William Leonard
Hey everyone. Welcome back to the Atlanta Startup Podcast. My name is William Leonard, your host for today and I’m really excited to be sitting down with someone who I’ve known for some time now. Scott Lopano is joining us today. Scott is a partner at Tech Square Ventures. Scott, welcome to the podcast, man.
Scott Lopano
Hey, thanks for having me.
William Leonard
First of all, thanks for joining. Second, I want to jump right in and say congrats on the recent promotion to partner around Atlanta in the broader region, and really, throughout the country, you’re known as one of the more thoughtful minds in early-stage venture. We appreciate your presence and the value add that you’ve had to the ecosystem. I would love to just kick it off with any reflections that you may have on this journey from the early stage early in your career to now being a partner at Tech Square Ventures.
Scott Lopano
First of all, wow, thanks for that high compliment. I really appreciate that. Especially coming from you, William, who’s put your name out there, and you’ve put out there building something, this podcast being one of them, working with Valor, and advancing the Atlanta and southeast ecosystem. We share that passion and I appreciate all the work you’re doing, too. Awesome. Well, I guess as far as the journey goes, I’ll try not to take you all the way back to the beginning. But there’s a little backstory that I think is helpful, which starts with me in New York. I started my career in banking. I actually met my wife in Nashville, really random sort of funny thing couldn’t happen again just the way it happened, and so very much meant to be, but she was from Atlanta. So that started to plant a little bit of seeds for me when I was living in New York, working in New York, and we were coming back to Atlanta, here and there. I just started to understand what was going on here as an ecosystem, and to me having grown up in Texas and New York, it was sort of a flyover city for me, which was a shame, a real shame, because I discovered that there was this incredible ecosystem and infrastructure that had been built in the 90s, 2000s, and 2010s. The Fortune 500 base that was here, the talent pool, the universities, and the things that we all talked about, but that I was just not aware of, let alone the culture, which I’ve only started to scratch the surface on but it’s so rich and deep here. I fell in love with the city so when I was thinking about a career shift, I had set my sights on an early-stage venture in Atlanta. And at that time, this is 2016, frankly, there weren’t a ton of funds. This is all part of our story, by the way, is Tech Square Ventures, but just a lack of early-stage capital. Getting a role at a VC firm was few and far between. But you know, I was conveniently in Atlanta, any chance I could to be around and grab coffees, and great people like Chad Hooker at Fulcrum were willing to take coffees with me and point me in the right direction. Eventually, I was on a John Gannon blog, if anybody’s ever heard of John Gannon, who is a prolific, very humble, quiet guy, but he somehow finds every job across the country and puts it on a blog. I did a ctrl + F for Atlanta and there was one job. There were actually two, but one of them was fake. So there was one real job and it was Tech Square Ventures associate and it was just a link to Blake’s email. Reached out to Blake, and he was kind enough to have a quick conversation. I had done my homework on him and his background and just seemed like an incredible person to lead a firm. And for me that time I hitched my boat to, if you will, pursue the job, to the point where he started asking me, are you sure you want to take the leap from a nice, high-paying banking job to a startup VC firm? But I was just sold, hook, line, and sinker on Atlanta as a city, Southeast as an ecosystem, and then Tech Square in our strategy of building Engage and plugging the Southeast capital gap. I was just excited to invest and build, which I think I was able to uniquely find in this role. I joined as an associate, and then really focused most of my time and effort on investing out of our Engage fund originally,. Cut my teeth on doing a good number of transactions, working with incredible entrepreneurs from around the country, at various stages; seed stage companies, Series B stage companies, and so it just gave me this great perspective on what does the market look like? What’s a normal transaction and what’s not a normal transaction? I did a lot of the deal work myself, which was a learning curve, but a really great foundation from an investor’s standpoint. And then when 2020 rolled around, and we raised our fund two, I transitioned a bit more into direct investing out of the seed fund and doing more seed and early-stage investing leading rounds. At that point, I had been promoted to principal and so took on more of the responsibilities around building our investment strategy, and investment thesis, kind of leading our sourcing efforts, supporting our portfolio companies, sitting on more boards, observing, and things like that. And all of that was really to try to build a foundation toward performance. There’s really not a great way to get to partner without finding great companies and working with great entrepreneurs that produce some returns to the fund. I’ve had a couple of good wins under our belts, and more than anything, really glad to hear, William, what you said, which is Blake and I, and the firm, we’ve kind of set this goal of getting to a place for entrepreneurs, but hopefully, look at and say, okay that guy’s a smart investor, whatever it is a valuable investor, a good person to have on my board, I trust him. That was my number one goal before getting to partner because I really wanted to be the right person in the seed for those entrepreneurs. That’s the long version of the story but here I am today. Just another story for another time is I’m just excited to be in this seat and take the firm to to the next level.
