own your edge

 

ABOUT THE EPISODE

 

JEFF WILLIAMS

SVP, Industry Solutions & Strategy
Altvia

kjael skaalerud

KJAEL SKAALERUD

SVP, Revenue
Altvia

Listen to Episode 1: “Own Your Edge”, as I sit down with Kjael Skaalerud, SVP of Revenue at Altvia to discuss what’s top of mind among PE firms that are currently shopping for technology, and how cutting edge technology used for modern sales organizations translates perfectly to raising capital and finding investment opportunities.
 
Topics covered include:
  • Trends from the front lines of PE firms looking for technology
  • Helpful ways to frame the components of technology in PE firms
  • What the most innovative PE firms are doing with technology
  • How, despite their differences, raising capital and deploying it is actually more similar to a sales process than it may seem

MENTIONED CONTENT

Skaling Ventures

Scaling NYC

ADP

Harri

 

 

TRANSCRIPT

Jeff Williams

Hello everyone. It’s Jeff Williams for Preferred Return. And this week we’re going to get started off here with our very own. A revenue leader, Kjael Skaalerud, who has just recently joined us and who has tremendous insights, not only into what people in the market are talking about, what they’re up to with technology. But has some amazing experience as well, that I think translates very well to what people are trying to do in this market with technology. So let’s get started.

So, I do want to have you provide a little bit of background, you’re new to the company. Just joined us in June, maybe July, and have some background, obviously in this market. Tell us a little bit about yourself. Where have you been in your career? What brought you here? And tell us something about what you enjoy about music. A magical moment, you’ve had, favorite song, favorite artists.

Kjael Skaalerud

Yes. So I’ve been in tech, for 10 years now, and always in a sales and marketing function. Often referred to as Go-To-Market nowadays or revenue and gosh, most of my career was spent in New York city and I was working for ADP, which was a big OG enterprise tech company.

I think they slowly started to embrace that they were indeed a tech company. For better or worse, so to speak. They’re in payroll, which started as an outsourced motion. It was more of an outsource business process outsourcing type motion, but eventually they came on to adopt the fact that they were a tech business.

And then early days I started a community called Scaling NYC, which was a curated network/ thought leadership forum for executives at rapid growth businesses. So in New York, this is when a lot of growth stage businesses were starting to land there. So think Spotify, Bonobos, Warby Parker groups like that.

And I found that my circle was becoming mostly anchored around series A series B businesses that were scaling rapidly. And so I was building a sales team, the sales organization within ADP in the New York city office. And we were employing very modern tactics. We were building a tech stack on the side.

Somehow got a reputation for building a modern sales organization, and off the back of that, and Scaling NYC, I found some consulting opportunities find their way to me. So I stepped out and I started my own consulting firm called Skaling Ventures, where I was building the sales machine, so to speak for series A businesses that had strong product market fit, but hadn’t really built a repeatable sales process.

I was also a mercenary for hire, at Skaled, which is a consulting firm ran by Jake Dunlap. Who’s very much a thought leader in SaaS Go-To-Market. And I’ve always been obsessed with the Go-To-Market motion. I’ve always said that it’s like turning art into pop, where you have to take something that’s malleable, and creates or articulates value in some kind of way, and then map it to a market and try to thread the needle.

And I like to think that my calling is turning art into pop. That’s a little weird and abstract. I was doing business school at night. And then when that wrapped up, I stepped into a VP of Sales role at Harri, which is a workforce technology company, and they provide software for mostly hospitality restaurants.

At that point, we were raising a series A, and I had reached out to Bow River Capital, hoping to get them involved in the financing, and because of a conflict of interest, they had a big holding in one of our competitors or one of Harri’s competitors, rather, and they were unable to participate in that round.

But I made the connection with the Bow River camp and then their buyout shop. They have a SaaS fund and I was actually born and raised in Denver. So I came home to quarantine when things got a little sketchy on the COVID front in Manhattan back in March. And I had an opportunity to sit down with the Bow River camp and just have coffee, and put a name to the face.

They had mentioned that they just parked a big investment in a CRM business that was vertically focused. And that was really all I got and that they needed to CRO and they wanted me for the job. So I stepped in and I’ve always lived in CRMs my entire life as a sales pro.

If you ask me that category has gone rather uninterrupted. Salesforce has always been the only game in town. And as software evolves and matures, you start to notice that horizontal SaaS plays, which is what Salesforce was, which was a CRM for all industries, all use cases. The vertical players start to come in and pick away market share.

I’ve always seen the verticalization, if you will, as an exciting opportunity. And CRM is something that was ripe for disruption. I started to understand that Altvia was playing in the private equity/venture capital space, and I’ve always been enamored by that. I used to work closely with VCs when I was a consultant. They would park a series A, and the first order of business was to install an executive team or install and build a repeatable sales motion.

