Generative AI could change the SaaS pricing model — and that’s a good thing | Equity Podcast

This episode is presented by invest Puerto Rico if you believe your business Can go anywhere Puerto Rico is the [Music] Place hello and welcome back to equity Techcrunch's Flagship podcast about the Business of startups I'm Maryann as of Bo and this is our Wednesday episode Where we hone in on a trend in the Startup world and dive deep today we're Talking about a number of topics Including how generative AI could level Up SAS the state of consumer investing And what we can expect from the next Wave of fintech joining us for today's Conversation is Nea Ventures General Partner Vanessa larco and just adds up To our listeners you can probably hear Some Drilling in the background I Apologize in advance you may be hearing More of that as we're recording there's Some construction going on around me Apologies but that is the perils and the Fun of recording remotely anyway Vanessa Welcome to the show we're so happy to Have you here how are you thanks for Having me I'm good I'm so excited to be On this podcast no we're thrilled as Well I first want to start out with just A little bit about your background You've been at Nea which is short for New Enterprise Associates right since 2016 and you focus on seed early stage Enterprise and consumer mostly is that

Right yeah basically everything at the Applier and at the seed series a is Where I spend most of my time so prior To venture you actually LED product Teams right at a few companies including Some names we may have all heard of like Box twilio Disney and Xbox getting into Venture it seems like was not Necessarily something you expected or Planned to do but I was reading about The role model that you have in your Mother and I was fascinated by this Story so she was into computer science Would you say that that's right can you Share a little bit about that yeah well She grew up in barania Colombia and her Father had a juice factory actually Several different food factories but the Juice was one of the bigger ones and she Loved to go to the factory with him and She started programming some of the Machinery very early on she excelled in Math and science at school and so when She graduated she wanted to come to the United States and study computer science And her parents nearly had a heart Attack they're like no no no you need to Go to like finishing school in Switzerland and know how to like plan Parties and catian and all of that she Was like no my brothers are going to the US to study engineering I want to go too Good for her and that was in the 70s Right yes yes and that was not something

My grandfather had envisioned for her But she decided to put herself through School since she didn't have a ton of Support for for that career path from Her family so she went to FIU Florida International University in Miami and Studied computer science in the' 70s wow Which is wild yeah that's awesome and Then so she became an entrepreneur yeah I always asked her I was like well why Did you want to do startups she's like Well hang on like I didn't really think About it I didn't have much of a choice I had a computer science degree out of Miami and I couldn't leave Miami CU my Family my friends her English she has a Very very thick Hispanic accent and so She's like there was no computer science Jobs in Miami so I decided like well I'm Going to have to fabricate them and so She she started companies because she Wanted to live in Miami and there were No CS or software jobs in Miami so she Was going to make it work somehow it was Really out of necessity not out of being A Founder is cool and everything was Bootstrapped so she'd never heard of Venture capital actually until I started An Venture that's so impressive so yes Back to that so you you kind of ended up Would you say it was accidental that you Became a venture capitalist or yes yeah It was I don't know about accidental it Was it it came out of nowhere it was one

Of those like sometimes you get this Opportunity you never saw coming or Planned for it and you can decide to Take a leap of faith or you can move on And continue on the path you've chosen And most of the time in my career I've Always just put blinders on and just Very focused on I want to work on these Types of products I want to work at These types of companies I want these Types of experiences and it just very Focused and when this NAA opportunity Came up I initially laughed it off and I Was like well no I'm not a finance Person I'm a product person I build Things I ship things that's what I do I Don't know anything about Finance so I I I don't know why you wouldd want me to Be an inventur and really Pete sinini at Nea convinced me he's like look I will Teach you everything I know I really Think you will like it don't just laugh It off it's a real offer that a lot of People would be happy to get yeah and I It's just the gravity of it just didn't Sink in for me and what kind of an Opportunity he was offering me and then I spent time with him and Forest basket And Scott Sandell took a couple months To really think through it before I Decided to join what really put me over The line on like walking away from Product when I was having a really good Time was I wanted a different