William Leonard
I love it. I met John Gannon and it’s definitely a resource for anyone trying to get into venture and especially helping to shorten the learning curve. John Gannon has a ton of resources on his website, so check that out.
Scott Lopano
John Gannon, GoingVC, there’s certainly Kauffman fellows, but there’s a lot of these resources popping up. I wish I had some of them back when I was getting into it. Invaluable.
William Leonard
You started out by reaching out to Blake cold, had a great conversation, came on from the banking role, found early success from probably just hustling your way through, and in learning everything, promoted to principal, promoted to partner now, tell us a little bit more about Tech Square. You also mentioned something interesting called Engage as well, tell us about the two and how they’re synergized.
Scott Lopano
One thing I like to point out, I was so glad that somebody who came in early trying to help build a great firm that not only is investing in great companies but also is a good place to be. It was exciting to be able to at least have a path to say, you can start your career as an associate and become a partner. It’s not right for everybody. It’s not always that you have to stay at the same firm, but it’s good to know, especially in the Southeast as a growing ecosystem, that there are more and more examples of that. So I was happy to be a part of that and I can’t wait to be able to offer that going forward as a firm. Let me tell you more about us and the strategy. So the easy, simple way to break us down is we’re one firm with two products. So Tech Square Ventures is the overarching umbrella and then we have an early-stage fund, and we have an Engage program and fund. I’ll talk about our early-stage fund first which is our core strategy. It’s a $72 million fund. We tend to invest in really early stage everywhere from sort of pre-seed, seed, and early or small Series As. Our check sizes are somewhere between $500k and $3 million. We generally lead or co-lead rounds. But we also are happy to build syndicates, and really just want to bring sort of the most value we can to the cap table for those entrepreneurs so they can use that cap table as a weapon going forward. We’ve got a great portfolio of 20 companies already. We’re still actively investing out of that fund. Our main thing is that we’re focused on the southeast region, which we share in common. There are a couple of other funds now that are focused on this region. But at the end of the day, there are still a lot of incredible companies being built here, and generally not enough capital. So we feel like we’re positioned in the right place and we were excited to see what being aggressive early stage for the right company that kind of needs to lean into technology development or go to market early on what it can do to compete and win in big markets. That’s our goal. Our mandate is to find those really audacious founders who are tackling big markets and thinking about big disruptions. So that’s our early-stage fund. And then we also have Engage and I mentioned it’s a program and a fund. I’ll talk about the program first. Engage is really unique. It is a collaboration of 14 of the large Fortune 500s you’d think of in Atlanta, so Coca-Cola, UPS, Delta, Home Depot, Cox, Georgia Power, Georgia Pacific, Invesco, and Goldman Sachs, I’m leaving out a few, but they’re all from different industries. But all large enterprises share a lot of the same challenges, whether it’s supply chain, future of work, AI, and data science. They’ve come together in a fund as LPs, which is pretty unique, in order to collaborate on innovation areas where they can overlap and share best practices. We actually source startups that solve problems in those key areas. We’ll try to work with companies that solve big supply chain issues, solve big data science challenges. We look at startups all over the country and they’re generally seed to Series B. So it’s a broader range of companies, but really just trying to look for who’s really the winner in that category, because that’s who our enterprises want to be working with. We make a small investment and more importantly, we bring them into a program, where our sole goal is to help build these really deep relationships between our enterprise executives, and those startup founders and CEOs. Naturally, that leads to customer contracts and partnerships. We’re on our second fund for Engage, like I said, 14 corporate now, we actually have two more that we work with. So it’s kind of 16. We have about 155, signed contracts now between the startups and the corporates. We’re really just getting started, but also proud to see that our corporates are leaning in and investing in innovation.