That’s where a lot of my exposure to that audience happened. I always thought they were super bright. They always had answers to questions I didn’t even know to ask. So I figured it was an interesting opportunity. Now, that was before I met you Dubs, and then I was hook line sinker on Altvia, man. That’s all I needed.

Jeff Williams

Okay, so..

Kjael Skaalerud

Musical moment. Did I miss that part?

Jeff Williams

Oh, you did? Yes, tell us a magical musical moment, could have been first concert. It sounds like you may have something right off the top of your head.

Kjael Skaalerud

Yeah. So interestingly, what brought me to New York city? I was a senior at Gettysburg college. I went out East to play lacrosse in college, and landed in Gettysburg in PA.

Jeff Williams

Oh, I’ve heard this story and it is a good story.

Kjael Skaalerud

Yes. I guess what’s interesting when you’re a Denver boy is you don’t realize that a concert venue like red rocks ingrained something in your soul.

You may take it for granted, but concerts were part of life and definitely my happy spot is live music at red rocks under a starry night. And so I’d always been a huge music fan. My brother too, we’d always get each other CDs and stuff like that. And came time to get a job. And in the spring I couldn’t go back to Denver because we were in season for lacrosse.

I would stay with my buddy, Tommy Barnett and his dad. Steve was the co-chair at Columbia records. So interestingly, he surfaced an opportunity to go be an intern in their big red program, which I didn’t know, but it was a very prestigious program. So I’m like the total cliche, pack two suitcases full of all my stuff with a one-way ticket to New York and not enough money to give back.

I split like a 200 square foot room in Gramercy with my buddy Max, and a lot of peanut butter, a lot of ramen noodles. I would say the musical moment was me being the totally cliche record label intern for a summer. And it was one of the greatest summers of all time. But I think music is probably one of the most near and dear things in my art.

Jeff Williams

You’ve told me you’ve elaborated on the story a little bit. You happened to walk in on Adele in a conversation in the building and you were trying to figure out who it was, where it was coming from. And it happened, it was Adele in a conference room and, so anything you want to add about that?

And it’s pretty incredible, not many of us walk into conversations that Adele is having but had to be pretty magical, like summing up the path you had taken to get there in that moment. All of a sudden it probably was very real.

Kjael Skaalerud

For sure. Yeah. 36 Mafia would walk down the hallway and let’s just say you could smell the smells from every room in the office. I had a chance to hang out with MGMT. I hung out with John Mayer, went to a J Cole album drop, went to a Roots album drop. So it was a fun summer man.

Didn’t save much money. Didn’t make much money either, but it was a priceless experience.

Jeff Williams

Okay. So interesting history you’ve got. A very Go-To-Market focused. In your head, you’re thinking about the verticalization of CRM as a category. You’ve worked with many software businesses and you mentioned something bringing a modern way of thought.

For the listeners that aren’t privy to this information, since Kjael joined us in June of 2020, we’ve only gone on to set records for a revenue attainment if you will, company records. And so whatever you brought with you, it seems to be working. I want to talk, because I know enough about the things I’m going to ask you here, that I want to carve this out for a minute.

Your experience with modern sales tactics. We’re going to carve this out. We’re going to bring it back here in a minute, but I want to jump in and talk a little bit about you and I’s work on a daily basis, we work quite a bit together. We’re often on many calls, but I’d love to hear from you.

What are some of the things that you’re hearing? What are some of the things that sales reps on the team are talking about? If we use this episode of the podcast to basically summarize where private capital markets are in terms of technology, how would you answer it? How would you describe it?

Kjael Skaalerud

That’s a very good question. Gosh, I think when everybody looks at private equity or venture capital, they think of this extreme, super elite, very sophisticated, very guarded industry. The masters of the universe, so to speak, sitting in an ivory tower.

Just seeing the future and making bets, is something the common person doesn’t really have much access to. And so with that, you tend to think that those industries are super progressive and they’re using technology that might not be very common. I think the thing that firstly was shocking to me, is just where the industry is at large on a tech adoption curve.

If you bucket private equity with financial services, you start to think about like these high-frequency hedge trading, hedge funds or these quant shops that really are using some of the most progressive technology available using machine learning, AI cool stuff like that.

Jeff Williams

Physically co locating as close to exchanges as they possibly can for trades.

Kjael Skaalerud

Yeah, crazy stuff, right? Literally where the edge is an extra foot closer to the exchange where your data server is. I guess so I had to summarize, I would say it’s an old guard still that’s holding the decision-making.