Perspective on how to build software and Truthfully from a PM perspective I would See Tech crunch news and this company Got this valuation and that company got This other one and it honestly as a PM Leader like it made no sense to me I was Like well this company has an amazing Product why is there value so much ler Than this other one it's just a terrible Product and like yeah they're growing Quickly but people hate it so like how Long are people going to retain on this You know piece of junk and it just Didn't I'm like what are these VC people Thinking like what what world are they Living in and so it's just felt so Foreign that as I thought through the Offer and as I spent more time with him I'm like okay you know what I'm going to Do this I'm probably going to do it for Two years and I just want to learn how These people think like why does is this Company worth this and this other one is Not I want to get better at Understanding that and also ideally Picking which companies or be getting Really good at at figuring out which Companies are going to break out because That'll be a great skill for me if I go Back to product or for me to be able to Help my friends and my family that are In software development like which Companies they should choose and I just Thought that that would be a great skill

Set honestly I didn't think I would stay In it for very long I thought 2 years And I'd go back to product you are eight Years later eight years later right Eight years later well over the years You've invested or LED investments in a Number of companies including let's see Assembled Kindred rewind AI Cleo ever Now majuri and you're a board Observer At forethought safe base orbai heavy. a Uh so a lot of companies you also a Board Observer at Robin Hood or you were Until its IPO in 2021 and an early Investor in Greenlight so wow so I would Like to hear because I I read a recent Post of yours about SAS and how Generative AI is going to potentially Impact its pricing model tell us about That yeah I mean it's not rocket science I think if generative AI is really Supposed to make you more efficient and We're seeing that it actually delivers On that promise right previous Generations of SAS who knows right does Slack make you more efficient T like Still up for de less efficient less Efficient but but SAS was always like We're going to make you more efficient We're going to drive productivity and The verdict out or and it's been out but With General we're actually really Seeing it right and in certain jobs it's Very quantifiable right in Customer Support it's very quantifiable in

Outbound sales it's very quantifiable Even in marketing now that it's Generating comp it's very quantifiable How it is helping people become more Productive and so when you look at the SAS model the SAS model is per user per Month seats right and so your your Natural expansion when you look at your Net dollar retention for a SAS business You want to see it like over 120% and the way that happens is every Year your customers are supposed to be Growing so they're buying more seeds so Naturally those accounts are expanding And that's how you get your ndr above 120% now if you're really making people That much more productive they're not Going to need that many seats time over Time right it's just not they're just Not going I need those seats so the more It works typically the less seats of That thing you need those people might Be doing other jobs but for like that Job you may not need that many seats so The best you can hope for is 100% net Dollar retention and like that's not a Great model for SAS so you really need Something above that MH I think that There in lies the problem if it's Subscription and you're banking on these Seats expanding and the seats aren't Expanding then what do you do right and That's the question yeah I mean it's a Fact that funding and SAS and enterprise

Software companies is down crunch base Issued a report recently and noted that So far this year this was as of end of May I think SASS and enterprise software Companies had raised 4.7 billion in seed Through growth stage financing that Compared to last year total of $17.4 billion so you know I know we're Only halfway through the year but that's Still seems like a significant drop and If we look at the chart it just keeps Going down from 2021 down 2022 into this Year so um it does make sense that you Know something's going to have to change Especially now with AI coming in and and You pointed out too that you know it is Going to reduce the number of employees At companies so yeah this per seat model Just may not be the best way to go in The future yeah I don't think it is I Think the most obvious one that Everyone's moving into is consumption Based so how much of this software do You use and then based on that we'll Charge you and that's great so if you're Using it a lot then people should feel Not that bad paying for it and if you're Using it very little then you don't pay Very much and like great I think where People aspire to get to is value based Pricing this is really really hard so I Think it's a North star for a lot of Different SAS products but imagine if I Say you know for every customer support

Ticket that we solve where our NPS is Above blah we pay us half what it Normally cost you to solve a ticket by a Human and if the NPS is worse than a Human answering it then like don't pay Pay us at all and so then there's like Very little downside for the customer For using this and then when they do use It they're like yep like basically it's Take a percentage of whatever money you Saved me and that's what I will pay you And the rest I'll keep as my savings That when you can fit your SAS product In pricing like that I think it's Extremely powerful I also think it can Be a competitive mode so would you Describe that as value based pricing Then yeah but it's it's not trivial but After I I did that LinkedIn post I got My cell phone blew up with like people That are buyers and cro and everyone was Like here's why it would be great but Here's why it's so hard and there's a Lot of challenges to that my first Thought is wow that does sound really Cool but it's so much less Straightforward right it's so much Harder to like how do you quantify value Or outcomes and I know you mentioned Like cost savings customer satisfaction Metrics things like that but being so Much more comp Do you think companies will be more Hesitant to adopt that or go that route