William Leonard
I love that; one firm, two products. You mentioned something that was kind of leading into my next topic and thought. A lot of companies are building here but there’s more capital, but still not enough capital here. Scott, in today’s environment where we’ve seen this rise in the number of venture funds in play now, really even more at seed, where you and Valor play at, I think it becomes a little bit more difficult to, let’s say, differentiate the funds and the fund’s value add from the founder perspective, but also from the LP perspective as they’re looking to allocate capital. So everyone says they have this great network, but I think Engage is a great example of having a true structure and programmatic systems around this value add. So relative to Engage, I would love to just dive into what you all see as the importance of platform and programming in VC today and the flywheel that it creates around the core TSV fund.
Scott Lopano
Great question. And by the way, I think, fast forward 10 years, and hopefully, we’ve got this just incredible ecosystem where there’s even more funds, but there’s also more large company exits, and sustainable talent that’s cycling. I think we’re only at the beginning but it is an interesting inflection point. We had a big rise, and there’s a little bit of air pulled out of the bubble, and now we’re hopefully resetting to go on our way back up. But to your question about the platform, it’s something that we give credit to Blake as he founded the firm and really thought about the two things we need to focus on that kind of kept us driving in the same direction; which is the founders need access to capital, which we’re trying to address with our early stage fund, and they need access to markets. Depending on who you talk to, many of them actually prefer to have access to customers than they do the capital, right? Nondilutive, the best form of funding is revenue. We knew we could try to leverage personal networks and things like that to get connections with enterprises and customers but we were fortunate to get this opportunity to be the firm that’s sort of managing the fund and at the foundation of building Engage, which allowed us to create a much more structural and programmatic engagement model with these enterprise executives. And so just to give you a sense of numbers and by the way, this has been built over seven years, so it’s been sort of brick by brick, right? It certainly didn’t start that way. We were fortunate to get 10 corporates to buy in at the beginning. I think that gave us a huge sort of leapfrog jump to even do what we do, but then we’ve been building out products and offerings and things on a program team and a platform team that really helps our corporates innovate together. We call it cross-corporate innovation. Those would be white papers, leadership summits, we’ll bring industry experts in from Georgia Tech researchers to talk through the latest in AI and machine learning. Things where we’re providing them a lot of value, they’re actually interacting with each other. So it becomes a bit of a self-reinforcing set of activities. We’re engaging everybody from the CEOs of these corporates to their C suite to their leadership and innovation and strategy, and then into the business units. And that’s really important because we’ve found that getting an introduction at the top can only do so much, gets maybe a nice introduction, getting an introduction into the business unit is helpful, but they’ve got to find their budget, they got to find their champion. So what we’ve built is a whole platform that allows you as a startup founder to get access to the top, the inside, and all of the champions you need around the deal to try to steward you into the organization and make it happen. Because selling the enterprise is a challenge. It’s really a challenge. That’s what we’ve built. What’s great is, it’s a platform that’s available to the firm. It’s one thing I want to stress. I lead the data and analytics working group for our Engage sourcing, but what that gives me is a great network, it gives me a great ability to add value to data and analytics startups. So when I meet founders who are building products in this space, I get up to speed quickly, hopefully, right? I know, a couple of executives and experts I can reach out to the due diligence and do homework. And then ideally, I’m a really valuable part of that team and board making introductions to customers, whether you’re part of our Engage fund or not. I think when it comes to LPs and when it comes to founders, what really differentiates us is that this flywheel of activity is something that the whole firm benefits from. It’s sort of self-sustaining by what we do at Engage, but our investment team gets to benefit from the diligence the sourcing and the value add. So if nothing else, if you’re a founder, if you remember anything else, it’s access to capital, access to customers. That’s what we’re trying to build a repeatable ability to do that.
William Leonard
I think across the industry, as a whole, we’re starting to see more firms adopt a platform approach to creating value add for their companies in a world where a lot of interest firms are the same. They’ve got a fund, they’ve got partners, they’ve got connections, but what else can you bring to the table besides capital that’s more expensive than it’s ever been? And you and I talk about this often, what do you bring to a founder of an early-stage company besides capital? I think capital is such a table-stakes aspect of company growth today. It’s important, yes. But there are all types of capital. I want you to maybe talk a little bit more about how you think about bringing value to founders outside of the capital and how VC as a whole can do a better job of this in today’s environment.