There’s a good quote from another dude who runs a podcast, and he says that a lot of his conversations, you talked to a firm, and the most valuable technology they have is Office 365. And it’s been that way for years. So I would say, a lot of the conversations we have with firms it’s that they’re now stepping into a more kind of modern outlook on what a tech stack is.

And even the term and the vernacular of tech stack is now emerging in the industry. They say, where can technology play a role? Where can we create leverage that way? How can we use data to make better decisions? How can we get visibility across the team so that their activities are coordinated, stuff like that, just a single consolidated system of record, right?

Like what’s the source of truth for the firm, whether it’s the people we’re talking to, the deals we’ve invested in the deals that are in our pipeline. I think right now it’s an exciting time in the industry, especially in the context of COVID. Where, it’s been the great accelerant for tech adoption.

So it’s a cool time to witness because you have some firms that are just now stepping into a place where they have things like a CRM. And then you have other firms who are thinking about how they can run ML on their data sets and start to get predictive with the deals that are sourcing or, the return they might see from a portfolio.

Jeff Williams

So I wanna go back to something you said, which is, it’s a very sophisticated industry. No question, a great deal of disproportionate number of new jobs that are created in venture capital, for example, where I spent the early part of my career.

 

There’s a lot about the mainstream understanding of the market. Which is mostly just misunderstood, but you think the sophistication level is high, there’s gotta be these amazing algorithms and for what it’s worth, there are some of those out there.

 

You come in, and it turns out these are humans after all. Very smart ones are incredibly intelligent human beings in very sophisticated ways of thinking about kind of investment opportunities and how to build companies and all sorts of different strategies, but it turns out they’re after people after all.

 

And much of the technology that they’re using isn’t too terribly sophisticated. It’s easy to get caught up in what the market’s doing and the sophisticated strategies. And it’s easy to forget that at the end of the day, there are two fundamental pipelines, right?

 

There is a pipeline through which capital is raised, right? You go out and raise your private equity funds. And then there’s a pipeline of investment candidates, targets, opportunities, however you want to frame those. The universe is your oyster, if you will. And it’s a matter of finding the ones that you think you can add value to and create returns for your investors.

 

Am I making it all that much more difficult than that? It, is it that simple? Like I’m asking this from someone who’s spent their career, looking at sales funnels and how technology applies to that. Is that dramatically over simplified?

Kjael Skaalerud

No, I think it’s spot on because if you think about the traditional pillars of a tech stack, it usually boils down to three very simple things. It’s how you manage your books. Which translates into an ERP or an accounting software. Think Oracle, think net suite, think QuickBooks even. Then you got to figure out how you manage your people, which is a simple thing, like an HR technology, back to my days at ADP.

 

And then you think about how you manage your customers, which is usually a function of a CRM. So no matter what business you’re in, you gotta figure out how you’re gonna manage your books, how you’re gonna manage your people, and how you’re gonna manage your customers. And then beyond that, it’s just different flavors for the category.

 

To your point, what makes it so interesting in a private equity venture capital context, is most of what they do translates very well to a CRM because it’s about taking a segment of some audience, some market, whether that’s an investor or an institutional LP or something like that, targeting those audiences, communicating with them, building interest, building engagement, and then moving them into a pipeline and then having a standardized process to work those things through a pipeline and into the outcome that you want.

 

So whether it’s an investor at the end of the machine, or a deal at the end of the machine, and you’re deploying capital into an asset, whether it’s a private company or, a big real estate property, something like that. It’s really just CRM mechanics.

 

So I think that’s really where it’s been interesting from the perspective of Altvia, because we think a lot, or firms think a lot, I should say about how technology can play a role in the firm where leverage can be had with technology. And a lot of it translates into things that most people would just tag or identify in the CRM bucket.

Jeff Williams

Yeah. So certainly there’s a fair amount of kind of special sauce that goes into how to look at an investment. But, the basic contract relation is pretty CRMey, it’s pretty pipeline. What I’m trying to do is build a cliffhanger here for how some of your history of applying modern tech solutions/modern tech stacks to, the fundamentals of a sales pipeline, comes into play here.

 

Tell us a little bit about.. you’ve been with the company now… by the way the cliffhanger means we’re going to keep building this up. Tell us a little bit about what’s going on in this market. What are people up to?

 

Help the listener understand hopefully, there’s all sorts of listeners here but many hopefully are private equity firms themselves in wondering about where they rank. What are we talking about out there? It’s a pretty straightforward kind of the way we’ve framed it here? Are people all over this, are they bringing these super sophisticated things? Or are many of them still looking to first get into this category, CRM, and really start to find some leverage in technology where there hasn’t been some historically? Tell us a little bit about what you’ve seen from the people you’ve talked to.

