1Mby1M Virtual Accelerator Investor Forum: With Cindy Padnos, Founder and Managing Director at Illuminate Ventures 2021 (Part 5)

Sramana Mitra: One of the areas that I am watching closely is Platform-as-a-Service (PaaS). I don’t know if you read some of my writing but I have been writing about this for about a year or more. I have had lots of conversations with lots of companies that are either already doing PaaS strategy or trying to PaaS strategy.

This is the classic Salesforce model where they started with a SaaS CRM application and then opened up their platform for developers to build applications around which led to the creation of the app exchange marketplace to sell through. This is a model that is being replicated by several players. Atlassian has done a nice job of it.

Cindy Padnos: ServiceNow is doing the same thing.

Sramana Mitra: ServiceNow is doing it, but they are not really entering the startup ISV world as their developer base. They are opening up as a PaaS, but they want the large companies to build on it.

Cindy Padnos: That’s right. It’s a different twist. The gentleman who ran that used to run the App Exchange. He is a member of our advisory board. He left there and has gone to Google to do the same thing at Google. It will be interesting to see that.

Sramana Mitra: Are you talking about Avanish Sahai?

Cindy Padnos: Yes.

Sramana Mitra: I know Avanish very well. Unfortunately, Google is exactly doing the same thing. Google is also going after the large workloads and not doing the PaaS strategy that I was hoping for.

Cindy Padnos: It’s not surprising, is it? That is who they should go after. If you are Google, that makes sense.

Sramana Mitra: Right. From our point of view – from people who have worked in the startup ecosystem point of view – Google, therefore, is not as relevant. For example, Digital Ocean is really focused on startups. They have 5 million developers out of which 30,000 to 40,000 of their developer networks are small ISVs. That is a company that is nurturing the developer ecosystem around ISVs and startups. SnowFlake has about 45,000 developers and they have at least 1,000 startup ISVs.

Cindy Padnos:  Roblox is a perfect example in a different category, but it’s the same example. There are also interesting groups like Pegasystems and others. There are different variations of that concept as well.

Sramana Mitra: I have two questions for you. One, are you seeing companies built on other people’s stacks like Veeva that came on top of Salesforce? They bootstrapped the company. Veeva was built with such a capital-efficient model. I am a huge fan of Peter Gassner. Second, what about companies that are thinking of PaaS right away. Maybe they are going to market with an app but they are thinking that they are going to do PaaS right from the beginning.

Cindy Padnos: I don’t see too many people doing that. The platform that you are describing tends to be easier to build if you already have an existing customer base to attract people. I was an investor of Salesforce for 10 years. They did build a version of their product on that stack and then had to replace it because it just didn’t have the flexibility that they needed.

They were always part of the App Exchange anyway. Why? This is because that customer base that would be attracted to them. You think about ServiceNow. They have a large customer base. Google also has a large customer base. It’s a little bit of a chicken-and-egg issue. If you look at Roblox, that was not an overnight success. They spent a long time building that company. It’s only in recent years that people have recognized the real value of that business. It has been around for ten years.

Sramana Mitra: I would say that the awareness about PaaS and the interest in building PaaS strategies is rising. People are using APIs to build their developer ecosystem. If you look at Zendesk, Hubspot, and Shopify, many of them are doing API strategy in trying to bring together a lot of developers around their platform. They give access to their customer base through these developers. There is a lot more going on.

Cindy Padnos: It’s another trend and I think that it is an interesting one. If you look at HubSpot, you see the fantastic customer base that they have built that now these developers have access to. Again, it’s a little bit of a chicken-and-egg scenario. Which one do you do first?

Sramana Mitra: In some cases, it’s the customer base and in some cases. It also could be uni-technology. In Snowflake’s case, a lot of the AI companies and startups need a data lake to build on top. They are benefiting from the fact that they have uni-technology that people need. You can’t really build that data lake as a startup and have any chance of getting anywhere without somebody else’s technology. They are well positioned among others like MongoDB.

Any other thoughts before we quit?

Cindy Padnos: I think it’s a great time to be an entrepreneur.

Sramana Mitra: It’s always a great time to be an entrepreneur.

Cindy Padnos: Well, I think some times are better than others. We invested in BrightEdge and Xactly during a financial downturn and those were some of the most successful companies in our portfolio. The founders understood the value of a dollar, but more than anything, they really fine-tuned their product and their message with a group of customers who were unbelievably loyal because they delivered something that they really needed at a time when everyone was going through difficult times.

Customer appreciation is real. It doesn’t go away overnight. If you have the opportunity to build those relationships today, they can be meaningful for the next ten years.

Sramana Mitra: Thank you for your time. 

To learn more about seed investors, please study our course on Udemy: How Seed Investors Think About Startups with Sramana Mitra.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Cindy Padnos, Founder and Managing Director at Illuminate Ventures 2021
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