Scott Lopano
Maybe I’ll take two sort of contrarian points here, too. One, although we are really glad that we’ve gone this route in the strategy of building this into a platform, it’s hard. And not to say that, like, it’s some sort of, we’re looking for any kind of pity, we’re not. But there’s a good reason why a lot of firms didn’t or don’t necessarily build that platform with additional effort, it would be a lot easier, I guess, to just do the core work of investing, right? But to build the platform is something we had to be intentional about building infrastructure took a lot of luck, of course, along the way. We feel like this is part of what we’ve been called to do from the beginning, which is to support these entrepreneurs in that way. But my point is, if you’re going to build one, make it valuable and differentiated or unique, I guess. If there’s any investors listening, and they’re thinking about a firm and starting something like that, I know, for you all Startup Runway, the things that you all do outside of just regular way investing, have really built your firm. Just want to put that out there, a platform is not hard, but I do think it’s worth it if you find a unique way to add value. And the second thing I’d say is, there’s also that point about capital and capital being expensive. It is expensive, but we’re also in an interesting environment where I think we’re all facing, certainly from an investor’s standpoint, and an early-stage investor, and a market where exits are not happening as frequently as they were before. A company’s ability to get from a pre-seed to a seed to seed to an A is harder than it’s ever been. Some of the things that I fall back on is making sure that we can drive returns. I mean, we want to build a firm where we’re around for 10, 20, 30 years, that’s how you’re going to make a sustainable and meaningful impact on an ecosystem like the Southeast. We look at the platform as enabling us to compete and win some of the companies and the deals that we think we can add value in that could be great, high-performing companies, but then also kind of change the numbers and probabilities of those companies getting from seed to A, seed to B. We like to think that we’re really good at getting companies to $5 million in revenue. And ideally, that’s not just strategy, but it’s actually some of your customers in some of that revenue. Anyway, it’s also just brass tacks on as firms need to find ways to generate returns. That’s driving a lot of this as well so that we can keep raising capital and keep deploying in the Southeast. Back to your question, though, about differentiating with founders, I think it really is back to those two bits of focus, which are somewhat unique separately, but it’s kind of combining the two together, that makes us usually the right fit for the right companies. For the 20 portfolio companies we have in our Tech Square Fund Two, they’ve generally, sort of valued this focus on the southeast, everything from being able to build teams, talent, focus, network, and understanding what it means to build a company here versus a company in San Francisco, which there are just strategies and styles that are different. And then two is, that access to customers and that industry expertise. Sometimes it’s not even just access, one of the things we found from Engage that’s been really valuable is it’s the feedback. A lot of companies maybe shouldn’t sell to the enterprise or maybe they’re a horizontal software company, and they thought about going to market and fintech or financials, and they talk to a Goldman and they go, oh, my gosh, regulation, this is with our product and in your space, that is not what we want to do. And so let’s pivot to manufacturing and supply chain or some other vertical to sell my software into. Sometimes it’s also just getting to a no fast and getting some context beyond the no, because that’s usually when you’re in hyper iteration mode and you’re running experiments as a startup founder trying to find product market fit, knowing why it’s a no is really valuable. We’re trying to deliver all of that seed stage to get you again, that path to $5 million in revenue.
William Leonard
That definitely makes a lot of sense, man. I think value has to be so thoughtful and articulate today in the world of 50/100 different venture funds now that are here in the region, battling for the same deals. Scott, you and I sat down a few months ago, and we were just talking about the current state of the market, right? I think as an investor, seed, and early-stage investor today, it’s more fun, but more challenging than ever to keep up with the dynamics that pre-seed, seed, and Series A, so I’m curious to hear just how you’re thinking about seed and early-stage investing today. And then kind of taking that a step further with insights for founders around raising capital today in this environment.
