I met Max when he was in undergrad and visiting SF as part of Princeton’s annual TigerTrek. Then years later we reconnected at Google (where he was a Product Manager) for a GV BBQ. It was so much fun catching up that soon after as he started Warmly I was fortunately given the opportunity to angel invest. Since that time the company has evolved and grown, but even more so, Max has done the same! And I’ve gotten to see him figure out what kind of leader he wants to be. One who is currently building his company in public [ie sharing a bunch of data, progress, and even setbacks, that a startup founder might normally not disclose]. Recently I asked him to join me for Five Questions where we could talk a little bit about his journey.

Hunter Walk: Your startup Warmly recently turned four years old. If 2024 Max could magically whisper one learning, or piece of advice, into the ear of 2019 Max, what would it be?

Max Greenwald: I would whisper: You will pivot, probably multiple times. Don’t stress over making anything perfect, or answering every email. Focus maniacally on tossing a ton of spaghetti at the wall and if there is any inkling of PMF you feel it. Keep searching until you feel it. Looking back I see that 99% of the emails I sent were useless.

HW: Warmly has done some co-marketing with Zoom and launched as one of their earliest ‘Zoom Apps.’ I’m generally skeptical of early stage startups trying to work closely with large platforms, but I understand why the opportunities are tough to pass up. Founders who are considering these sorts of ‘partnerships,’ are there red flags they should proactively look for in order to not waste time?

MG: Absolutely: it has mostly been very, very difficult working with a larger platform, especially a nascent one. App stores need 2+ years to mature before they’re any good. We should not have pinned so much hope to them early on to carry us to victory. Now after 2 years we are at a point where it’s “starting to work” but we spent months chained to the whim of their product roadmap. As an example: while we were waiting for Zoom for 2 years to get their shit together so we could unlock $600k ARR, we built an off-Zoom pivot (now our main business) that went 0 to $1M in ARR in 13 months.

HW: Your initial wedge was/is a virtual nametags products, but you’ve seen even faster revenue growth with the second product, a warm leads sales tool. I don’t consider this a true ‘pivot’ because they’re all aimed at the same mission, but it’s definitely expansion adjacently vs focus on a single SKU. With multiple cofounders was there consensus internally around the new work, or did people have various opinions about where/how to grow?

MG: I really like your pivot article. There’s also a silly stigma around pivoting. Here are Warmly’s 7 “pivots” over 4 years. In the latest iteration, my cofounders Alan/Carina staged a coup and told me that they didn’t feel like we had PMF and that our strategy to wait and see if our enterprise deals came through for our Nametags product was going to kill us. 

I think I was holding on too tight and they were right.

I had to dig deep to think if I had the energy for yet another pivot and came back saying yep lets do it. However we hedged our bet for 3-4 months and did both. This was risky but paid off since now our Nametags business is profitable and growing and our new one is the “big business” and we will get it to profitable

HW: When you’re hiring are there any particular attributes or experiences you look for which you value perhaps more than the average founder, or which you think are great signals the team member understands what they’re getting into with startup life?

MG:

Never hire from big companies: We both come from Google so don’t shoot me for saying that over time I’ve learned never to hire from Google or big tech in general for early stage roles. All but 1 of the big company people I hired who said they were so excited to try their first startup role were fired or left within 6 months.
Slope > Y-intercept: Slightly math-y but we over index on whoever we think can learn the fastest. If you’re slope (your rate of learning) is higher than someone who has a lot of experience (a high y-intercept), then within a year or so the fast learner will outpace the more senior person

HW: When you talk with other CEOs, what’s the vibe heading into Summer 2024? 

MG: Vibes are

• Series B+ markets are frozen. Series A’s need to get to profitable or die
• Really trying to find and look for investing benchmarks and salary benchmarks for the new more lean age we are in

Thanks Max!

The checks being cut to ‘owners’ of training data are creating a huge barrier to entry for challengers. If Google, OpenAI, and other large tech companies can establish a high enough cost, they implicitly prevent future competition. Not very Open.

Model efficacy is roughly [technical IP/approach] * [training data] * [training frequency/feedback loop]. Right now I’m comfortable betting on innovation from small teams in the ‘approach,’ but if experimentation is gated by nine figures worth of licensing deals, we are doing a disservice to innovation.