Kjael Skaalerud

Yeah, for sure. So there’s Dylan Dempsey who heads up a growth team at Altvia. He’s a student of technology, I guess you could say. And so we think a lot about the themes in terms of where the word technology is in society right now in our lifetime and what we have access to.

 

And he shared a quote with me which is from a gentleman named Jay Kreps, who’s the CEO of Confluent. And he goes something like this… “It isn’t just that businesses use more software, but that increasingly a business is defined in software. That is the core process as a business executes from how it produces a product to how it interacts with customers, to how it delivers services are increasingly specified, monitored and executed in software.”

 

So the simpler version of this is that all companies are becoming tech companies, or as Mark Andreessen, very famously coined it. Software is eating the world. So I think, if I were to just say where the industry is, I think that there’s this growing awareness, or perhaps there’s a new era beginning where they’re understanding that everything they do in terms of core processes, in terms of their investors, the deals, that everything is defined in software.

 

And as a byproduct of that, it’s defined in data automation. Generally speaking, I think that would be my answer is that firms are starting to understand, okay, whatever our secret sauce is, it’s going to inevitably be wrapped in technology, and the more efficient and more effective we are at wrapping technology around, whatever it is that makes us differentiate as a firm, the better we’ll be able to define it.

 

The better we’ll be able to repeat it. And perhaps get to a place where they’re not looking at the deals that they think should be interesting. They have ML models telling them the deals that should be interesting based on the performance of the deals in their portfolio, or conversely, you’re just in a separate vein is, when they’re thinking about fundraising, They look into their current base of LPs and understand the attributes that make those LPs unique and whatever’s common among them.

 

And then they’ll use those features if you will, to target LPs and, just be much more effective with their time. So it’s basically Hey, you have 10 friends, we ran some analysis. It turns out they all wear leather jackets and ride motorcycles. So if you want more friends, you should go look for people wearing leather jackets and riding motorcycles, it’s that simple.

 

I think very simply there’s like a walk, crawl, run thing happening. And the walk definitely translates well to a CRM where it’s like, Hey, we need a system of record.

 

Or a source of truth. As many have said where it’s like, Hey, we’ve got contacts living in a bunch of spreadsheets and a bunch of outlook inboxes on LinkedIn connections and stuff like that. We need to pull that stuff together so that we have something centralized for the entire firm to take advantage of because so much of it’s a network game, right?

 

It’s a relationship basis or it’s just something where you have to be able to understand the connections among your reality. You can get more value out of those relationships that way. But I think, CRM, if you want to just think about data management was the first really productive step.

 

It’s let’s pull everything together into a centralized place and then we can organize it and get it neat and kind of index it. And then from there you can start to take advantage of automation. So just, ‘Hey, we’ve got our network for instances now and in one database.’ Okay, cool, now we can start to take advantage of automation. Let’s send an email to all the investors or all the management teams that fit this criteria. And instead of sending one-off emails, you can send a hundred emails at the same time with some level of customization, and that puts time back in your day. And then if you have a feedback loop happening, You can see who’s opening your emails, who’s clicking on the links, and that can inform a sense of priority in terms of who you follow up with.

 

So you’re using those activities to build engagement, and then you measure engagement to inform the sense of priority or how you follow up. So that’s just, it’s just leverage, right? It’s time back in your day. And I would say the crawl stage is that CRM oriented thing, where it’s about data and getting organized and indexing the data such that it’s useful.

 

The CRM is also counting constantly harvesting data. Every interaction you have, you can enrich it with third party sources. So you’ve got PitchBook, Preqin, and you’ve got Crunchbase, all that kind of stuff, LinkedIn, even. Now you have these huge datasets, they aren’t very useful if you can’t make decisions quickly.

 

So the next piece that gets really interesting is like an analytics layer. So being able to visualize those data points and be able to quickly comprehend that information. That’s definitely the walk, and then the run in our category is being able to serve all that stuff up, whether it’s an LP portal or a data room where you can start to have the visual analytics, tell the story for you.

 

And it’s much more engaging, if an investor can step in and slice and dice the data, however they want. That by definition is driving engagement because they’re interacting with that stuff.

Jeff Williams

Yeah and for history sake, I spent five years early in my career at a venture capital fund to funds. And the reality is, we went gangbusters during the time that I was there. Tremendous growth, several multiples over, in terms of assets under management. And so I think it certainly felt like we were always fundraising, but one of the things that I still remain very passionate about, is the idea that people’s lives could be made so much easier by consolidating all of the information that they have into a single place. And, oftentimes it’s the temptation of, ‘oh we just need to respond to one of these requests’, but really if you took the time to consolidate the information, then the thesis is that you’re then able to respond much more quickly, much more strategically.