Scott Lopano
I want to come back real quick to the competitiveness. I think it’s a really interesting time. I’ve been reflecting on this while talking with you and others, we probably have three to four times the number of funds in the Atlanta area. Certainly, I think that probably holds true if you think about the full Southeast than we did in 2016. When you talk to founders, it’s still hard to raise capital and so then some of these pieces don’t line up, we talked to investors, and they’re trying to make sure their funds perform, so they get the raise the next fund. But what I think is really encouraging is that, as I’ve looked around, I’ve also just seen a really diverse set of investment theses and focuses, which is so valuable. I mean, when I think before it was sort of B2B SaaS, and whoever can, and that is nothing wrong with B2B SaaS, of course, but it created a much more concentration of capital. Whereas today, we have clean tech funds, we have consumer funds, we’ve got hardware cleantech accelerators, things that are happening around this city that was not capital that was available for, you had to go Western to New York to get that capital. I think that’s really valuable. I just want to clarify, that even though there may be 50 funds relative to what it was, we also have a much more diverse set of focus areas and maybe this leads me to my one main piece of advice. I’ll just jump right to the end of your question, which was how do founders navigate this market. It is a tougher market than it was two or three years ago. No doubt. We’re feeling that on the investor side, certainly, our founders in our portfolio are seeing it but deals are getting done. If you look at the amount of capital and the trend, it still matches the amount of investment activity in 2016/2017, which was still a pretty rosy time. I can say anecdotally, and from some of the data that there are still companies that are pricing, pretty aggressive rounds. It’s fewer of them but if you can find a way to sort of differentiate yourself and be what seems like a category-creating company, you can still raise capital in aggressive terms whether you want to or not, by the way. Don’t always endorse that but it is out there. What I’ve found is that it’s really a matter of just finding the right partner. I think what you’re seeing from funds is not that they’re not putting capital to work because they raise the capital. It’s generally a dry powder, but they’re focusing on their sweet spot, which is maybe a bit more discipline than they had before. For us, if you sell to an enterprise, like I want to talk to you. We can probably help. We can certainly do the homework. It doesn’t mean it’s always the right deal but that’s right in our wheelhouse, right? Whereas, if you are, like I said before, if you’re doing a consumer mobile application, you probably want to talk to a different firm. My simple advice, and it’s been this way, since 2017, is to scan the universe but focus your time and effort on those funds that are uniquely fit to your business. It’s like a Venn diagram, if you will, with the overlap between funds that are uniquely a fit for your business, and where you can get a warm introduction, or have relationships or some way to validate yourself as a trustworthy founder. People don’t usually put that on their website, but it’s always something that they’re looking for. My advice would be to stay away from the 7000 emails to every venture firm and send 70 to the firms that invest exactly in your space.
William Leonard
Scott, I think to that point as well, for founders listening, thinking about fundraising right now or actively fundraising in this market, with the advancement of AI and the speed at which we’re seeing new products and new features come to market, whether it’s OpenAI or Llama, I think it’s quite easy to fall into the trap of being obsessed with solutions and not problems. I see a lot of companies today, building technology in search of a problem, versus building a technology to solve a problem. I think the founders that we’re seeing get funded, whether we’re doing the deal, or Tech Square, or somebody on the West Coast or New York, it’s people that deeply care about the problem. It’s likely that they’re solving this with some type of foundational AI, application layer AI, whatever it is, but I think that the core thread across the companies that are getting funded today is that these are founders obsessed with the problem. The problem is real, other people have the problem, and these founders are aiming to build category-defining companies based on a problem that they’re looking to solve, not bringing an application AI layer solution to a problem. You’re bringing the problem to AI or to whatever solution or means of technology, how you want to solve it.