These business deals are a substitute for unclear copyright and usage laws. Companies like the New York Times are willing to litigate this issue (at least as a negotiation strategy). It’s likely that our regulations need to update ‘fair use.’ I need to think more about where I land on this – companies which exploit/overweight a data source that wasn’t made available to them for commercial purposes do owe the rights owner. Rights owners should be able to automatically set some sort of protections for at least a period of time (similar to Creative Commons or robots.txt). I don’t believe ‘if it can be scraped, it’s yours to use’ and I also don’t believe that once you create something you lose all rights to how it can be commercialized.

What I do believe is that we need to move quickly to create a ‘safe harbor‘ for AI startups to experiment without fear of legal repercussions so long as they meet certain conditions. As I wrote in April 2023,

“What would an AI Safe Harbor look like? Start with something like, “For the next 12 months any developer of AI models would be protected from legal liability so long as they abide by certain evolving standards.” For example, model owners must:

•  Transparency: for a given publicly available URL or submitted piece of media, to query whether the top level domain is included in the training set of the model. Simply visibility is the first step — all the ‘do not train on my data’ (aka robots.txt for AI) is going to take more thinking and tradeoffs from a regulatory perspective.
• Prompt Logs for Research: Providing some amount of statistically significant prompt/input logs (no information on the originator of the prompt, just the prompt itself) on a regular basis for researchers to understand, analyze, etc. So long as you’re not knowingly, willfully and exclusively targeting and exploiting particular copyrighted sources, you will have infringement safe harbor.
• Responsibility: Documented Trust and Safety protocols to allow for escalation around violations of your Terms of Service. And some sort of transparency statistics on these issues in aggregate.
• Observability: Auditable, but not public, frameworks for measuring ‘quality’ of results.

In order to prevent a burden that means only the largest, well-funded companies are able to comply, AI Safe Harbor would also exempt all startups and researchers who have not released public base models yet and/or have fewer than, for example, 100,000 queries/prompts per day. Those folks are just plain ‘safe’ so long as they are acting in good faith.”

Simultaneously our government could make massive amounts of data available to US startups. Incorporate here, pay taxes, create jobs? Here’s access to troves of medical, financial, legislative data.

In the last year we’ve seen billions of dollars invested in AI companies. Now is the time to act if we don’t want the New Bosses to look like the Old Bosses (or in most cases, be the exact same Bosses).

Updates

• My friend Ben Werdmuller riffs on what he calls ASCAP for AI, the need for a standard licensing framework and payment structure.
• Someone also reminded me that if you care about content being valued correctly over time that you should also care about competition among AI models. That an oligopoly might not lead to higher value for content given smaller number of bidders.

Winter Break week for my kid more time with her, and when she’s with her friends, more time with New Yorker magazines. Here are a few essays, articles, blog posts, etc that I’ve enjoyed recently.

What Happens When TikTok Is Your Marketing Department [David Segal/New York Times] – Was it organic? Was it spon con? Was it both? Many times we’ll never know, but the random products that end up popping because of a TikTok trend are always pretty fascinating anthropological stories. Here the focus is on Pink Stuff, a British cleaning paste, which was #CleanTok mainstreamed to a quadrupling of revenue ($125m annually) and distribution to 55 countries.

A typical #CleanTok video features a so-called “cleanfluencer” — some have more than one million followers — working over a sink, or a pan, or a floor, with a particular cleaner and a particular brush. There are usually before and after images, which make these little vignettes a cross between a commercial and an episode of “Law & Order.” They start with a mess and end with a verdict.

The Five Lessons That Have Guided My Career [Avni Patel Thompson/Milo] – Derived from a talk she gave at a High School Career Day, CEO/entrepreneur Patel Thompson thinks that guidebooks are better than roadmaps when it comes to career advice.

Founder Vesting [Jared Hecht/USV] – Jared joined USV earlier this year and it’ll be interesting to see how his writing changes as he adds ‘institutional VC’ to his founder and angel investor knowledge. Here he writes about a topic (vesting cycles) that often is incorrectly positioned as ‘founders vs investors’ but actually has a lot more to do with the commitment founders want to make to one another and to their company. As Jared notes,

To hedge against this predictable outcome, more founders should adopt longer vesting cycles for themselves and the earliest (big equity) employees. Stretching things out to a six-year vest helps to prevent co-founder abandonment. Equally important, it also protects you if your co-founders aren’t the right fit early on – you don’t want someone leaving two years into building your company with the lion’s share of the cap table. That sucks for everyone.