It depends I mean everything it depends It's in the details but for some it's Very obvious the hard part is let's say Retention if we increase your user Retention by this percentage then you Pay us a fraction of like that lift but Now you set a new Baseline so like That's like year one but what happens Year two and three when I've already set The Baseline here how do I move the Baseline up from there and that's I Think complicated for the buyer it's Also complicated they're like I don't Know how much of my traffic is going to Go through here I don't know how to Budget for this so I think there will be Some you might saw some blocks up front You may want to do potentially like half Platform fee which is subscription based On the size of the company and then some Incremental blocks on top of that based On usage or value driven or something I Just think that historically in SAS I Mean it's called SAS right so like your Business model is like you don't even Think twice per seat per user per month Done and now I think it behooves every Founder to really think through like What is the right pricing model for our Customer and for our product and iterate On that I think that's going to be part Of your product development road map now You also have to think through your Pricing and packaging as a road map as

Well it's not just a given that it'll be Per user per seipt per month like I just Think that those days I think those days Are behind us I don't think it's toly to Say that interesting okay but as an Investor when you look at investing in SAS companies isn't one of the things You look at this predictable recurring Revenue wouldn't it become less Predictable if you go this route well Yes but it's not great to be predictable And then have an ndr of 100 right like That's not great either so you do have To show expansion and growth and so I'd Rather see you grow and I'd rather see Your margin so the other thing is if You're using gen apis that cost you per Call and then you're offering it as much As you can eat per user per month then Like your margins suck and so you you Need to have a business model that Creates a durable business and so I do Think investors need to stop being a Little lazy um and being like recurring Revenue is the best no I think recurring Revenue is not always the best if There's no account expansion if the Margin start deteriorating with more Usage etc etc so I think that historically yes we want to See that recurring Revenue but the truth Is we just want predictable revenue and If the founder can get really Sophisticated about how they can model

Out and then be pretty spot-on on that Predictability that's just as good in my Opinion as recuring Revenue so it sounds Like obviously despite some of these Declines in funding you're still bullish In the SAS space of course of course I Mean that's the beauty of being in Technology is that things are always Moving things are always progressing and Well historically the incumbents fall Behind and it creates opportunities for People with New Perspectives and new Ideas to capture the market so yes I Think there's always a new wave there's Always a new wave that's one of the Exciting that's what keeps us all very Entertained and employed well yesterday Well the day that we're recording this Um was the day after Apple made all its Huge announcements and apple Intelligence was one of them so I'm Curious as to what your thoughts are on What that means for software for Startups and founders in general look I Think that the surprising thing to me in The last year and a half is how fast the Incumbents have moved when open AI Slashed gpt3 is pricing and all of a Sudden everybody could consume a lot of It and not take their their margins it Was like a free-for-all it was I mean Every day some like Legacy company was Launching some generative AI feature in Their product and that's why I was like

Well yes this is a new wave of Technology but unlike you know web to Mobile or unlike on-prem to Cloud you Don't have to rearchitecturing In the space hard and I think for Founders it's it's not for the faint of Heart to jump into starting a company in Generative AI these days when you're Seeing the incumbents move so quickly But I still think there's always going To be opportunity and the reason is well One I think incumbents are really stuck Into the categories that they Dominate And I think those categories may not Make sense when software can go beyond Those categories so I think companies That are creating that new categories That are really more in line with the Outcomes businesses want have a shot at It I know it sounds a bit nebulous but I Can go into that in a bit and then I Also think that as I was looking at Apple's announcement especially versus Googles I was like well some of this Makes sense to have it allinone but I Want to dig into some of the Permissioning and security and like all Of a sudden I'm like well who do I want To know about what like do I want Apple To know about my Amazon purchases do I Want Amazon to know about my calendar Like who do I know who do I want to know What about me right well have you seen Startups in your portfolio or some that