 

Not only save yourself some time in how long it takes you to respond to questions that LPs are asking about. Interest cycle, where you’re not raising capital, like at an annual meeting, but then also, here comes, fundraise, here comes all of these data requests. Wouldn’t it be amazing if we could consolidate these things and then actually proactively put that information out there for people, and share it with them directly.

 

We’re working with some of the premier brands in all of this market. We’re extremely proud to have the customers that we do, and we thank them tremendously for their loyalty and their partnership. And yet here we are, we’re just getting started with a more modern approach where people are starting to think about going on the offensive.

 

I would describe, in some cases my experience is defensive, right? Ah, scrambling to find where to get that. But it turns out that it’s a pretty interesting concept. What are we hearing? How are they reacting when they see that you can actually get all the way through organizing all this information and your internal operations.

 

Taking information to enrich that and aggregate, third-party information. You mentioned many of the common sources, have it all there, maybe even systems that aren’t CRM, you mentioned keeping your books, that’s a pretty important part of the equation here and private equity, performance data, and then making it available for a self-service thing.

 

What do you think many firms are thinking about when we’re showing them that for the first time, maybe that they’re seeing it?

Kjael Skaalerud

Yeah no that that’s a very good question. Back to the topic, at the end of the day we’re all consumers as individuals. And a lot of B to C technology kind of sets our expectations. And so if I go back to the beginning of my career when it was like proper enterprise tech, man you should have seen some of those applications. It was painful. They weren’t selling to the end user, they were selling to executives who wanted visibility. CRMs were super valuable back in the day because executives could get revenue forecasts, or they can understand what their installed base was worth. They can understand what churn risk looks like, and all of that.

Jeff Williams

So it was a management decision. Hey, we’re gonna put our sales reps through what I’d argue is some software abuse. The sales reps didn’t have a say in anything. It was really management driven.

Kjael Skaalerud

Yeah, absolutely. So there’s this notion that all of a sudden technology had to be beautiful and usable because as consumers, it was beautiful and usable, right. You step into a Facebook page. Everything’s intuitive because, at that point they were trying to pioneer user interface and user experience. Building things that were so intuitive that they didn’t really need training and adoption, it just happened naturally.

Jeff Williams

And some documentaries out there would argue they were building them to be addictive.

Kjael Skaalerud

Yeah, so easy that you can’t stop. And I think when you log into a Fidelity dashboard or a Charles Schwab dashboard, or you look at a portfolio of stocks as an investor, you can access that on your phone. You have real-time visibility into the performance of all those investments and you can take action in real time, all those things.

 

So that’s, what’s anchoring expectations. So if you step into a private equity setting, which is much more opaque, we’re talking about 10 year holding periods and things like that, or traditionally it’s you might get an update on a quarterly basis. That doesn’t really suffice anymore because, as consumers we’ve been conditioned to get access in real time, to have access to these kinds of interactive on-demand self-service type of experiences if you will.

 

I think the reaction that we get most times is ‘Oh, thank God’ or ‘Oh yes, this is, this makes so much sense’. This is how everything else is. And that’s cool because, you can sense that if nothing else we’re bringing the category into a place where it’s, table stakes with the way that we’re consuming other technology, and things like that.

Jeff Williams

I get the sense sometimes that people also feel a little uncomfortable.

Kjael Skaalerud

Yeah, I think because the industry is notoriously opaque, right? We’re talking about private companies, they’re not public, they’re not disclosing financials, things like that. And the other thing is they’ve got 10 years to generate a return. So on average, right.

 

So it’s okay, We don’t want to show you quarterly updates because hell we had a real tough quarter in the portfolio. And we’re not seeing the performance that we want. So maybe we’re going to hang tight on some of this information and wait until we’ve got better news to share. But, that’s just friction.

 

And I think things resolve at a place where they’re going to get that information, or they’re going to move to places where they can get it on demand. So I think we’re starting to see transparency as something that investors expect. And as a natural kind of byproduct of that, they’re gravitating towards.

 

The GPs and the fund managers that provide that kind of visibility and that kind of transparency. And the further they let them in with an interesting by-product of that, is it makes the investor more loyal. All right. So we’re seeing, look under the hood anytime you want, and good, bad or indifferent LPs are attracted to that. And it’s resonating with them. It’s drawing them closer.

Jeff Williams

I haven’t shied away from taking on this idea of FOMO because, I think that there’s a little bit of getting anxious a little bit when people see what other people might be doing and, it may not be technically correct to say FOMO.