The Introverts Have Taken Over the US Economy [Allison Schrager/Bloomberg] – tldr: it takes a lot more to get people to leave the house these days for dining, shopping, entertainment and other Out of Home activities. Maybe it’s just another version of barbelling? Where we like Uber Eats delivered meals but also the Eras Tour? The mediocre middle of inconvenience for little reward is getting squeezed? There’s been a lot written about decreases in IRL socializing, which has really harmful consequences for people IMO, so this could also just be a correlation/byproduct of that trend.

Enjoy!

I read a lot of stuff and here’s a few worth passing along to you!

China’s Age of Malaise [Evan Osnos/New Yorker] – A loooong read but essential stuff if you are interested in China from an sort of view (cultural, economic, geopolitical, startup).

When I return to China these days, the feeling of ineluctable ascent has waned. The streets of Beijing still show progress; armadas of electric cars glide by like props in a sci-fi film, and the smoke that used to impose a perpetual twilight is gone. But, in the alleys, most of the improvised cafés and galleries that used to enliven the city have been cleared away, in the name of order; overhead, the race to build new skyscrapers, which attracted designers from around the world, has stalled. This summer, I had a drink with an intellectual I’ve known for years. He recalled a time when he took inspiration from the dissidents of the Eastern Bloc: “Fifteen years ago, we were talking about Havel.” These days, he told me with a wince, “people don’t want to say anything.” By the time we stood to leave, he had drained four Martinis.

Incentives and the Cobra Effect [Andrew ‘Boz’ Bozworth/Facebook] – So I don’t know if the story Boz references here is fully accurate or has taken on some metaphorical expansion, but it’s worth sharing. A quick post about the power of incentives – and how they can sometimes backfire. The title is explained in the opening paragraph:

When Delhi was under colonial rule it suffered from an excess of venomous cobras. To curb the population the government paid a bounty for dead cobras. This triggered entrepreneurs to start breeding cobras to collect the bounty. When the government figured out what was happening, they discontinued the bounty which meant all the cobras being bred were worthless and were thus set free, increasing the cobra population significantly.

It’s Never Been More Important to Understand Your Capital Provider’s Business Model [Charles Hudson/Precursor] – Charles is just a wonderful human and his posts about venture capital are essential for anyone who considers themselves part of the startup community. Similar to Boz’s essay earlier, this one too is about incentives. And how mismatched (or unspoken) ones in venture capital can cause stress.

 If you are a founder and you are experiencing new or renewed tension in your conversations with your VC investors, it’s worth re-examining whether you all have a shared view of the likely outcome of your company and whether you’re both as excited about what that outcome means. In many cases, I’ve seen situations where there are founder-acceptable outcomes that are below-the-line outcomes for VCs, and that conversation goes unsaid or unexamined. This creates a lot of unspoken and unexamined tension in the founder and VC relationship.

Don’t Talk To Your Competitors’ Investors [Chris Neumann/Panache Ventures] – I generally agree with what Chris writes here although if he has experienced that most VCs share information received with a company directly with a competitive company in their portfolio that makes me sad. We try upfront to disclose any conflicts and if we, during a pitch process, find out that the presenting company is competitive with an existing investment would never forward materials.

One disconnect between founders and investors is sometimes the definition of ‘competitive’ and founders will push back to actually suggest they’re not competitive with an existing investment. I get it, they want to keep as many doors open as possible for funding. The reality is though, that especially at seed we tend to give our existing founders a very wide berth, even if it’s just adjacent. Why do we do this even at the cost of passing on an interesting company? Well we all know that early stage companies do a lot of exploration in their problem space before settling on the exact product. Even more importantly we want to be able to bring just one of the startups to their next investors as representing ‘our investment in [market x].’ I find that our conviction will strengthen the interest of Series A VC, versus us having a set of similar looking companies.

Five Traps for Real Estate Tech Entrepreneurs [Brad Hargreaves/Thesis Driven ($)] – Brad’s a multiple time proptech founder/investor and his newsletter is well worth the subscription price if you’re at all interested in real estate investing – both the technology and property holding company side. Google presents a snippet of the five mistakes so I don’t feel like I’m violating his paywall by sharing here 🙂

Hope you enjoy these as much as I did!

