe?"

Jeanne Dewitt Grosser:

That way, because the risk sometimes run with enterprise sales is unless the company is super aligned that, "We are an enterprise company and that's what we're going to do," is you can create this bifurcation between the sales organization and the product organization where the product team gets annoyed basically that sales is signing these super attractive deals, but we don't actually have product for them. We try to really ensure that we were pursuing the enterprise market together.

Delian Asparouhov:

What do you think Stripe did that married this well? I will say I feel like when I talk to product folks at Stripe, I feel like they have a much deeper understanding of down to each individual customer's needs, priorities, how the roadmap actually solves those needs. What do you think Stripe does uniquely well in terms of integrating the product team and their priorities and feedback and integrating the sales team's priorities and feedback into a single and cohesive roadmap? What do you think Stripe does that so well?

Jeanne Dewitt Grosser:

It's a number of things, but one I would say is our first and foremost operating principle is users first. That is just really culturally embedded in the company, is the take is basically it's unlike the saying of the Ford one, right? If I went and talked to customers, they would have told me to build a faster horse. A lot of tech companies have that point of view which is like, "Our end consumer is unlikely to give us useful feedback, right?" Stripe doesn't have that. Our take is businesses acutely understand their problems. We may figure out a better way to solve them, but we need to deeply, deeply understand their problems. The only way to do so is to talk to them. Part of the way in which this gets inculcated into the culture is the executive team are all incredibly user facing. John, Patrick, Will, Claire, all of them talk weekly, daily, honestly, to different customers of ours. That expectation really cascades down to everybody else.

Jeanne Dewitt Grosser:

Then the other thing, I do think is because sales was very careful to stay product centric, we haven't felt like this adjunct. We've always been very ingrained in the company culture and the way the company operates. I think product and sales natural align and product has found sales to be some of the best R&D research that we have at the company. Now as we've scaled and you've got a lot more customers, you're serving a much broader suite of products, it gets harder to get all the feedback into a place that you can really prioritize. We now have a product operations organization. They've built out a bunch of infrastructure to both capture lots and lots of data, whether it's through Salesforce, customer surveys, etcetera and get massive data points as well as go individually out to the teams, so that we can get literally 1000 data points on customer needs, but then narrow those in to what are the priorities from either user happiness or revenue potential for us to focus on.

Delian Asparouhov:

Can you point to a particular example during your time at stripe where either the time at Dialpad or the International time at Google or maybe the early days of the SMB are held down even to customer operations, the very early days at Google? Can you point to a particular example where you were able to lean upon, let's say, prior experience, whether it's dealing with sales in APAC and knowing that people got to be up at 4:30 in the morning or how to think about CAC-LTV in the world of SaaS that applies to Stripe in some ways is a little bit of a confusing revenue model and that it's transactional, but it's always it has some similarities to SaaS? You have that upfront, it takes a while to pay back, there's generally a lot of expansion and sometimes crazy amounts of expansion, right?

Delian Asparouhov:

Lyft is a very large customer for Stripe, but maybe people didn't expect that when they first signed Lyft. We'd love to hear if there's a particular moment or set of lessons that you feel like really translated to Stripe.

Jeanne Dewitt Grosser:

Tons. A huge hallmark of my early career at Google was on Gmail, working really closely with the Gmail engineering team. I think that experience taught me about how to interact effectively and speak a language that the engineering organization finds compelling. Honestly, working for Google, which was very much in those early years, an engineering-led company and Stripe is too and there's a certain way to work and I picked those companies on purpose, but there is a certain way to work in those types of organizations that are engineering-led which I definitely learned at Google.

Jeanne Dewitt Grosser:

I would say like what coming in and the things I did around the operating model and a lot of the unit economics really actually stemmed also from my experience at Google where basically at the time, what happened at Google was, and actually frankly, my approach to enterprise really also stemmed from working at Google, so what happened was Google launched the G Suite product and they had these two early wins out of the gate, Genentech and Jaguar, the car company. They thought, "Oh, my God, we've got an enterprise product," and they started building out this massive enterprise team. They had a year where they hired like 100 midmarket reps and we really didn't. We basically got two visionaries.

Jeanne Dewitt Grosser:

The whole organization was oriented around enterprise, enterprise. It wasn't actually until the finance organization went out and did the analysis to understand our unit economics that they realized we are sitting on a goldmine in SMB and we should be flipflopping our investment and really going there. Meanwhile, our unit economics don't make any sense in the midmarket and enterprise and we actually need to pull back, retrench, figure that out before we can reinvest. When I came to Stripe, I didn't want to make that mistake which was not really understanding where your money was coming from and similarly didn't want to make the mistake because really where we got serious about enterprise was in 2017 when we won a deal with Amazon.