Scott Lopano
I’m so glad you brought this up. Of course, we couldn’t do a discussion without talking about AI. But there are a couple of things that I’m excited about right now. And so what I’d say is anybody listening to this reach out to me, because I’m looking for debate over these topics because I think so much of the talk track is just the latest AI and then picks and shovels. I think it’s pretty common knowledge, look for the picks and shovels that enable AI. That said, I think a lot of that is accruing to the first movers in the major players, both Microsoft, Nvidia, etc. And not to say that there aren’t opportunities there but I get more excited about two things, which is one, solving the problem. As you said, William, I’m more interested in this 15-year rise of SaaS, which has led to just an insane amount of SaaS tool competition in just about every space, you can imagine. I mean, even at the tail end of 2020, the industries that were laggards became really attractive supply chain, freight tech, we sort of got into the depths of the world with SaaS. But yet, I see our customers and enterprises have a lot of big hairy challenges that aren’t being solved. I’m really excited about companies that are coming in, solving big problems, not necessarily also just problems, solving big problems with a 10x better solution, even if that means it’s not traditional B2B SaaS. Maybe that’s some services, maybe that’s some hardware. That business model is not always easy to pull off but it’s absolutely possible. What I’ve seen are simple things like companies that are building and selling for $800,000 price points versus $8,000 price points. You just wonder, okay, how big is the problem and how 10x differentiated is the solution, and even if that means it’s not a quick credit card sign-up from the website SaaS tool, that’s kind of already been played out. And again, it’s contrarian, but I’d love to debate. The second thing is more AI-specific, which is thinking about how to use AI just to be more efficient. I see two other big themes that are happening, which is one, inflation is on the rise. I would say the cost of living and the cost of salaries has not necessarily dropped, it’s still a competitive market. The number one largest cost for a startup is your talent. I’ve not seen it be any easier to get to the milestones of $ 1 to 2 million in ARR because the milestones have moved back, by the way, no series A funds want you to get further. You have to do it with a more expensive talent pool, you have to raise more capital to get further. It’s a really tough place to be for our seed-stage companies. A traditional seed round when I joined was $2 million, that was like a good, big seed round. Now they’re $3 to 4 million, and you’re maybe getting 18 months of capital that way. So what I think is really exciting is actually using AI operationally. I think that might be obvious but I’m seeing people dip their toes and start to use it in ways that are generating 30, 40, or 50% efficiencies for themselves. And with the pace of AI, I don’t know if it’s exactly that much of a return on investment right now, but it feels like it will be very soon. And so just as founders and CTOs, especially your VPs of Engineering, think about how you build your engineering team, and how you do your design. I just saw Canva launch all their tools. It’s incredible. Thinking about do I spend $40/50k on marketing? Or do I kind of whip this thing out myself? Those tactical decisions might mean, I can actually take only $2 or 3 million and get all the way to series A on it. That’s game-changing for the founder, less dilution, less equity given away, and everybody’s more aligned.
William Leonard
I think that’s such a good point, man. I think as AI continues to become more reliable in the enterprise and startup setting, we’re going to see companies typically when you’re raising a Series A, you make a lot of hires after you close and you make kind of layered tiered hires, at different levels. But I think we’re going to see people begin to implement more AI to supplement the existing hires on the team that had been there from pre-seed, seed, maybe a seed to Series A. You’re adding more AI instead of more people and more bodies to the team. I think that’ll be something to watch out for as this technology continues to get better.
Scott Lopano
And by the way, if you as the startup aren’t ready to use AI operationally, but you’re selling an AI tool to enterprises, hoping that they’ll use AI operationally, that’s unlikely, right? I mean, and don’t get me wrong, our enterprises are really leaning in on AI, but they still have just so much more regulation and potential downside and risk mitigation, and hierarchies and structures. I just feel like, as the startup, it’s almost a little bit of eat-your-own dog food, like if you’re building an AI product, selling AI-enabled software, but you’re not yet using it internally, it’s kind of a bit of a dissonance. I think it gives you an advantage if you can speak to how you’re using it. Curious to see any startups that are thinking about it that way aggressively.
William Leonard
It’s so fun just talking with so many different founders who are building incredible solutions. I think one of the things that we’re constantly looking for is, especially in AI these days, right? I think every pitch that you and I and probably many VCs listening, are seeing have the word AI in the pitch or somewhere in the product deck or whatever it may be. But I think, articulating how your product is transformationally better versus incrementally better when it comes to being an AI software isn’t pivotal. How many tools have we seen better AI that do the same thing? I think it almost creates a race to the bottom because you have to lower costs and then compete on cost. It becomes hard to scale a $ 1,000-a-year contract because you’re trying to get the lowest cost and the highest volume of customers.
Scott Lopano
As investors, when you think about ultimately the returns for us and returns for the entrepreneur comment really significant scale to the point where your $500 million company, a billion dollar company that user requires going from tool to product to platform, however, you want to talk about that transition. You’re seeing now, Microsoft is launching an AI-enabled computer. So basically, every workflow you would have done on a laptop is now native to a Microsoft laptop. So if you are an AI tool, trying to create streamlined efficiency in a certain use case, that opportunity might be a race to the bottom. It’s not to say your product isn’t better, it’s more tailored, maybe a bit more capable, 99% accurate versus 96% accurate, but you’re now competing with a very legitimate alternative, as opposed to being the one player in the market. I think the common thing that I worry about right is for a while there, it was a little bit of, well, why doesn’t Google do this? And then you think about that answer, no, they probably won’t, right? They’re looking past it, maybe they don’t have the resources, Google’s getting to be their own massive organization, and may be suffering from an innovators’ dilemma. Then you see the kind of partnerships they’ve struck, and I just don’t think they’re behind on this AI platform shift the way they might have been on other technologies, where they’re just, hey, go build it, and we’ll require you. They’re on the bleeding edge. I go back to, let’s look for big problems that can be solved and maybe by the way, what’s different now is that AI is enabling you to solve it a lot more efficiently. It’s an area that no one has tried to figure out yet back maybe the way to solve it wasn’t traditional SaaS, but it was services or hardware or something that people stayed away from. And now all sudden with AI, you can automate that away, and you can take a 50% margin business and make an 80% margin business. Those are very interesting, I think, because whatever, ChatGPT launches next, doesn’t disrupt you, it actually helps you.
