BoC #84: Deepak Jeevankumar | Dell Technologies Capital

Deepak, welcome to the show. Thank you so much for joining me today. How are you? I'm doing great, Joe.

Thank you for having me. Of course. Well, maybe as a way to kick off and sort of set the stage here before we jump into things, could you maybe tell me just a little bit about yourself, your background, and how you found your way into the world of cybersecurity? Great.

So I'm one of the managing directors at Dell Technologies Capital, the early stage investing arm for Dell Technologies. We are an independently run VC practice of Dell where we invest in enterprise infratech companies. We've been in business for about 12 years, 150 investments, nine IPOs and 80 acquisitions. Some of our well-known companies are Zscaler, DocuSign, MongoDB, Netscope, Rista Networks, Jay Frog, and many others, and many up-and-coming ones as well.

I have been here for the last seven years and spent six years before that at General Catalyst Partners. And this is my 14th year in venture capital. And before that, I spent half a decade operating at Sun Microsystems. So coming back to your question of how I found myself into venture capital and cybersecurity, cybersecurity, totally serendipitous.

I never knew what venture capital was. I was in business school and I was looking to join startups, met a few VCs, and they said, hey, come on and do an internship here. And I learned venture capital through an internship and I got a return offer to go and join General Catalyst. Cybersecurity was very interesting.

How did I get into cyber? So I've never been a cyber practitioner. My practice work has been in data centers, enterprise infrastructure, but not in cyber itself. And I learned cyber only through investing.

So it's a very great learning experience now, more than a decade of investing in cyber startups. I've been lucky to be a part of some interesting journeys like Humio acquired by CrowdStrike, Redlock acquired by Palo Alto Networks, Risk Recon acquired by MasterCard, Cloudnox acquired by Microsoft and many others. it started when i was looking at about a decade ago what i thought were under invested areas and cyber was under invested a decade ago not any longer we'll come to that probably i'm sure in one of your later questions and i was like ha there's a consistent number of exits that happen every year there are multiple acquirers in cyber not just one the multiple big companies that are making acquisitions in cyber.

And since then, the number of big companies that are making cyber acquisitions has doubled or tripled. So I was like, okay, let me look into this. And one thing led to the other. I ended up talking to a lot of customers, started to understand their problems, met a few founders, built up a thesis, and just started investing.

And that was kind of like learning by doing. What were some of the big things that you had to learn as you transition from an operational role in data center and infrastructure to VC? I think the biggest thing to learn is you're not operating the company. You're letting others operate the company and you're providing support as an investor.

So you're not the front seat driver and you cannot be a backseat driver either. And you are just a passenger. So your goal is to be a supportive passenger, not a backseat driver. I think many VCs make the mistake of being a backseat driver.

Your goal is to decide which car to get it. And the most influence that you have is when you're deciding which startup to invest in. And of course, we all want to be investing in the best possible startups. So I think the second learning is because now you are going from operating one thing into managing a portfolio of startups.

So you have a much wider view. which you can use to help the other startups. And I think that wider view helps because founders are looking for trends across the industry, micro trends, economic trends, industry trends, and company building trends. So your role is to be a trusted advisor, or you could say glorified BD exec for your startups making the right connections.

Yeah. There's something you said that we'd love to dig into a little bit more. It's about sort of finding which car should you get into. Just from conversations with other investors, sort of this sort of consistent theme has emerged of skills for VCs sort of boiled down into a couple of broad categories related to sourcing, sort of winning and picking deals, and then helping.

And each of those areas are maybe different skill sets. So when you think about identifying which deals to get into, this is a big question. Obviously, we could spend the whole conversation probably talking about this, but I'm curious to hear a little bit more of your behind your thought process and criteria for what a good deal looks like and maybe which cars are worth getting into. Yeah.

And I'm happy to touch into that. I might just add one more skill set that is very important in the list that you mentioned. It's exiting startups. and it's a very special skill and I'm still learning it and I think the best we see is know how to exit startups well.

