Episode 34: Demi Obayomi, Vice President, Sapphire Ventures

Demi talks about growing up in Nigeria, falling in love with SaaS, the impact of Covid on founders & investors, and what it's like raising capital in 2022.

Demi Obayomi is a technology investor with experience in venture capital, investment banking, and entrepreneurship. He's currently the vice president at Sapphire Ventures and we're really excited to share his story on the CoSell show.


Topics discussed:

    • Demi's journey from growing up in Nigeria, far away from everything technology-related, to falling in love with SaaS and what brought him to Sapphire.
    • What investors are looking for in start-up founders.
    • The effect of current market conditions on start-ups and investors, and what it's going to be like raising capital in 2022.
    • Apart from the investment, the role that Sapphire plays in helping scale its portfolio companies.
    • The rule of 40 and other metrics that VCs follow, pre & post-investment.
    • The product roadmap and why start-up founders need to focus on this from the early stages itself.

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Follow along with the podcast transcript 


Pete Ryan: Hi, everyone. Thanks for joining the CoSell show. I have a friend with me Demi Obayomi, who is over at Sapphire Ventures. He's a great guy and I’m super pleased to have him on the show. How are you doing Demi?

Demi Obayomi: Doing well, Pete, thanks for having me today. Excited to be here on the Cosell show, great seeing you in Austin last week, and glad we get to do this week and just chat a bit more about what's going on in SaaS and share a bit more about the things that I'm seeing as well. And just generally, share some of the things that we're both doing with the rest of the world.

Pete Ryan: Awesome. Yeah, let's jump into it. You know, my first question is, what led you into SaaS and what brought you to Sapphire?

Demi Obayomi: Just kind of background-wise to give people context. So I grew up in Nigeria which is thousands of miles away from here. I don't even know how many, but I’ll be headed back there this Friday. So kind of grew up away from everything Silicon Valley, everything technology-related.

When I went to college, I wanted to be a mechanical engineer, that's what I studied. And then along the way, I ended up meeting a friend and we started a company together in college. And then at some point, we needed to raise capital for that company. And so we ended up going out to Philly to pitch this group called the Dorm Room Fund. And that was my first experience with venture capital. It opened up my eyes because this was a group of students who had gotten capital from a venture firm and they were able to deploy this capital into other companies, started by other students. And you know, that stuck with me. And I decided I wanted to do something like that during my time in college. And so when I got to my senior year of college, I decided to start a similar kind of organization at my university, Johns Hopkins. And we started this organization called A-Level capital and the goal of A-Level capital was to invest in students and alumni, and faculty from the Johns Hopkins ecosystem. And it was through that experience, we needed to raise capital for this fund that we had started. And so I came out, I flew out to the Bay Area for the first time. So during spring break of my senior year, I flew out to the Bay Area, I was staying at these things called hacker hostels back then. I don't know if they're still around, but you were kind of like in a dorm with a bunch of random people that are working on different projects. I got to meet a bunch of alumni and other people in the ecosystem to raise money for this fund. And people were just so incredibly helpful. Like if you told people you were raising money, I mean, they would just, make introductions for you, right. Even if they had just met you, everyone was just so incredibly helpful. That was just how the ecosystem was. And that stuck with me. And I knew that I had to come back to the Bay Area, eventually. After college, I ended up starting my career at Goldman Sachs working in investment banking and I was working with industrial companies. So, you know, aircraft manufacturers, big industrial conglomerates. And I enjoyed that experience. Learned a lot of technical skills and business skills, but ultimately, I remember that experience that I had, visiting the Bay Area, being immersed in tech, and wanted to have that be a part of my career.

So I ended up getting an opportunity to work at a firm in New York called FirstMark Capital. And that was my technology 101, VC 101 experience. I was primarily focused on early-stage investing. I got to invest in a bunch of different categories, including SaaS. I invested in a company called JustWorks, which is due to go public once the public markets are open again.

Pete Ryan: Oh, Congrats.

Demi Obayomi: Yeah. Thank you so much. Really. That was a really exciting one. And that was very impactful for my career because although I was an early-stage investor, this was a growth-stage investment. And so, you know, I got to see a business that was at tens of millions of ARR and JustWorks helps other businesses with things like compliance and payroll and healthcare, and it just really fascinated me because I was like, wow, there's this one business that's having such a huge impact on all these small businesses. Like you could go on the website, click a couple of buttons, and pay 10, 20, or 30 bucks a month. And suddenly everything from compliance, payroll, and taxes is all taken care of by this SaaS company. And so that really stuck with me, and I was like, I want to be part of more businesses like this that can just empower all of their customers to do things that would otherwise have been too hard for them to do by themselves.