 

It’s like, I don’t want to do that, but I don’t want my competitors doing it. And I’ve bumped up against this question now for a good five or six years. And I think that’s important to say Hey, this is one of the most competitive markets in the world.

 

The things that people will do to find and create value are incredible. And I wish that more people could really see what that’s like, and the DNA of this industry. It’s incredible. Somebody’s going to find their way to it. And here’s the thing I always say to people is, that we’re also not sharing information that you haven’t already shared. And the combination of those two things is pretty incredible. There’s this fear that other people might be doing this, and you’re not Mr. Firm? You are doing it right. You’re already sharing this information.

 

It’s just a really poor user experience or investor experience you had implied there. And that one still leaves me scratching my head. But you certainly see those firms that are leading Silicon Valley venture firms.

 

They don’t really need to differentiate themselves or create this experience. They announce they’re raising capital, and it’s pretty much done. You see a light bulb go off as an opportunity. ‘Hey, we’re gonna, get ahead of this, and we’re going to show that we lead.’

 

And then on the other side of the spectrum, firms that might be having a more difficult time raising capital right now, or telling the story, and are leading with this idea of, ‘Hey, this is the way we do business.’ This is the partnership, we’re getting married here for 10 to 15 years. This is what it’s going to be like to be married to us. And let me use this information to tell you a story about why we should get married.

Kjael Skaalerud

A hundred percent. And that’s just back to the conversation, right? When you talk to a GP and we’re really starting to see two profiles emerge where one GP is like, ‘Hey, here’s our investment thesis. We invest in Software growth companies that have in between 5 and $10 million in ARR annual recurring revenue.’

 

So think subscription revenue from the software that they provide as a service, and they operate in coastal America. That’s one profile. And now we’re starting to see groups who are much more data-driven, quote unquote, modern.

 

And if you ask them to describe their investment thesis, they’ll get so much more granular because they’re harvesting the data points that allow them to speak more intelligently about their investment thesis or about their portfolio where it’s, we’re looking to acquire software companies that have this, an ARR, their average contract values are at this, their turn rates are between this and this. We see growth potential because their average contract value is only moved up a step function.

 

It just gets so much more granular, and they can demonstrate it visually. So they have the data and they can prove it. Like they can actually prove it.

 

Whereas a lot of times it’s ‘Oh, our edge is we’ve got proprietary deal flow’. Which is from an investment banker who is also giving these deals to every other single firm. And so I always joke that, in many instances, the edge is getting invited to a flea market.

 

That’s totally jam packed. And you just pray to God, you don’t reach for the same watermelon. Cause then an auction ensues, the whole industry, they can’t overpay for an asset or the ability to generate a return, goes out the window. So mostly on the deal side, it’s about quick access to the right deals and having a playbook.

 

And I guess this is another kind of offshoot that dovetails from the original topic too, is, proving how repeatable an investment thesis is. So it’s ‘Hey, we invested in five software companies’. One is just absolutely off to the races smoking it. The other four are doing okay, but we have no idea what makes that one company unique.

 

And if these firms are taking a more data-driven approach, they’re very specific about it. They understand what’s generating the returns and the growth, and they can use that information to be more dangerous when they go and source new deals. They know the leather jacket and the bike part.

 

So they go out and they find them, and it lends very neat to articulating to an investor. No, we didn’t get lucky with that one out of five companies that totally smashed it. We understand it very clearly and we’re going to continue to double down. And here’s how, because that’s when the really outperforming funds start to differentiate themselves.

Jeff Williams

Wow. I think it just all came together for me. Let me see. If I can recite the thought I just had, and you can confirm this, and then basically we can just publish this episode of the podcast and we’re done.

 

It’s, everybody’s off to the races with their secret weapon, but you mentioned the analogy of the bikers. And so it was like earlier, when we were talking about this, you talked about how the implied example was that if you could only understand that, your best customers are, bikers with leather jackets, then you would know to go looking for bikers with leather jackets.

 

And then you just said that we could actually tell a story about how we’re dominating, the upper quartile with returns because we’re able to consistently find bikers with leather jackets. And you mentioned that last part in the context of telling a story, right?

 

Like telling your investors a story, you tell it during fundraising and then you go do it, and then you tell them what you’ve been doing again. Is that all at the end of the day, just the same data? Sounds like it might be.

Kjael Skaalerud

Yeah, no for sure. A lot of our work too is helping firms just better understand their portfolio when they’re thinking about follow on investments, let alone, targeting new companies. That’s why for a lot of leading firms, the role of CTO isn’t very prominent in private equity and venture capital.