Great interview with surviving cast members of Happy Days, which was a number one TV show itself, as well as producing FIVE spinoffs. Worth reading the whole interview but one particular part stood out for me involving the producer Garry Marshall and star Henry Winkler.

WINKLER He [Marshall] was generous but also was structured. He took no bad behavior. One time, when he was announcing the guest cast, I said, “Garry, we have to hurry up because I’m flying to Arkansas.” He nodded, put down the microphone, grabbed me by my shirt, put me against the wall and said, “Don’t ever do that again, because they have every right to be recognized like you.” He kept us in line.

Talk about setting a tone! How often as leaders do we let little things slide or fail to apply values consistently? Holding aside the physicality of this encounter, which is very 70s and very Hollywood, it’s a reminder to me about building teams and supporting your people. And those lessons get handed down through generations.

It was a relationship, and an appreciation, that Winkler carried with him going forward

Lots of venture capital transitions underway. Here’s what I predicted in Allocate’s 2024 Outlook

Last week Pitchbook asked me (and others) for background on how a VC actually gets fired (or more often ‘transitioned’)

Darwin moves slowly in venture, but these investor changes can be very disruptive to the founders who were backed by the exiting partner. Since writing “Oh Shit, Your VC Just Quit Her Fund! What a Good CEO Should Do Next” in 2019 I’ve seen plenty of startups get effectively stranded within a firm. We had one of these early in our existence that in hindsight I wish we were more aggressive in helping the founder recognize the purgatory. Now we’re much quicker and more direct to help resolve the situation (even if the result is clarity that startup has likely been orphaned by the other investor).

So while there’ll be a lot of continuing coverage of investor transitions, the real ongoing story is the impacted founders. If you’re a founder and find yourself in this situation feel free to reach out in confidence — if I’ve got time and ideas i’ll share them with you.

Regret. That’s the emotion I most associate with Pat Kinsel and his startup, Proof (fka Notarize). Because I remember hearing about their seed round and thinking it sounded a lot like a Homebrew company, but yet Pat didn’t seek us out, and we didn’t have him on our radar. Fast forward a few years and we finally connect via mutual friends and Twitter threads, but Proof is Too Successful for our early stage capital, meaning I admire from afar versus from the cap table.

Pat’s recent blog post “A VCs Most Critical Task” both caught my eye and went in an unexpected direction: helping founders bring on great executives, while simultaneously preventing bad hires. I wanted to talk a little more about his experiences and advice here, so thus a Five Question Interview.

Hunter Walk: You recently wrote “I have decided that an early stage (Series A-B) venture capitalist’s single most critical task is to make certain their portfolio companies do not hire the wrong executives.” Without accusing you of subtweeting a particular situation, what prompted the post?

Pat Kinsel: The pandemic, mostly. The pandemic pushed companies forward 3 or 5 stages prematurely, mostly in response to false or temporary demand. The hardest things to reset are the culture and processes set by bigger company executives who stepped into a business everyone thought was further along. Most of us cut costs and reduced our team sizes, but what we also needed to do was reset how we work. It took even longer to realize we were still running a bigger company playbook, just with fewer people on the field. It was exhausting for the team trying to maintain processes without scaffolding and impossible for executives who don’t know how to run the smaller org. Virtually every founder I talk to wishes they could go back in time, hire stage appropriate leaders, and tackle the scale-up challenges in sequence like you’re supposed to.  

I said “mostly.” Beyond issues with stage-fit, we should all be honest that people don’t do real reference calls and bad behavior is often never shared. A good VC should be able to get the truth from their networks.

HW: Talk more about the mistakes you usually see made at A/B startups? Is it hiring for resume vs fit? Assuming the BigCo exec can truly adjust to the pacing of a startup? Have you personally made this mistake – as a CEO or VC?

PK: Yes, I’ve made every mistake as a founder. 

If the biggest risk an executive has taken in the past few years is joining your company, they’re the wrong person. The job is making big decisions and more –  it’s managing teams through risk and uncertainty and that’s a skill that people quickly lose. Others have something to prove and I think this is the key issue to suss out. An executive now at a big co. who truly built a product or a team from the ground up and now has a vision to do it differently and better might be a unicorn for your business. But an exec who rose through the ranks and now has something to prove to his old company probably is not. 

