SaaStr 868: Software Isn't Dead. It's Gotten Harder with Scale Venture Partners' Rory O'Driscoll
SaaStr 868: Software Isn't Dead. It's Gotten Harder with Scale Venture Partners' Rory O'Driscoll
When you've spent 30 years making money in software, "is software dead?" feels like a personal attack. Rory O'Driscoll, who has been a software investor since before most of the companies in this room existed, decided to actually answer the question.
He went back through his portfolio. About 10% of pre-2022 companies were DOA the moment ChatGPT launched, solving problems that foundation models made trivially easy overnight. Another 30% are genuinely threatened and need to move fast or die. The rest are either insulated, made stronger by AI, or sitting on opportunities that didn't exist before.
The answer is not that software is dead.
The answer is that the standard deviation of what you're dealing with has gone way up, and most founders haven't figured out which category they're actually in.
In this episode, Rory lays out the framework he and his team have been wrestling with in real time: where defensibility actually lives, what the $688B in AI CapEx vs $110B in revenue means for everyone in the room, and when AI is genuinely the new sales and marketing versus when it's just a cost you can't afford.
You'll learn:
Why we're spending half a trillion dollars more than we're making in AI, and what that means for software founders and investors over the next five years
The breakdown of what actually happened to pre-GPT software companies, and how to honestly assess where your company sits
The six types of defensibility that Rory believes can survive the foundation model companies rolling over you
Why the trillion dollar question is how enterprise chooses to consume AI, and what it means for who captures the value
When compute intensity is a feature and when it's a death sentence, and the heuristic for telling the difference
What T2D3 means now that SaaS multiples have collapsed and the growth bar has moved
20VC: Why Seed is for Suckers | a16z's $20BN Fund & Founders Fund's $4.6BN: What Makes Them So Good | Why Josh Kushner Is the Master of Venture Capital Strategy | Why Extended Private Markets Screw US Citizens with Jason Lemkin and Rory O'Driscoll
Jason Lemkin is one of the leading SaaS investors of the last decade with a portfolio including the likes of Algolia, Talkdesk, Owner, RevenueCat, Saleloft and more.
Rory O'Driscoll is a General Partner @ Scale where he has led investments in category leaders such as Bill.com (BILL), Box (BOX), DocuSign (DOCU), and WalkMe (WKME), among others.
In Today's Episode We Discuss:
04:23 What is Wrong with Billionaires on Twitter: Are They Depressed?
08:49 Why Does product Market Fit Mean Less Than Ever
11:50 Why is Venture Capital More Risky Than Ever and No One is Discussing It
16:17 Will Private Equity Save a Generation of SaaS Companies and VCs
23:53 a16z's $20BN Fund: Seriously?
31:29 Why Josh Kushner and Thrive Capital are Masters of the World
38:21 Why is Seed Investing for Suckers
45:49 Why Are $50 Million Seed Funds Useless
46:21 Founders Fund Raises $4.6BN: Analysis
52:00 How WIll LPs Change Their Approach to Venture in the Next Five Years
59:53 When Will IPOs Comeback?
01:09:15 Why Does it Not Make Sense for the Best Companies to IPO
01:09:51 Lost Ethics and Morals in Founder Secondaries and Term Sheets
01:22:58 Quickfire: OpenAI, Cursor, Deel vs Rippling
Mastering Venture Capital and Founder Strategies with Rory O’Driscoll and Mark Suster
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Todays show:
Rory O’Driscoll joins guest host Mark Suster to discuss: advice for founders with traction but not yet booming (2:33), thirty years of internet cycles and their impact on venture capital (13:25), the approach to big-picture thinking vs. immediate traction and strategizing exits (36:58), and more!
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Timestamps:
(0:00) Rory O’Driscoll joins guest host Mark Suster.
(2:33) Rory’s advice for founders with traction but not yet booming.
(9:09) Aligning incentives between founders and venture; reminding CEOs to be "selfish.”
(10:23) Northwest Registered Agent - For just $39 plus state fees, Northwest will handle your complete business identity. Visit https://www.northwestregisteredagent.com/twist today.
(13:25) Reflections on thirty years of internet cycles and their impact on venture capital.
(18:25) Debating AI: Does it favor the incumbents?
(20:07) Wistia - Try Wistia for free at https://www.wistia.com/startups
(21:35) What Rory and Scale Venture looks for when investing in AI.
(26:20) How OpenAI has changed the landscape
(29:18) HiddenLayer - HiddenLayer’s AI Detection & Response Solution secures your Generative AI & LLMs from malicious attack. Visit https://www.HiddenLayer.com/TWiST to learn more.
(30:30) Debating “faux-mentum” vs. long-term sustainability in investments.
(34:34) Balancing deep passion and business savvy when evaluating founders.
(36:58) Rory’s approach to big-picture thinking vs. immediate traction and strategizing exits
(44:02) The importance of picking vs. price discipline.
(1:00:58) Advice for founders dealing with “busted cap tables.”
(1:08:07) Rory’s advice for his younger self.
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Check out Scale Venture Partners: https://www.scalevp.com/
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Follow Rory:
X: https://x.com/rodriscoll
LinkedIn: https://www.linkedin.com/in/roryodriscoll/
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LinkedIn: https://www.linkedin.com/in/marksuster/
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Thank you to our partners:
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(29:18) HiddenLayer - ****HiddenLayer’s AI Detection & Response Solution secures your Generative AI & LLMs from malicious attack. Visit https://www.HiddenLayer.com/TWiST to learn more.
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Great 2023 interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland
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20VC: Why Market Is More Important Than Team, The 4 Key Roles of A Board Member & Why Founders Get Market Sizing So Wrong with Rory O'Driscoll, Founding Partner @ Scale Venture Partners
Rory O'Driscoll is a founding member and Partner at Scale Venture Partners. An active investor for the past 20 years, Rory is focused on early-in-revenue software companies benefiting from the move to Software as a Service and the wider transition of enterprise computing to the cloud. Rory currently sits on the boards of Axcient, Bill.com, Box, Chef Software, DataSift, DocuSign, DroneDeploy, Forter, Katch, OneLogin, Pantheon, WalkMe and Wrike. Prior investments include ExactTarget (ET; Acq: SFDC), Omniture (OMTR; Acq: ADBE), ScanSafe (Acq: Cisco), Frontbridge (Acq: MSFT), Placeware (Acq: MSFT) among others. Rory has been recognized by the Forbes Midas List and AlwaysOn Power Players in Venture Capital for his investments.
In Today's Episode You Will Learn:
1.) How Rory made his way into the world of venture and came to be a Partner @ Scale.
2.) How does Rory address market size? Does he utilise the bottom up or top dpwn approach? What is his strategy?
3.) Why are markets more important to Rory than management? What do each element have a different role in achieving?
4.) How does Rory look to navigate board conflict? When conflict does arise, how does Rory look to resolve a CEO who does not listen?
5.) What are the 4 fundamental roles of a board member? Why is competence underrated? What should founders and CEOs look for in prospective board members?
Items Mentioned In Today's Show:
Rory's Fave Blog: Term Sheet
Rory's Fave Book: SuperForecasting: The Art & Science of Prediction
Rory's Most Recent Investment: DroneDeploy
As always you can follow Harry, The Twenty Minute VC and Rory on Twitter here!
Likewise, you can follow Harry on Snapchat here for mojito madness and all things 20VC.
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