 

It’s nascent in that sense. So it’s rare that somebody at the firm has a vision for technology. And we see a lot that the firm life cycle is like a framework that is informing a lot of the strategic technology decisions or just thought processes around, what are the key workflows or the key activities? What are the key data points that are prominent in a venture capital, private equity firm? And a lot of groups use the fund life cycle, to inform that thinking. So it’s like, all right, We engaged investors. We raise money. We’re probably using data that maps to a track record to do that.

 

Hey, here’s how we’re going to grow your capital. We’ve done it before. The more data-driven that conversation is, the more provable it is, the easier the storytelling is. And then when you’re going to deploy capital, guess what story you’re telling the management teams. Here’s our track record. Here’s our playbook for value creation. We’re not just going to write a check and high five you and see you in a couple quarters.

Jeff Williams

And presumably you’re talking to the kind of company that the data suggests is the type of company you have success with.

Kjael Skaalerud

Yeah, exactly. It’s by the way, we invest in companies like this and we’ve demonstrated an ability to increase the value in these businesses. And this should look and sound very familiar because we’re sitting here talking to you, right? Our intention is to do what we’ve done. And then after you’ve deployed the capital.

 

They run their playbook. They create value in the portfolio, however they do. And they bring that exact same narrative back to the investors, because guess what, we’re raising our second fund, we’re raising our third fund. We just did what we said, we’re going to do, and we’re going to do it some more.

 

Give us capital and to your point, it’s the same story. It’s old wine, new bottles. The more data oriented, those stories are the more believable they are, and the more that the stories tell themselves. I guess the only thing to mention there too is we’re seeing a lot of firms that index towards attaching measurement instruments, if you will, and harvesting data around the elements that they think differentiate themselves as a firm, which usually has to do something with how they interact and target investors.

 

And then how they deploy capital and do deals. Again, all kinds of stuff that interestingly maps to a CRM. So that’s another piece too, where it’s like, all right, we’ve got the firm life cycle. That’s what we’re going to use to figure out where technology can play in our world. And we’re going to use our points of differentiation to decide what buckets we prioritize, and we invest in technology.

 

And those are the two things that I think just to speak generally about what we’re seeing in the market. That’s, leading to the best outcomes, the firms that are sticking to the North star, so to speak are doing the best in my view.

Jeff Williams

Yeah. You mentioned, what sort of gives a firm an edge, and you talked about how they raise capital and how they deploy it. It is certainly a very important element of technology inside any private equity firm, is the bookkeeping as you had put it earlier. And that’s a market we don’t play in, that we don’t believe is our space to be there.

 

There are some well-respected vendors that have been around for a long time doing that, and doing it well, presumably given their lifespan. A lot of things that I happen to know, about that category that a lot of people spend a lot of time getting implementations of software and, kind of finance or accounting set up because it’s important and there’s a lot of nuance in it. But at the end of the day, how you keep those books is certainly not the element that distinguishes you.

 

You’re really keeping the books because you’re actually raising capital, you have to keep the books and you’re going out and deploying it. And, you have to keep track of this stuff. That’s information though, that we can use to then tell this story. So, that’s what you were suggesting is that you don’t differentiate on the accounting solution in this market.

 

You’re really taking that information and using it to tell a story about how you’re differentiated, or to use tactics that actually differentiate you and what you may not be, talking as much about in terms of which LPs you’re targeting. But nonetheless, it’s information that you take with you.

 

And that is presumably what we’re talking about with this firm life cycle, is you raise capital, you deploy it, you keep track of it, you monitor it, you measure it, and you tell LPs about it. And then when it comes back around all of a sudden and you’re fundraising again, that’s also the same information that you’re going to be heavily accessing.

 

And so what we’re trying to do is bring that picture together, so that it can be useful in the sort of lanes where the kind of magic is actually happening and where firms are differentiated. Is that accurate?

Kjael Skaalerud

Yeah, for sure. You can just ask back in like my HR tech days, it was like, you just can’t get it wrong. If payroll is wrong, everybody freaks out. But in terms of returns you just get a pat on the back for doing it. But you’re not going to create any incremental advantage by being the best payroll processor on the planet. It just has to get done.

 

And so you can think the same about accounting software and HR tech in the same vein, if we’re going to bring it back to the pillars of enterprise tech, where, not only are the diminishing returns for execution on the accounting front, the returns fall off a cliff, right?

 

Where you’re not creating returns for your investors, because you incrementally are executing accounting workflows 5% better than the next firm. If you can incrementally execute fundraising. And, capital deployment workflows, 5% better now we’re talking. And so that’s just by definition, there has to be an edge there and then it should be prioritized such that, that’s what’s generating outside returns, especially as the market becomes more competitive.

 

There’s a new firm entering the mix every day, right? So you have to make sure that you’re not focusing on stuff that not only has diminishing returns, but has no incremental return from more focus and better execution.