And that's kind of how I fell in love with SaaS. And I decided I wanted to come to the Bay Area four years or so after my first experience visiting the Bay Area. And so I came back to the Bay Area and joined another venture firm called NextWorld Capital. And there I was primarily focused on SaaS there and got to invest in a bunch of companies. Ultimately in 2021, Sapphire came knocking and I thought it was a fantastic opportunity to join a very large firm, managing billions of dollars and that had invested in a ton of great companies. Last year we had companies like Monday.com and Braze and TransferWise all go public. And there are tons of other great private companies in our portfolio including several I'm involved with like 6sense, Captivate IQ, Yellow.ai, FloQast, and others. So, you know, I really just fell into it following my interest in VC, following my interest in SaaS, and then ultimately getting the opportunity to join Sapphire in 2021. And it's been a great ride so far at Sapphire where I spend a lot of my time focusing on go-to-market technologies, which is how we met given what you're working on in the sales and partnership space. And then O also spend a lot of my time in the future of work category where we invested in companies like Paradox and Gem last year, and then more broadly I look at everything in application software, as well as vertical software as well.

Pete Ryan: Awesome. Yeah. And just taking it from the top, so you grew up in Nigeria and, as a country, it's doubled in size, right, in our lifetimes. The tech scene also has gone up there.

Demi Obayomi: It is, it’s booming. I mean, it's crazy. So YC just released some stats about their batch? And I think about 50% of the YC batch is international. And then of that 50%, India is the most represented country with about 32 start-ups, Nigeria is second with about18 companies. So when you think international, Nigeria is like second to India. India’s like a billion people plus right. And Nigeria is about 200 million or so people. So yeah, when you look at international, just looking at the YC batch, Nigeria is like the second-largest market. So its scene is blowing up and there are lots of successes, right, that has happened in the past. So FlutterWave is probably the biggest success. There are companies like Andela and Jumia that came before that. And now founders are just taking the bull by the horn right. They've had these experiences at these other companies and there are tons of new problems for them to work on. And they're taking advantage of that and solving local problems too through technology. So it's been exciting to watch.

Pete Ryan: Yeah, absolutely. It's very cool. You know, in Texas too, I think, in Houston too, has a big Nigerian population.

Demi Obayomi: Absolutely. Yeah. Nigeria’s a big oil-producing country. So there are a lot of folks in Houston, Dallas where a lot of the oil majors are headquartered.

Pete Ryan: Oh, got it. Okay, cool. And so, at Sapphire, at what stage do you normally invest? Yeah, and it has that changed, right, you know, given the current market conditions.

Demi Obayomi: Yeah, I'd say historically Sapphire was very much a growth and late-stage investor. But over time, the firm has continued to invest earlier and earlier. And, you know, we've invested in some companies as early as, Series A, and we'll invest as late as, a pre-IPO round as well. And generally what we're looking for is just, you know, some signs of product market fit. As well as signs of a working go-to-market engine as well. And, you know, sometimes for some companies you can see those signs of product market fit based on conversations with customers and based on analyzing the business and the market, you can, sometimes see that as early as $1 million in ARR and for some other companies, maybe it's $5 million ARR, and for others, it's a little bit later.

So we’re a multi-stage firm when we have that capacity to invest as early as Series A or in the later stages, like series B, C, D. And beyond. So that's one of the reasons that attracted me to Sapphire, which is the flexibility to invest in multiple stages. Because again, sometimes things might not work out when you initially look at the business for various reasons, but then it's good to have that, the opportunity to partner with the business, partner with the entrepreneur, at a later stage as well.

Pete Ryan: Yeah, a question I have too, like with the current market conditions, right, if you're raising a seed or series A, do you know, do you feel like, you know, we're going to be impacted if we take it to in the next, you know, 12 months. What's your best guess on that?