So how do you figure out which car to get into? One, I think you need to convince yourself and your partnership that this startup is very critical to the future of the world and not past of the world. And founders are the portals into the future of the world. So the good founders really know not only how to sell a vision to the future, but also to execute on that vision.

Identify what is future of the world story. and then figure out the right founders who can sell that vision. I'll stop there and we can dig in as needed. Yeah.

And maybe just to double click on that, there's some founders who are very influential and sort of aspirational in the visions that they have. So that is relatively easy to determine, but you can get a sense for how visionary are they and how inspiring are they to hear their vision of the world. Execution, right, maybe they've done it before and there's some evidence, but that can be tougher to get to see some evidence of. So how do you go about maybe assessing a founder or team of founders?

Yeah, so it is an art and a skill. And I think, you know, what I would classify as an art is what is the intuition you get and skill is like what is repeatable from one founder to another founder so let's talk about what is repeatable in identifying founders on have they been good in recruiting the initial team members good co-founders do they have good references for the employees there that they have recruited and the co-founders they've recruited what process they go through to recruit these founders and employees two if they've raised seed round funding before we usually come in at Seed, Series A or Series B.

So when I come in at Series A, we have the opportunity to evaluate who were the seed-run founders. So why did they pick the founders? What was the thought process? What gaps in their future vision would the founders fill apart from capital?

Then three, if they have found either customers or users or early adopters, what are the customers or users saying about the product or the vision that they have been painting. So I would say these are the things that are the skilled part of evaluating founders. Now, coming to the art part, it is very subjective thing. Why is one piece of art looking better than another piece of art?

And the answer may be different from one beholder to another beholder of the art piece I think for me it comes down to can I trust this person First as a person as a human to do all the right things, will they perform well under pressure? And what is it that they know that they don't know? And are they willing to learn that? So are they intellectually curious, not only to learn the hard skills about running a company, but also the soft skills about running a company?

And if I get comfort around that, I feel very comfortable backing them. Now, that is an overarching thing. They need to be hyper ambitious. So you have to evaluate ambition the way you think is a property-evaluated ambition.

And it's just not about storytelling. Storytelling is an important piece. And as you said, the execution piece is hard. And we can look for past examples in their background.

But if they are talent magnets, if they are intellectually curious, if they are ambitious, and if they are able to actually transfer this ambition to their customers, to their adopters, early users, and to their employees and co-founders, That is a good sign. Sure. Got it. Okay.

And within that, that kind of sparks another question about maybe common mistakes that you see entrepreneurs or founders make. So I'm curious, kind of as you reflect on your experience and work with portfolio companies, what are maybe some consistent themes of mistakes that you've seen founders and entrepreneurs make when they're founding cybersecurity companies? i think the most common mistake made especially in cyber is you start building before you sell so what is selling selling is not necessarily getting a po and a sales contract but really selling your vision and your product thoughts so So if you're a good technologist, you can almost always build good products or at least good technologies, like whether they're good products or not is a separate question.

So I think it's very important for founders to actually spend time on figuring out their product thesis. Does it resonate with customers? and it's very important to not be too prescriptive in the early market analysis interviews. Let it be an open-ended conversation with customers.

Hey, what are your top pain points? Why do you want to solve this pain point this year and not next year? What if these things happen? And then see if what they have in their product thesis or solution thesis fills enough number of customers' needs.

So not having enough number of customer interviews is probably the biggest, biggest mistake and building before selling. I think the second mistake is recruiting the wrong type of early adopters. You don't want to have people who can just suck you in and almost treat you as outsource development shops as customers. And because you're not running a service provider business or a solutions engagement business, you are actually running a product business in most of the startup world.

So it's very important to understand that. Three is that you end up choosing the wrong kind of investors. You have to be very careful in the right kind of investors you choose. You want somebody who really, really believes in your thesis, can be a partner for you, and is not going to be a backseat driver.