Jeff Williams

At this point, you said a few things that I think relate to what you’ve seen career wise in your own career. Applying modern technology to sales organizations Go-To-Market organizations. I have to think, and I know the answer, you’re interested in understanding where your efforts are going.

 

What information is going towards those efforts, measuring it, and then, getting everybody pointed in sort of the direction that’s working most. It sounds like this is all actually pretty similar, right? We’re like we’re talking about private equity funds and investment returns and accounting and all these things. You have to slow down and digest all of the things in this picture, but at the end of the day, It’s about having the information that you need.

 

We really framed that as accounting. You have to have that. It goes great the way you put it, can’t mess that up. But then, taking that information, putting it in the places where you have, a sales motion, right? Hey we’re raising capital. Here’s the information that is going to lead us to the people that we’ve historically been most successful raising capital from. Here’s the story that we tell. And then we measure that to see if that is effective. It sounds to me quite a bit, like it’s the same thing.

Kjael Skaalerud

Yes, it’s the exact same thing only, at the end of our machine is private equity and venture capital firms that we’re trying to sell software to. At the end of Amazon machines, is every consumer ever, right? They’re harvesting data nonstop. About everything you’ve purchased about everything that’s in your shopping cart that you forgot to check out, about the stuff that your wife orders, the stuff your kids order.

 

Ultimately, so they can predictably serve up more of the products that you’re more likely to buy. So it’s the same method. It’s the same kind of meta thought process. And at the end of the day, if you want to just boil it down to put it very simple, it’s about having good clean well-organized data, taking advantage of as much automation as you can.

 

And then having some kind of feedback loop. So you understand how that stuff’s landing, so you can learn from it. You can see the patterns to inform, activities in terms of how you follow up with investors, right? You send a hundred emails to potential LPs. The traditional method was to send them one at a time, and then pick up the phone and call them one at a time and get through your one hundred phone calls.

 

Whereas today it might be a send a hundred out and then see, the 15 that clicked on all the links and give them a call first. Cause the thought process is they’re the most engaged. And then perhaps, you can start to understand what it is about those 15 people that were the most engaged. So that next subset of a hundred emails you’re sending to people who look exactly like that.

 

And now we’re talking about operating leverage, right? Because it’s giving you a kind of a relentless sense of priority, and you’re only spending time on high probability, high value, convergence, if you want to, SaaSify it.

Jeff Williams

I think I’m actually going to go start a private equity firm. This sounds like it’s pretty straightforward.

 

Where do I start? We’ve talked about this lifecycle, this circle a little bit. Do jump in somewhere and the rest comes to me? Where do I start if I want to get into this? Sounds to me a lot like a CRM.

Kjael Skaalerud

Yeah. It’s hard to strip away my bias here, but, what is it? Your network is your net worth. So I think you have to understand what your world entails in terms of the relationships that you have available to you, whether that’s CEOs and management teams, or high net worth people in capital.

 

You got to get your arms around that first and understand, the characteristics of those management teams, the characteristics of those investors and how you’re communicating with them and how engaged they are with you and what gets them excited and the stuff they’ve invested in before, the VCs, the PE firms that they’ve interacted with and what got them jazzed about that.

 

It really does start with a CRM or just, some way to manage your network, manage relationships. Cause that’s usually key to the secret sauce. No matter how you think about it.

Jeff Williams

Yeah. I’m not the most organized person. So that sounds helpful. I think that’d be helpful to me. And then you were seeing that, I have the ability to start to measure Oh, here’s, what’s working. Here’s what’s not.

 

So I hope that I end up raising this fund entirely from bikers with leather vests, because that would be one of those cool things that nobody thought you could do. And then I would take great pride in having done. But even if it’s not bikers and leather vests, presumably I do start to develop the patterns that then help me find my edge.

Kjael Skaalerud

If you want to get going in this world, you’ve got to figure out how you’d raise money and where you’d put it. And that boils down to the people, what they’re up to, and how you interact with them. What the relationship quality is like.

Jeff Williams

There, you have it, ladies and gentlemen, in this episode of Preferred Return, we have walked through exactly what it takes to use technology to Own Your Edge. And turns out it’s really pretty simple, but you need somebody to help you figure it out. That’s what we’re here for.

 

Anyways, I do want to thank you a great deal, Kjael, for having joined me today. But also, Hey, thanks for joining Altvia, we’re tremendously lucky to have you. I’m lucky to call you my friend and to get to work with you. As well as learn from you. And thanks again for joining us. We’re so grateful.

Kjael Skaalerud

No doubt. Thanks for having me, man. Cheers.

 

 

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