Demi Obayomi: Yeah, it's a good question. I think at Seed and Series A there's always a ton of market activity. And interestingly, I think in every single recession, you're going to have a lot of early-stage investors, you know, put out the bat signal that we're open for business, we want people to start companies and I can't remember all the stats, but I remember like during the buy-out the financial crisis was a bit of a Renaissance for new companies being started because people were laid off or they just saw that there was a lot of issues with the economy and they wanted to build solutions for that. And so I actually, think that in times of crisis, you get to see a lot of new company formation because people are forced to look at things differently.

And that means seed investors and Series A investors are going to continue to be active in those times. And I think if you're going out to raise, I think there is going to be more scrutiny because of the broader market conditions. But then investors are still going to be active they are still going to be open for business because there are lots of interesting ideas that are started at that particular point in time and they want to fund businesses that are taking advantage of the shifts in the economy or shifts in the market or shifts in population or whatever the case might be. So overall you might see, maybe fewer deals occurring because again, there's just a bit more scrutiny, but then, you know, the dollars may be flat or even a little bit higher just because people are still deploying capital

People have a lot of capital because they've raised more than ever in the past. And they're still open for business and actively investing. In venture, we believe that great businesses can start at any point in time. And so, it's rare that people will completely shut their doors and not invest at a point in time or period in the market.

Pete Ryan: Yeah. What you're explaining is kind of the inverse of what I think most founders think, right. It's like, we're about to take a dip, you know raising is going to be that much harder. But I guess, in the last year or two, a lot of capital has already been deployed to VCs. So now it's like, you have to invest. Right.

Demi Obayomi: Exactly. And I sometimes explain it by saying that the way to think about it is that 2021 was a bit of an anomaly, right? Like that was a year where maybe it was too easy to raise capital. Which is not how things normally operate.

You know, in 2022 and going forward, we're back to maybe a more normal cadence. We're back to a normalized market because people realize that the public markets are not always up and to the right. And so we have to be more thoughtful, more careful as we deploy capital and make sure that we're putting money behind companies that have legs.

I think for founders too, there's going to be a refocus on the fundamentals of building their businesses to ensure that these are healthy businesses that can go into, a more challenging market relative to 2021 but what I would say is it’s normal compared to prior years and build solid businesses that can again last the test of time.

Pete Ryan: Yup. And so, how involved is Sapphire in helping your portfolio companies scale? Like, their scale, their hiring, their sales, their marketing, etc.

Demi Obayomi: Yeah. Sapphire is very actively involved. We believe that any venture firm needs to bring a mix of things to the companies that they work with. First of all, of course, it's the capital that you're investing into the company to invest in their team and their business and so on. There's also the experience of the investors that they're working with at Sapphire that comes to bear as well. So, we've invested in hundreds of companies over the past decade or two, and there's a ton of things that we've seen that we can help founders see around the corner as they're building their business. And then, the third piece, we’re not passive, we're not investors that just invest money, and then we don't talk to you until the IPO. Like, we're definitely there. We want to be the first call for the founders. We want to share our experience, whenever it is helpful for the founders as well, we're not going to be in the way of the founder. We're not going to be running the business for them. But then whenever they need our help, whenever they want a sounding board, we're there to provide that.

So you're going to get the time and attention of the investors on the team. And then we also have another team internally that we call our portfolio growth team, and that's a team that does two main things. One is on the talent side. We've got a couple of people on the talent team and they're working with every single founder on the portfolio, helping them to find the best board members, the best C-level execs, VPs, Directors, whatever the case might be. There are companies that we work with that we've placed probably about a dozen or so execs into those companies. There are companies like Livongo, where we placed multiple C-level execs  

They are extremely active and work with every single founder to find the best talent for them. And we're well-placed to do that because we've been around for, you know, over a decade, we've worked with tons of executives over that period. And a lot of times those executives are looking for their next thing, and we can help point them in the right direction, by introducing them to companies that we've taken a bet on and are invested into. So one is on the talent side. And then the second thing is on the business development side. So we have a separate team that is constantly talking to corporates and building out a network of CIOs and other C-Level execs at fortune 500 companies. So that when there's an opportunity, when there's a fit between what one of our companies is working on and what one of these corporates is looking for, they can broker that introduction, between the company. In my time at Sapphire, which is a little bit over a year, I've had the chance to present to companies like Aramark, and present to multiple executives at Johnson and Johnson. I've had the chance to present to execs at Square. And that's just a small portion of the network the business development team has built over time. And so we're active, we're constantly brokering introductions between that CIO executive network and our portfolio companies where there's a fit between what both are they looking for. And you know, I always joke that one of the reasons we do that, is you get tired of selling to all the other unicorns, right? And now you want to sell to people with real money. You want to sell it to like the Fortune 500, the largest companies in the world and, and, you know, we're able to help bridge that gap for our portfolio companies.