I'm interested in kind of exploring that first point a little bit more. And it's been a really common theme among some of the top CEOs and entrepreneurs that I've interviewed is very much in alignment with what you just said is even before they write a line of code, they go talk with a hundred potential customers and just really, really understand the problems that folks are experiencing. But at the same time, right, there's also kind of like the faster horses argument, Right.

Of if you want to do something innovative and really new, your prospects or your potential customers may not have that precisely top of mind. And I'm reading the Walter Isaacson biography on Steve Jobs right now. And it's super interesting for a number of reasons. But that's one of the things that, as you probably know, Jobs was famous for, is saying, I'm not going to go ask customers what they want because they don't know.

I'm going to build it for them and help them understand why this is what they need. So when you think about finding investable companies and supporting entrepreneurs, How do you think about sort of keeping those two things in balance? It's on one hand, you want to have a big vision for the way the world should be, but also you need to really listen and understand what customers want and the problems that they're experiencing. Yeah, so I would say that it's about surfacing the problems that customers have, but they don't necessarily think it is a most important problem or top of mind problem or a time critical problem.

Sometimes it's very obvious what a time critical problems are and there are not enough solutions for it. Then you've struck a goldmine. no good solution, time critical problem, I want to solve it now. I think you have a bigger gold mine if you actually lead customers to problems that they think they don't have, but they actually do have.

And usually it is, I think I've solved this problem already, so why do I need to solve it? Like, you know, if you think of, for an example, storing logs, analyzing logs. and people think that's already solved solved it with oxide initially and they thought they solved it with splunk but you still have new generations of products propping up because why the amount of logs getting generated is growing by like 10 times like in two or three years and that has been the path at which it's growing and it's good that's going to be the path in which it's going to be growing and for the next decade or so so sometimes what people think are solved problems are actually not solved problems.

So it's really asking those insightful questions to really make them understand, okay, I've solved it for today, but have I solved it for two years from now? Now, another category is, hey, you are adopting cloud, so don't you think you need to secure cloud? The initial feedback about a decade ago from a lot of CISOs was, I'm just not going to allow cloud users. I'm going to use anything on-prem.

right but you know if you project forward and see with every technology revolution CISOs do not have the power to stop technology from being adopted they have to enable technology to be adopted so really understanding that difference is super helpful where CISOs have the power to stop something and where they actually do not have a power to like stop something in the long term and and I think the good thing right in the context of cyber is cyber is usually about safeguarding an existing attack surface at a fast-growing attack surface.

So if you follow the trends in IT and how trends in business or economics or in tech are changing, you can actually figure out what are the either unsolved needs or solved needs that need to be solved in a completely different manner because the world has changed. Like when branch offices were getting created, you had to solve security for branch offices. And Zscaler started doing that. Now, of course, Zscaler does far more things than that.

Cloud started. Redlock was trying to protect your AWS accounts. When people thought that logging was a solved problem, Humio came in and tried to solve the logging problem in a different way. It still remains CrowdStrike's largest acquisition So there not one right way to figure this out But yes I think this is where a founder talent lies in understanding and making that needs met between known problems unknown problems solved problems unsolved problems that need to be solved in the future Yeah, got it.

Okay. I guess maybe zooming out a little bit more and maybe going to the skills that we talked about for investor, the first one and kind of the deal lifecycle being sourcing. I'm curious to hear how you think about sort of like keeping a pulse on the best early stage companies and what's kind of sort of your personal approach to sourcing? So there are our classified deal flow into two broad buckets, outbound and inbound.

Outbound is what you go and search, inbound is like what comes to you. The longer you're in the VC world, your inbound deal flow continues to increase because you know a lot of people, founders, other VCs, they keep sending you deals. But when you get started, it's all outbound. I would say two things for people who get started in the VC world and for people who have been in VC world for a long time.

So for people who get started in VC world, outbound deal flow is all that matters because your inbound deal flow is probably going to be really bad. How do you go find the right outbound deals? Now, there are a few kinds of founders, first time founders, second time founders or repeat founders. repeat founders you need to make a list of people who have exited their companies either good bad exits and then go track them first-time founders in cyber security they could come out of product leaders or engineers and existing startups and existing big companies and usually the seed investors or pre-seed investors they do a very good job in tracking them so go make go build relationships with those seed investors also very importantly go figure out who the lead adopter customers are in the industry.

