The API economy and a Cambrian explosion of apps are transforming best-in-class tech from monolithic tools to a stack of 20 applications that work together. Amid this unbundling, partnerships have become a critical part of early go-to-market strategy that can lead to higher quality pipeline and accelerated sales. In this fireside chat, recorded at Crossbeam Supernode 2022, a16z General Partner Sarah Wang and Bob Moore, Cofounder and CEO of Crossbeam, discuss how partnerships have changed and why the best startups invest early in building a partnership program.
Bob: Everybody give it up again for Sarah Wang here from Andreessen Horowitz. Sarah and I had a stated goal going into this, which is we want to make this conversation completely identical to the conversation that we would just have sitting backstage whether you were here or not, as we dig into just about everything in the realm of the partnerships universe, the market, and beyond.
There’s obviously a lot of shifts going on in the market at large, but at the same time, these really exciting things in the partnerships universe that seem to amount to a shift of their own. I just want to generally understand how real is that and how real do you think this growth through partnerships is really becoming?
Sarah: I think a lot of what you said was spot on, and, I’ll bring a different perspective, which is that of fundraising. I’ve been an investor for over a decade and seen different cycles–and full caveat, I don’t have a crystal ball into what is going on, but clearly something is going on. What’s very interesting in the fundraising market that has started to turn is not only are valuations coming down, rounds have started to not get done.
What that means is that being more efficient has started to come back in vogue. For a very long time, all valuations were completely correlated with growth. Now, if you run the math on the public markets, if you look at even private rounds, growth plus efficiency, your margin, your profitability, however you wanna measure it, is the biggest driver of what your company is actually valued at.
What does that mean for companies? I think there’s a round of belt tightening coming. To translate this further, what does that mean for the people in this room, for your teams? Honestly, partnerships are more important than ever, specifically because you’re bringing in pipeline, you’re shortening sales cycles, and you’re increasing conversion rates. That’s a very good thing. That is need to have, not nice to have, especially in this environment. In an environment where fundraising is virtually free, and the market is flowing, it’s almost more nice to have than need to have.
The flip side is that if you’re not doing that I think there is some danger. One example that came up recently, I was looking at two companies. I won’t name names, but one company is around $100M ARR, and their plan is to go to $200M. I’m looking at the other company where they’re at $5M ARR, and their plan is to go to $15M. One has 50% partner generated pipeline, and the other, the smaller one, has 100% sales generated pipeline.
As an investment team, we’re more willing to bet that the $100M goes to $200M because of how consistent their partner generated pipeline has got. That team could literally go to sleep for a year and come back, and they’d be at $200M ARR. We feel very confident about that.
The sales generated pipeline we’ve discounted that internally from $5 to $10M of ARR, so cut it in half essentially. That’s a real life example of how investors and board members are thinking about it.
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The API economy and a Cambrian explosion of apps are transforming best-in-class tech from monolithic tools to a stack of 20 applications that work together. Amid this unbundling, partnerships have become a critical part of early go-to-market strategy that can lead to higher quality pipeline and accelerated sales. In this fireside chat, recorded at Crossbeam Supernode 2022, a16z General Partner Sarah Wang and Bob Moore, Cofounder and CEO of Crossbeam, discuss how partnerships have changed and why the best startups invest early in building a partnership program.
Bob: Everybody give it up again for Sarah Wang here from Andreessen Horowitz. Sarah and I had a stated goal going into this, which is we want to make this conversation completely identical to the conversation that we would just have sitting backstage whether you were here or not, as we dig into just about everything in the realm of the partnerships universe, the market, and beyond.
There’s obviously a lot of shifts going on in the market at large, but at the same time, these really exciting things in the partnerships universe that seem to amount to a shift of their own. I just want to generally understand how real is that and how real do you think this growth through partnerships is really becoming?
Sarah: I think a lot of what you said was spot on, and, I’ll bring a different perspective, which is that of fundraising. I’ve been an investor for over a decade and seen different cycles–and full caveat, I don’t have a crystal ball into what is going on, but clearly something is going on. What’s very interesting in the fundraising market that has started to turn is not only are valuations coming down, rounds have started to not get done.
What that means is that being more efficient has started to come back in vogue. For a very long time, all valuations were completely correlated with growth. Now, if you run the math on the public markets, if you look at even private rounds, growth plus efficiency, your margin, your profitability, however you wanna measure it, is the biggest driver of what your company is actually valued at.
What does that mean for companies? I think there’s a round of belt tightening coming. To translate this further, what does that mean for the people in this room, for your teams? Honestly, partnerships are more important than ever, specifically because you’re bringing in pipeline, you’re shortening sales cycles, and you’re increasing conversion rates. That’s a very good thing. That is need to have, not nice to have, especially in this environment. In an environment where fundraising is virtually free, and the market is flowing, it’s almost more nice to have than need to have.
The flip side is that if you’re not doing that I think there is some danger. One example that came up recently, I was looking at two companies. I won’t name names, but one company is around $100M ARR, and their plan is to go to $200M. I’m looking at the other company where they’re at $5M ARR, and their plan is to go to $15M. One has 50% partner generated pipeline, and the other, the smaller one, has 100% sales generated pipeline.
As an investment team, we’re more willing to bet that the $100M goes to $200M because of how consistent their partner generated pipeline has got. That team could literally go to sleep for a year and come back, and they’d be at $200M ARR. We feel very confident about that.
The sales generated pipeline we’ve discounted that internally from $5 to $10M of ARR, so cut it in half essentially. That’s a real life example of how investors and board members are thinking about it.
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