William Leonard
I think that’s interesting, Scott. We’ve seen so many companies that force us to think about the business model within AI, that’s going to win. VCs love SaaS, and we love high-margin software, but with AI, early on, it’s very difficult to deploy and wrap a SaaS model on top of an AI product, without there being some sort of services, white glove attachment to that business model. I think we’re starting to see that there’s going to have to be some aspect of services, whether it’s 80/20 or 90/10, that’s kind of wrapped up and embedded within this new business model shift of AI. Are you all seeing something similar?
Scott Lopano
I think so. I’m sort of feeling it out in real-time. I also think it’s two things. Again, I go back to a lot of the low-hanging fruit problems that have been solved, because we’ve just had a 15-year run of low rates, a record amount of venture capital, and a record amount of startups and founders, all building companies. There’s no original idea, it’s all about the execution. Well, now, there’s a lot of execution on a lot of ideas. I feel like the low-hanging fruit has been tackled. I’ll give you an example–one of the ones we’re excited about. I’m biased, but it’s a company in our portfolio, Slip Robotics, which is an autonomous robot, a really simple, elegant platform, basically with four wheels, that’s fully modularized. It’s autonomous, so that you can load it with whatever you have at a distribution center in a warehouse, and the three of them, basically load the back of a tractor trailer. You take the loading time of a tractor-trailer from 45 minutes down to 5, and for somebody like UPS and others that are spending billions on this challenge saving that much time, that’s a sort of a 10x efficiency, is worth it. But again, that goes back to autonomy needed to be there, AI needs to be there, manufacturing needs to be there, there’s a couple pieces of timing that needed to work out, and we’re still working it out. But it was kind of a hairy problem that people tried to solve with big robotic arms that you’d have to spend $2 million bucks and it was shove all the boxes in the back of the truck. Or they would try to solve it with good software, let me make your WMS that much more efficient to make sure the boxes are in the right place. I think founders that are looking at an elegant mix of either robotics or hardware or services or something that really solves the problem and it wraps a full solution around what’s largely software-driven, have a real opportunity right now in an enterprise because those customers are looking for a “press button, fix the problem”. They’re not necessarily looking to give my employees another seat license SaaS tool to make them a little bit better and then they have to go solve the problem. That’s kind of already been saturated.
William Leonard
100%. Scott, this has been a really informative and intuitive dialogue that we’ve had today, man. I’m glad that we were able to learn a little bit more about your story and Journey to VC from associate to now partner so congrats on that and just hearing about the current state of venture today, things about value add, platforming, programming, all of those things, really informative conversation. Scott, I really appreciate you joining me.
Scott Lopano
Thank you, William. Thanks for letting me drone on about things I think are interesting shifts that are happening in the market, and genuinely would love anybody listening to reach out and debate these topics because I do think that is where the most opportunity will be, as the founder or the investor, is to build transformational companies by taking a bit of a different perspective on things. I feel if I could just tie it back to the southeast for a minute, what I get most excited about, we actually as a region can take advantage of what our strengths are, which are large enterprises with big hairy, hard-to-solve problems, great AI, talent that is generally with Georgia Tech and other top universities sort of at the same level, if not a little bit behind, but not as far behind where Silicon Valley might be, and better more capital than we’ve ever had before. My hope is, we look back and say this platform shift was one where the SE really won and it put us on a whole different playing field in terms of building great businesses that are big and sustainable in our backyard.
William Leonard
I love it. Scott, thanks for joining me today. We’ll keep the conversation going.
Scott Lopano
Awesome. Thanks, William.
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