Usually good founders go and test out their thesis with these lead adopter customers and they can refer you, especially like, you know, if you go to these customers with a thesis saying, hey, I'm looking for founders in this space. Have you come across anybody? Now, the coming to people who have been in the VC world, investors have been around for a long time. Tends to be a lot of inbound deal flow focused, but I would say that do not become passive in outbound deal sourcing just because you have a strong inbound flow because the best deals still tend to be outbound because the competition is very high for the smartest and top founders.

So you still have to go and find your own deals even if you have a strong inbound deal flow. And I actively track the number of meetings I take which are outbound versus inbound. and just because i'm i'm curious like and even if you're open to sharing like a little bit more detail even like what's your typical day or typical week is like sort of how you prioritize your time whether like in how you incorporate ensuring that you're still dedicating time to outbound outreach like that so could you walk us through sort of what that looks like sure sure what are the things I tend to do in my work day?

Spending time with existing portfolio founders, doing any kind of brainstorming, like helping them raise their future capital, recruiting, understanding where they are with customers. Two, talking to founders, new founders, which we haven't bagged before. Three, talking to other VCs, understanding and comparing notes, what they're looking at in the market, which of their portfolio companies are doing well, especially earlier stage, which is then us. Four, talking to customers.

And one, why do I talk to customers? I want to make intros if there is a fit between my existing portfolio companies and what problems they're looking at. Also ask them, hey, what new startups have you come across recently that you have used or you were close to using? So I try to incorporate that in each and every one of my conversations, especially with existing founders and portfolio founders.

I ask them, hey, have you parted with any of the startups recently? Did anybody else come to you for advice? Did you come across another startup in the field that your engineers like? I'm also a voracious reader, so I do subscribe to a lot of newsletters in the areas that I follow.

So these are all parts of different sources of outbound inflow for me. Got it. Okay. And I'm curious if you could humor me, like if you were to restart your investing career tomorrow, what would be the activities or the actions that you take?

Yeah, you know, I always think about that because I assume that every day is almost a restart. Maybe I'm not able to execute on a restart every day, but I try to think about it. So I think the overarching theme is go and get time with as many smart people as possible who have been part of shaping different trends in the industry, whether it is cyber or non-cyber. because a lot of things outside cyber do influence cyber.

So if I'm meeting with two customers a week, for example, who are like lead adopters, I ask myself, what can I do to actually meet with four? I need to figure out ways to double my throughput. That's like another way of looking at it. So earlier in my VC career, I used to take one hour long meetings with founders for the first time.

Now I do it for 30 minutes. because if you are efficient, you're also efficient on their day time. For the first meeting, for the most part, I feel 30 minutes is sufficient. The other thing I do is I do tend to do more diligence now on founders, on companies, on products with customers and other industry execs because every diligence call is learning experience.

apart from figuring out how I can convey the diligence call feedback to the startups on diligence in a way that's beneficial to them. So these are the two things I would say. Try to figure out ways to double your throughput, be more efficient on your time. And two is do diligence on most startups.

You learn by doing diligence on most startups. I'm curious to hear kind of a comparison of maybe like cybersecurity as a cybersecurity companies as kind of an investment class for you versus maybe infrastructure companies, if we want to call that one big bucket. And what are the similarities? What are the differences?

Yeah. Infrastructure companies. companies, yes, as you said, it's one big bucket, but there are a lot of different pieces. There's data, AI, AI slash ML.

There are semiconductors, there's developer tools, and some middleware apps. So each of those have their own characteristics. So I think definitely the velocity of acquisitions in cyber is much higher, far more number of active acquirters in cyber than in any of the other categories, any of the other individual categories by themselves. So that's one thing.