I think the primary difference between executives at different stages is how siloed they are. At a big company, a sales leader probably only lives within that function. In smaller companies, they collaborate as part of a revenue organization. In smaller companies, everyone must work together. Execs might need to span functions. Can they? Will they? 

This is why VC intros to executive hires can be so so dangerous. Many VCs know people in big companies who manage something important and try to pull these people out when they might be the dead wrong candidate. The risk aversion that kept them in the big company might get broken when the big fancy VC recruits them, but it returns the instant they’re in your company.

Yes, I also made every mistake as a VC. When I was on the board of Drizly and Lob, I was very young. There are a lot of VCs out there offering advice without any real knowledge, either as an operator or as a VC who’s seen some things. I have no idea how the venture industry solves that problem, but founders need experienced voices to help evaluate candidates.

HW: How involved should the VC get in this process? Is it at the level of meeting candidates before the offer stage, or just in talking through the type of roles and people in a more generalized Hiring Plan conversation ongoing?

PK: Both. 

Most founders have no idea what a well running team or organization looks like. They’ve never even seen or collaborated with the functions they’re now supposed to build. At a minimum, VCs should help founders understand what different functions do, how they are run, how they should be compensated, and what common conflicts exist between teams. The issues are most often at the intersection between teams; not knowing this, how can founders ask good questions and find the right people? 

Beyond that, I think VCs should be involved until founders can prove they can hire. They should come in late in the hiring process and provide a coaching role – “here’s a concern and here’s how we could get more info to address it.” There is tremendous value for founders in talking to many many candidates and that can’t be offloaded – it’s the predominant way they’ll learn about the actual function and what style or vision they align with. The VC should just be a check at the end.

HW: As a CEO, how do you want to talk about Exec Team quality at the Board level? I find there are really two main points to be clear about – how is a person’s performance, and do you think they can continue to scale in role for the next 18-36 months?

PK: It takes a long time to escape the hero mindset and stop believing you personally have to deliver the results – that team is everything. I believe founders should be completely transparent with their boards about the executive team. It takes a year to find great executives so you must always look down the field. 

I’d add a 3rd thing, it’s not just about the performance of each executive and their ability to scale, it’s about the performance of the team overall. Is someone personally great, but holding the group back? Could someone new change the dynamic and up level everyone?

HW: What’s a favorite question to ask a potential hire, or ask when conducting a reference check on someone you’re evaluating?

PK: For a senior hire, “Why Proof?” 

If you’re hiring an exec and they cannot passionately articulate a reason to join your company, why their skills can 10x your performance (and thus their wealth), why it’s a problem they feel compelled to solve and a mission they must be a part of… it is the wrong person. They should be extremely well versed in your business. If you can’t find that person, bet on someone earlier in their career with drive. As I said in the blog post you referenced, “a firestarter.”

Thanks Pat! And given that last question, feels appropriate to link to Proof’s open roles.

When the founder of WordPress/Automattic says all he wants for his birthday is for you to blog, well, you blog. I’ve known Matt for, gosh, 15 or more years, and although I don’t see him as much as I’d like, I do admire what he’s built here and the spirit with which he lives. Here are some things to read:

There’s No Money in Free Software [Ben Werdmuller] – The provocative titles refers to Ben’s experience trying to build a startup around an open source product. To be intellectually honest he supplies a few examples of companies which have navigated this tightrope walk but ends up ultimately believing…

“My take is this: if you want to make money building something, sell it. If you want to release your software as open source, release the bit (or a bit) that doesn’t have intrinsic business value. Use that value to pay for the rest. If you need money to eat and put a roof over your head, do what you need to get money. And then if you want to be altruistic, be altruistic with what you can afford to distribute.”

Billion dollar failures, and billion dollar success [Tom Conrad in Conversation with Lenny Rachitsky] – Just a great pod between two product minded humans. Tom reflects on his ‘wins’ [Apple, Pandora, Snapchat] and his more sideways experiences [Pets.com, Quibi] in a way that actually brings emotion to a CV and produces some actionable ideas for people earlier in their careers.