Pete Ryan: Awesome. Yeah. I was going to call with our investor, Tim Connors yesterday, and he kind of came up with this idea of, you know, why don't we create a list of the top 10, most helpful VCs. Right. And. And so, we got to get Sapphire plugged into Cosell. That's my shameless plug for the podcast. But yeah, because you guys are doing this somewhat offline, so if we can help you guys.

Demi Obayomi: Absolutely. I will tell you that companies, some companies in their board decks they'll have a list of which VCs on their cap table has been most helpful. So maybe, Cosell becomes a way for people to track that and just make it plug and play and output it to a boardslide and ended up creating some healthy competition on the cap table.

Pete Ryan: That's exactly right. Yeah, there are some VCs that are more helpful than others just inherently. Yeah, let's surface the ones that are helpful to the top

And then,  are there certain metrics that you guys kind of, I guess with B2B SaaS, that you are closely following. You know, pre and post-investment.

Demi Obayomi: Yeah, I think, a lot of it is the classic metrics. So definitely very much focused on growth because this is, you know, in, in early-stage, growth-stage it's all about what's the top-line growth of the business, but there's, of course, a balance to that. And so, we spend a lot of our time also looking at just the margins of the business. What's the gross profit margin. What's the operating margin as well. And there is this metric, the rule of 40 that you see on a lot of charts and it's one of the metrics, that correlates to trading at high multiples in the public markets.

And it's the sum of our growth and the operating margin. And so that's one that we also track as well because, in the growth stage, a lot of companies are super high growth, but then they're also burning a lot. So you want to just make sure that there is some kind of balance between growth and burn. And the rule of 40 is a very quick way to assess whether things are in line or whether things are maybe a little out of whack. Sales efficiency metrics are super important. We want to make sure that the sales engine is operating efficiently. And so we're tracking the magic number, CAC ratio, as well as payback. Sales productivity is also a big one. We want to make sure that every single sales rep is knocking out their numbers and things are not weighted towards a few. So we spend a lot of time thinking about quota attainment, how many sales reps are ramped and how do ramped reps perform, and so on. Retention is very key. That's the logo retention, brush retention, and net retention. So these are all very important metrics and I'll throw one in there because as growth investors, you know, you typically invest at a point where you know, valuations are relatively high and we need to ensure that there is a big enough market for this business to expand into and grow into that valuation and ultimately exceed it and make it into the public markets.

So TAM is a big one that we track before investing but also after investing as the company, launches new products, launches into markets, and so on to make sure that, they're actively growing that TAM and giving themselves the opportunity to build as big a business as possible before going public.

Pete Ryan: Yeah. It seems like every start-up, eventually wants to be the platform, right. The single source of truth for X.

Do you find, it's often hard to see, you know, this start-up is solving this very narrow problem, super well. So like, where does this go from here? Is there a lot of analysis that goes into that? And if so, how do you guys evaluate that?

Demi Obayomi: When we talk to founders there's always a part of the conversation that's about the product roadmap. It’s something that I think founders definitely should be thinking about early on and there are some businesses that, end up being multi-product kind of early in their journey. But that's the minority of companies. So we spend a lot of time with founders looking at the product roadmap, thinking about how does this new product fit with the existing suite, is this something that they cannot sell easily alongside the existing suite, is it complimentary? And then does this ultimately to what extent does this expand the market for this particular business so that they have another driver that can continue to turbocharge their growth going forward.

So it's hard to assess definitively before investing, you're just sense checking whether this is reasonable and how does this align with other things that we're seeing in the market. And is this something that we can believe in and make a risk-adjusted investment based on? So it is critical to have that thought on what the next act is, but it doesn't necessarily need to have to be there by the time we invest, but it does have to be credible and be something that we can actively make an investment behind.

And I think that's something that founders should be thinking of as early as possible in their journey so that they can test different ideas and iterate towards what is going to be the highest likelihood second product for their business to continue to build upon.

Pete Ryan: Yeah. Does the strategy map match the TAM right?