You were considering investing in that Got kind of eaten alive by an Announcement by an incumbent I think It's too soon to say anything gets eaten Alive I think they'll shift I think the Value prop will shift for a lot of Companies in our portfolio with the Messaging but I think there's still some Unique Insight some ability to move Faster so the ability to be Switzerland And go across apps over time versus just Being in a set ecosystem like apple Although Apple's being pretty clever About how they approach that um but I I Think that there's some value sometimes In not being the the Walled Garden per Se so I think we'll see some changes and Founders are very rapid to adapt and That's what makes this industry so fun Yeah absolutely well we're going to take A quick break here when we come back We're going to get into the consumer Space and all your exciting thoughts There what's next in Tech that's not the Right question it's where Puerto Rico Where an entrepreneurial ecosystem Pulses with connectivity capability and Possibility where the most competitive Tax incentives in the US FastTrack Success and hard work is rewarded with Sunsets and turquoise Waters if you Believe your business can go anywhere Puerto Rico is the place invest pr.org For/

Crunch all right recently I spoke with Yuri Kim Forerunner Ventures who is very Bullish on the consumer space and she Pointed out that consumer as a whole has Outpaced Enterprise what are your Thoughts there I know you've invested in Consumer startups one of the ones we First talked about years ago when I was At crunchbase news was Maui a director Consumer jewelry startup that's still Around and I've visited its brick and Mortar you know retail shop what do you Think what is the state of consumer These days I spent the first half my Career in gaming which is deep consumer World then I went in I got very tired Burnt out it's very hard to see in Gaming long long term and then I went Into enterprise software and when I came To nea I said I'm only going to focus on Enterprise I will never do Consumer Never Say Never I did I was Like okay fine I'll do one consumer deal And then I was like well I'll do like This other one because it's incredible And then slowly but surely I built out a Consumer portfolio even though I S I Would never invest in consumer um well You couldn't help it I guess right and And how is that how have those companies Done Okay well I don't want to be that VC That says like my portfolio is on fire But they've done really well and when

Consumer does well it does well really Fast relative to Enterprise and so a lot Of the time people look at my portfolio Everyone thinks I'm a consumer investor Because I they recognize a lot of the Names on there and I'm like no no no I'm Actually an Enterprise app player Investor that does Consumer like as a Side hustle and then I finally just Dropped the side hustle thing because About half my portfolio now was consumer And the other half was Enterprise so I'm Bullish on it look I think that the Consumer is always going to spend they Just are it just depends on like what They're going to spend on what their Priorities are for me I'm kind of Embarrassed to admit this I'm a bit of a Couponer so I like like I like a good Deal I never like to pay full price on Anything same and if you look at my Investments it makes a lot of sense like Would start with like Robin Hood right I Didn't Source it for Nea but I knew the Robin Hood Founders from like eons Before I joined Nea so when I joined NAA We started working much much closer Together but at the time when I met them I was like this is great I'm trading on Fidelity and I'm only trading these 50 ETFs that have zero Commission because I Don't want to pay commission and I was Like I can trade like any us equities With no commission that's amazing I'll

Save seven bucks a trade and then with Maeri I was like oh my God I get to buy This real gold necklace for like 200 Bucks and anywhere else would be like 500 also anywhere else is like Macy's Cuz I can't afford Tiffany or a Cartier Yeah so I don't know as I looked through All of it it was just like this just Makes so much sense for someone that is I want to say price sensitive but you Know you want to make your dollars Stretch as long as they can go I think That's just some people really care About that that I happen to be one of Them yeah I mean I think the majority of The population at least here in the US Is price sensitive right like we have to Worry about things like that trying to Save money where we can and so I think From my humble perspective that all Seems to make sense because you're it Sounds like you're looking to back Consumer startups that might appeal to The masses right or am I no that's 100% Right yeah and I that seems to make Sense like that's what I was going to Ask you what do you think it takes in This day and age for a consumer startup To be successful well I think like let's Subtract social media out of the Equation because I I don't quite Understand social media investing so That's one area I don't I don't do very Much in at all but I think the value to

The end user has to be very clear just Like super clear what am I getting out Of this you know I led Kindred series a And for me it was like well gosh araban I have now three kids we like to say ARB And bees because they need a kitchen and Ares and these are like wildly Unaffordable and when I go it's like all Right let's go for three days you Corporate cleaning fees you're like whoa How much are we spending on this a hotel Would be so much cheaper but so much More inconvenient cuz I don't have that Kitchen and so I looked at Kindred and I'm like oh sweet I can give a night to Get a night so I can like go to New York And stay in a kindred home for a couple Hundred bucks for the week like that's Amazing I would do that all day all it Takes is someone else to stay at my House like sure have at the crib The Rocker the changing table enjoy you know Right yeah no I I hear you we've been Looking at airbnbs and I'm like Horrified every time I I see the final Numbers there I'm like this is just nuts But yeah no I can relate to that so yeah I think that sounds interesting so it Sounds like your ethos and looking at Consumer startups kind of spilled over Into your fintech Investments and you Were an early investor in green light as Well right yeah the debit card for kids Or teens so how much fintech investing