Resetting expectations for VC investing in health tech [Christina Farr/OMERS Growth Equity] – Rather than just rearview punditry (oh no, the era of free money for startups is over), Christina looks at the dynamics of health care venture investing and why it might be *good* for the world to have more small successes in this vertical than everything needing to be a venture scale success (or failure).

Enjoy! And Happy Birthday Matt!

I *think* Daniel and I met at a VC happy hour many years ago. But outside of the history, he’s one of my favorite people to chat about the roller coasters of company building. He’s founder and CEO of Greenhouse, a ‘hiring operating system’ for companies which spans recruiting and onboarding tools for enterprises and SMEs. Originally backed by venture capital, in 2021 Daniel worked with TPG, a large private equity firm, to make them the majority investor. This means the company is predominantly owned by the management/team and TPG. It might ‘exit’ again at a later point (anything from a sale to an IPO), but it’s no long dependent on VC funding. There’s a ton of writing out there about getting *on* the venture curve, but not a lot about getting *off,* so Daniel’s advice below is especially important.

Hunter Walk: Before we dive into your company Greenhouse, give me one story from your childhood that foretold you were going to end up a startup founder.

Daniel Chait: Oh man, I have a ton of these! Looking back it was pretty obvious where I’d end up in my professional life. I was the kind of kid that (a) didn’t really buy into authority figures, and (b) loved solving problems and building stuff. I was also very fortunate to come from an entrepreneurial family; both my parents ran their own businesses.  My dad had a medical practice and my mom founded an HR company at the kitchen table and grew it into a global powerhouse in their industry.

To pick just one representative story… I was sent to the principal’s office one day in high school, probably for goofing off in class. I never did much that was all that bad, but at the same time, I was bored in school and often thought it all felt pretty pointless vs doing “real work” which I loved. So anyway, I was waiting in a little area outside the principal’s office for him to call me in.  As I sat there I was overhearing the secretaries complain about this new computer program  they had (WordPerfect, my guess is it was 5.1 for DOS), which they were struggling to use.  

Well, as it happened I was pretty much an expert WordPerfect user. Pretty weird hobby for a 15 year old kid but I had used it at my mom’s office and, sick of doing repetitive drudge work, had taught myself to program WP macros in order to automate mundane tasks for her. 

So back to the secretaries. I couldn’t help but pop over to them and start showing them how to do things, solve their problems, etc.  By the time the principal came out, the secretaries asked him if he could wait so I could keep helping them! I ended up leaving there with a part time job as their “computer guy.” I really loved getting to use my know-how and wits to forge my own path, make money, and get to work on cool computer stuff.

HW: Greenhouse, which powers the hiring process from sourcing to onboarding for thousands of companies, will soon be a teenager, having been founded in 2012. What does 2023 Daniel know that 2012 Daniel didn’t?

DC: As a lifelong entrepreneur, Greenhouse is now basically the largest company I’ve been a part of (and has been for several years) so I’ve had to learn a ton over the years about how to scale myself.  

That has mainly meant really figuring out how to be a leader and continuously refining my leadership approach as the company has grown.

My approach is centered around Patrick Lencioni’s “The Advantage” and Fred Kofman’s “Conscious Business” principles, each of which are really systems for building and maintaining culture and organizational health.

This is still very much a journey I’m on. I don’t profess to have it solved, but I’ve learned a great deal about how to scale my leadership approach that I didn’t know back when we started Greenhouse.

HW: Hiring, and PeopleOps in general, is an area where software has improved the quality and efficiency of workflows. Now AI has promised to take that even further. How is Greenhouse experimenting with AI-enablement? Is it an evolution or a revolution for your business and customers?

DC: I’m going to keep this brief, but if you want to the long version of it, I recommend reading our blog about it. I’ll summarize by saying it’s an evolution; one that will require experimentation and innovation with a discerning eye. We have conviction about AI’s role in hiring as an assistant, not a decider. Our goal is to develop innovative products and features that help make recruiters jobs easier, emphasizing the importance of humans making decisions in hiring. 

We know that AI can help hiring teams do more with less. In today’s workforce, where HR teams are stretched thin and resources are limited, AI can augment short-staffed teams by reducing menial, repeatable tasks and allowing recruiters to focus on what matters — finding the right talent.