So that kind of leads me to my next question, which is very general, what are some of like biggest mistakes founders make during the life cycle of a company?

Demi Obayomi: Honestly, the last thing we talked about is probably the first that I'll mention here - not thinking about a second product, not thinking about the broader market opportunity early enough, because what can happen is that you can, you can top out in your existing market. And if you don't have that second product revenue engine, then that can flatten your growth. Or at least you are growing relatively slower compared to what you could have been growing at. So I think thinking multi-product as early as possible is something that every founder should be doing and thinking about because your initial product may be a big market and so on, but then, things are going to slow down at some point when, when that product gets saturated when the market gets saturated when the business gets big enough, and so on. There are some companies out there that have a second product early on in their life cycle. And we get so excited about those businesses because it's just so rare for an early growth stage company to have a second product. And that does open up the TAM for the business.

So I think thinking about that, you know, as early, in the lifecycle, you don't have to launch it by series B or C, but you know, really having a couple of balls in the air that you're evaluating to launch that second part I think, is critical. And it's something that, again, the public markets, as well as your private investors will also appreciate. So that's the first one I would say is something founders should always keep at the back of their minds.

And then I think the second thing is. We see this all the time, where founders may be holding on to certain roles or responsibilities for too long in their journey. And, you know, from our perspective, the founder is the visionary. They're the leader. They can inspire and drive the team in a way that no one else can, but they can't, they can't do that if they're bogged down with certain responsibilities or certain roles that they could be delegating to someone who is much better than them.

So I would advise founders to think about who not how, like, who can you get in place To take on this particular role or responsibility so that you're freed up to do something else. And it's not because they are doing a bad job. Oftentimes they are very competent at doing that thing because the founder just has so much energy. They have passion for the market and they'll make it work somehow. But the thing is, that's not what they are exceptional at right? And this applies to everyone, not just founders. A lot of people operate in what is called their zone of competence. You're good at that thing. And you can deliver it, but then that takes away the time that you could be using to operate in your zone of genius and do the things that you're best at that only you can do.

And when you think about the founder and just how much influence they have on the company, I think this is super critical because everything the founder does is high leverage, trickles down to the rest of the business, and if the founder, doesn't have that chance to be the visionary and the leader and to continue to encourage and build up the team, then that can really retard the growth of the business. Look, every business is going to be in a different state. Sometimes maybe you can't find the right person or whatever the case might be. So there are just the realities of the market, but as much as possible, delegating away to people that are just as competent or better than you at doing those particular things. And then you focus on things that only the founder, there are only one or two or three founders usually. Those founders are in a special position. There are things they can do that no one else can do. And so delegating other things to free you up to do those things that only someone with the founder status can do, I think is super important as well.

And then I think a final point, and this doesn't happen all the time, but in some cases, encouraging founders to just think bigger? Sometimes you are in a conversation with a founder and they might be in the heat of the market. And so maybe they feel a little bit beaten down by what's going on at that particular point in time or beaten down by the market. But, you know, as investors, I think it is our job to help founders see around the corner and also to encourage them to think bigger where we feel like there is more opportunity. Where there is more than they can achieve, right. In this particular year, in this particular 12 months of their business.

So thinking bigger, it's something that I think about from time to time, founders, are extremely ambitious, but sometimes when you're down, you kind of need that extra advice, that extra oomph from your investors or people around you. And you kind of think bigger and you go for it.

Pete Ryan: Yep. I love it.

Well, thank you, Demi. Huge fan of you and Sapphire and appreciate you sharing your insights, and join us on the CoSell show. If anyone wants to reach out to you if they have questions or they're working on the next, huge start-up, what's the best way for them to reach you.

Demi Obayomi: You can reach me on LinkedIn. I'm a LinkedIn junkie. I think I’m on it every hour of the day, so they could find me there. And then I'm also just on email all the time, so demi@sapphireventures.com

People can also easily reach me there and then on Twitter too, demi_obayomi is my handle so they can reach me there as well.

Pete Ryan: Awesome. Great. Well, thanks for everything, and have a great rest of the day.

Demi Obayomi: Thanks, Pete. This was great. I really enjoyed the CoSell podcast and I’m looking forward to being back again some time.

Pete Ryan: Likewise. Thanks, man.

Demi Obayomi: All right, cheers. Bye

Pete Ryan: Bye.





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