Do you do these days well I I love Fintech for many reasons one I felt very Fortunate that my mom taught me a lot About Personal finance at a very young age and I felt like that was my secret Superpower when I was in college and and Even after college and so I also like Finances for the masses ways for people To save money ways for people to build Financial literacy that's why I like This category because it's a way so on One hand we look at a lot of my cons It's like how do you have all the fun Experiences or all the things you want And more affordable price and the other Half is like well how do you generate More money so that you can go do those Things you want to do and so for fintech For me that's that's that part of the Equation so yeah so I I for me green Light made a ton of sense it's really About teaching young people financial Literacy teaching them to save teaching Them to budget teaching them about Compounding interest there's quite a bit That's in there and so that's that's Really attracted me to it also I never Carryed cash and I needed a way to bribe My niece so that was the easiest way to Send her Money yeah so that that works you know I Think fex had an interesting per of time The last two years I'm still bullish on

It but I a lot less so on like Neo Banks I think that that's okay we've been There we've done that like what's the Next generation and I'm not quite sure What it is but I do think it's probably Something about being entrepreneurial And I'm seeing some really interesting Companies that are enabling the like the Content creators probably the wrong word But people that are creating their own Businesses of one or two or maybe a Couple even brick and mortar businesses People that are starting their own shops There's some really interesting fintech Tools I think for like the small Entrepreneur like a small team Entrepreneur and Beyond savings and Beyond trading equities and generating Wealth by growing wealth I think there's Like how do you generate wealth by being Entrepreneurial selling a service or Selling a product and I think there's Some really big opportunities there and I think they'll probably follow the same Parallels that we saw like personal cons Consumer Finance when we look at like SMB like really really S capital SNB and So I'm getting really excited about some Of the stuff I'm seeing there and They're all like early seed pre-seed but I'm very excited about the next wave I'm Seeing coming that's yeah that's super Interesting to me I I know I feel like Definitely fintech has had its ups and

Downs but good to hear that you still Feel like that there's going to be a Next wave that will include a bunch of Interesting companies that's that's good News Maran I feel like there's always an Next wave yeah like like the one thing It's taught me is like there feels like There's always the next way so there Will be one the question is what is it Going to look like yeah that's true I Mean and I'm just curious how has it Been for you to watch Robin Hood evolve Over the years did you ever ever expect It would grow to this size and do all The different things that it's doing I Mean I think we always hoped it would I Mean ever since the beginning I remember They're like we're going to be the Charles sh for like our generation and So we're going to look nothing like them But like we're going to be as meaningful As impactful as disruptive because Schwab was disruptive for like I think My parents generation and like we're Going to be that for like our generation I was like yeah we need our own Institution that like reflects us and Who we are and what we want it's like so Millennial in like my late 20s early 30s um and it's incredible that it it Has turned into that I mean it's also Had its ups and its down and no Company's journey is perfect but it's Been incredible to have been alongside

Of Vlad and beu through all of it really Through all of it and I would say that They're just some of the most incredible Product and business thinkers that I've Ever spent time with well unfortunately Because I've been having so much fun Talking to you van so we are just about Out of time but I want to give our Listeners a chance to find you online How can they find you on the internet And connect with you yes actually find Me on LinkedIn I'm very active my little Bubble's always green um so shoot me a Not Okay great are you on X as well you know I am but I'm more of a lurker and I'm Very intimidated by what x has turned Into I know it's changed a lot it's Changed not quite the same and my whole Feed no my whole feed is El on musk These days like I'm okay so linkedin's The way to go if you want to talk to Vanessa awesome well thanks so much Again for joining us on the show today I've really enjoyed this conversation And to our listeners you can always find Me on X I'm still there at area writer And equity on X and threads at Equity Pod and never fear haa Becca and I will Be back on Friday with our weekly news Roundup so talk to you then [Music] Bye Equity is produced by Teresa Lo cons Solo with editing by Kell Bryce Durban

Is our illustrator and we'd like to give A big thanks to our audience development Team and Henry pit who manages Tech Crunch audio products thanks so much for Listening and we'll talk to you next Time