HW: In 2021 you partnered with growth firm TPG to bring them on as your primary investor, which I assume gave your current venture capital partners a chance to at least partially exit the business. These sorts of opportunities can really realign incentives/expectations as well as give you a chance to reset on some decisions made previously. Can you tell us a little how this came about in the first place and what the day-to-day implications were of the shift in ownership structure.

DC: Here’s how this relationship came about in the first place: I had a longstanding relationship with TPG by way of the RISE Fund (TPG’s Social Impact investing fund). Greenhouse has a focus on social impact through our mission to make companies better at hiring, as we also help improve fairness for job seekers and candidates, improving the conditions for the workforce overall.

Coming out of the first half of 2020 we were experiencing a boom after the initial shock of COVID-19. Our customers were growing and hiring quickly, and as a result our business was growing fast. So we found ourselves in the position of needing a new capital partner, as well as wanting to seek out  expertise in scaling the business as we were thinking about maturing and growing as an independent company. As a result, we were considering relationships with a number of different large-scale investors including private equity firms. 

We ended up partnering with two different funds at TPG; the TPG Growth Fund and the RISE Fund.

The TPG Growth Fund invests behind companies, teams, and strategies that they believe in and where they can help accelerate their growth. It’s not “traditional PE” — meaning, a leveraged buyout fund where they try to cut costs and squeeze margins — it’s more like a later stage Venture Capital firm, with extra support capabilities to help companies as they scale. The RISE Fund, which takes a quantitative approach to social impact, aligns well with our core values and social impact mission. Because of all that, it was apparent that Greenhouse was aligned to the intentions and goals of both the Growth and the RISE funds. 

Since the relationship started, it’s really lived up to the promise. TPG is a great partner; they do what they say, they’ve really been trustworthy. And they bring great resources to bear. They help with issues of scale and growth, with operational questions, and even with things like purchasing and cash management. They’ve just been fantastic and incredibly helpful.

At the same time, being private equity backed also means balancing a somewhat different set of investor goals than you may be used to as a startup founder. PE firms are not looking for a risky approach that may return 10 times but may also flame out; rather, they’re looking for sustained, efficient growth and profitability. Steering the company in that way has been a growth area for me as an entrepreneur and something as a CEO that I’ve been learning to do well. It’s a different way of thinking and managing the business, but one that I believe helps any leader run a better business.

HW: We’re going to see many more software CEOs (and cap tables) look for private equity exits like yours. What are the most important questions founders should ask themselves about their business to help them understand if they’ve got the combination of scale, product, and leadership that’s attractive to a financial partner of this type?

DC: Yes – this is such an important question! If you’ve spent a bunch of years with VC partners, bringing on a PE firm can feel very different, so you really do need to be well informed here.

I would start by saying, you need to be comfortable giving up some control. Most PE firms focus on acquiring a majority of the companies they invest in, though this varies. PE generally thinks of their role as a three-stage journey “Buying > Value Creation > Value Realization.” That third one generally means “Selling” though that can take various forms, such as exiting via IPO, paying themselves a dividend, etc.. And they really want a lot of influence and control over not only how they create value (ie how the company is run and the choices you make about where to to invest vs cut, growth vs profit, etc) but moreso, control over when and how they sell.

 What you want to be sure to ask about is are you aligned with the PE firm about how they think about creating and realizing value. Because, really, when you take a PE investment, that comes with an obligation to  drive value for shareholders and in a specific way that aligns to their needs and risk profile.  

A few other things to think about: PE approaches debt very differently than VC firms. You should ask what they think is the right level of borrowing (they call it “leverage”) for your firm and make sure you’re ok with the answers. 

One other thing folks don’t always talk about with PE – they charge fees to the company for a bunch of the services they provide. Those fees can add up – millions of dollars per year in some cases – and make up a material way that many PE firms realize value. Ask up front how the fees work and make sure you understand what you’ll be paying them and what you’ll get. If you’re used to partnering with VCs this can come as a surprise, sticker shock included.

I will finish here. PE is not one just one thing. Know your firm and do your research. Find out the reputation of the firm, because they often have extremely different approaches and cultures. And, find out who your specific partner will be and learn about that person. Spend time with them – it matters a lot because after all, this is a hopefully long-term business partnership!  I feel very fortunate with my TPG relationship. They are an excellent firm and the people I work with are humble, hard working and smart.

Thanks Daniel – appreciate you sharing with me!