Jeanne Dewitt Grosser:

When you can get Amazon to sign your contract and then put material volume on you, you're like, "Oh, my God, we've got enterprise, right?" I didn't want to make that same mistake of being like, "Enterprise has arrived," when probably we had a visionary. Tons of learnings along the way.

Delian Asparouhov:

You started off essentially in an interesting role where you originally at Google were in the sort of customer operations role and then over the course of a very storied time, but relatively short period of time, now gone over the past 15 years from that role to leading a very large sales organization, one of the most promising startups in Silicon Valley. If you were to give advice to a recent, let's say, a Duke grad that was also trying to get into the world of startups, what would be your condensed version of the career decisions to make and high level strategies and frameworks around how to get to a position like yours, a bunch [inaudible 00:41:57] next 15 years of their career?

Jeanne Dewitt Grosser:

I think I'd have probably three main pieces of advice. The first one is work harder than everybody else. I literally would. I told the story to a couple people, but when I joined Gmail, we didn't employ enough people to answer these support tickets, so we had a two week backlog at one point and I just found that personally offensive that we're just doing so poorly. I came to the office, and mind you, came to the office because you couldn't take your laptop at home and work on VPN at the time, on a Saturday and worked from 8:00 AM until 2:00 AM on a Saturday to clear our backlog. I did that all the time. You don't get ahead by doing what everybody else is doing. You actually have to do more than what everybody else is doing if you want to get ahead of people. One is work hard.

Jeanne Dewitt Grosser:

Two, I would say is, don't let your job description define your job. At the time, here, I am this junior support rep and I basically ended up being like a real asset to the product management and engineering organizations because I would just go and show up at their meetings. I literally ... This is a fun example. We had a massive Gmail outage and they were doing a postmortem. Only engineers and our SREs were invited to this meeting and I [inaudible 00:43:36] them and I just showed up at their meeting because I was like, "We should probably talk about the user impact of this meeting and what can we do next time so that Gmail users aren't so unhappy when we have an outage because I bet this is going to happen again."

Jeanne Dewitt Grosser:

I wasn't invited. When I showed up in the room, no one knew who I was. 20 minutes in, I raised my little hand and was like, "I'd like to talk about what happened from a user perspective," and then that became part of our standard postmortem approach. I always think about your job expansively. Then lastly, work for a great leader. I have consistently throughout my career been, one, lucky to work for excellent leaders, and then two, once I realized that that was important, have actively sought out working for incredible people who I can learn from and who will take risks on me and sponsor my career.

Delian Asparouhov:

Those analogies all make a ton of sense to me, especially as somebody who really enjoys the ethos of working hard as controversial sometimes that can be in Silicon Valley today and learning from really smart people. I feel very lucky to have gotten to learn from very smart people including our dear friend Eric Lasker, who says, "You're welcome for dinner anytime you come down to visit the Varda office. We're happy to show you around the Space Factory factory, but thanks so much for taking the time to be on the podcast today, Jeanne. Really appreciated the conversation.

Jeanne Dewitt Grosser:

Likewise. Thanks a lot for having me and look forward to all sorts of conversations in the future.

Delian Asparouhov:

Thanks for listening, everyone. If you'd like to support the podcast, please sign up for a paid Substack subscription which we use to pay for transcripts, mics and other improvements. If you have any comments or feedback on what kinds of questions I should ask, who should come on the show or anything else, please do let me know. Have a great rest of your day.

Operators Ep 27: Nilam Ganenthiran (Instacart)

  
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Nilam Ganenthiran is the President of Instacart.  Prior to joining Instacart in 2013, Nilam was a Management Consultant with AT Kearney’s Consumer Retail practice, and also worked in shopper marketing and brand management at Proctor and Gamble.  Nilam is a graduate of York University’s Schulich School of Business and also holds an MBA from the Harvard Business School. 

In this episode I talk to Nilam about how he found the sales and marketing career path, why he thought he’d never be working at a tech startup, and his first job as (appropriately) a grocery store clerk. We also discuss how Instacart responded at the start of the pandemic, Instacart ads, and other opportunities he sees for the company.

I hope you enjoy the show.

Full transcript available here.

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