Two, I think that for the most part, cyber is a top-down sale even today. Like you sell to the VP of identity or VP of risk or the CISO. In infra, across the board, you see a lot more bottom-up sales driven by the community open source or plg motion or so on and the freemium models so that's one difference third is that uh the you tend to have bigger but fewer exits in in most buckets and infrastructure compared to cyber so you the risk appetite the risk reward analysis is is very much different But the infra buyers typically especially if you in data or AI ML tend to work far more closer with the business users in their enterprises than the cybersecurity customers do So that also has an influence over the buying patterns and the risks that they look for in new products.

And how do those factors maybe influence your portfolio construction? Do you have targets for how many cyber investments you want to make in a given year versus infrastructure investments or anything like that? We don't have preset targets. I think our goal is to pick trends that we think are where the world is heading.

In certain years, cyber trends are stronger. In certain years, data or AI trends are stronger. For the last two years, we all know, Gen AI trends have been very strong. So that reflects on the portfolio.

I mean, we, of course, try not to be concentrated in one space way too much. I think there are years where we probably have put like a quarter of a dollar in cyber. There are years where we put half of a dollar in cyber. So these are not only dependent on the trends, but also the type of opportunities and the founders we find in that year.

Yeah. So we go with an open mind. We find the best startups that we can invest in, best founders we can back. And we do that from there.

Got it. Okay, cool. Maybe one sort of last topic I'd like to explore is sort of like you mentioned sort of the, what is it? the day zero philosophy of maybe every day or at least frequently we want to like your vision is to almost like envision a restart, right?

Just to stay fresh and ensure that we're staying fresh in general. But I'm curious just sort of how you've seen maybe your role shift since you've been a VC over the last 10, 15 years. So how have you just seen sort of the investment world change over that time? I think the first thing to know is across the board, and especially in cyber, the competition is very high from a venture capital perspective.

There are far more dollars chasing fewer and fewer good opportunities. And we now have cyber-only funds, which is very good for the industry who really understand the cyber ecosystem really well. And that helps. When I advise founders on the right VCs to pick on their board in their syndicates.

It's usually good to have like a broad-based and forefront, one of the mega funds and a cyber-only fund because they all bring their own advantages to the table. So the second thing I would say is that exits are becoming harder and harder just because on a relative percentage basis, far more cyber startups are getting funded now than like two or three years ago, than like 10 years ago. But if the number of cyber startups have like increased by 10x over like eight years, the number of exits have probably gone up by 2x over eight years.

So on a relative basis, it's much harder to exit. Of course, we don't invest with a view just to sell the company in a year or two. We want all of our companies to go public, but we also have to be realistic that the bar to go public has only increased. Nowadays, you need to have like 400 to 500 million, or at least like 300 million in ARR with a view to go to 500 million in a very short order to go public.

And the path to profitability. There are not that many times in the world that can support that kind of bar that public markets want. So the acquisitions and exit to PE firms, which is also a big factor, which I'll come to in a minute, not only are important in considering what investments to make. PE players have become a very important part of cyber acquisitions strategy now.

They buy big private companies. They also buy public companies. So forming relationships with the right private equity players is also very important, which means is also important. Private equity acquirers typically tend to be a lot more profit and cash flow oriented.

They need to see either cash flow today or cash flow quickly, positive cash flow quickly when they acquire a cyber startup. So those are some of the changes we have seen. We have also seen the exploding need in terms of number of attack surfaces, threat surfaces, and cyber budgets over the last 10 years. Although I would say in the last one or two years, cyber budgets have not increased that much compared to the decade before.

So I think for the first time in 10 years, actually CISOs are actually undergoing vendor consolidation. It has been a moving target, but it's actually happening now. The influence of big platform cyber companies has increased quite a bit dramatically, and they're innovating really well, be it Zscaler, CrowdStrike, Palo Alto Networks, Cloudflare, they're innovating really well. Microsoft has become like a real big player in cyber.

So all of these has changed the competitive dynamics quite a bit. So it's intellectually challenging time to be like a founder and an investor to figure out all these moving parts. But at the core of it, one thing that hasn't changed, if you are solving either an unmet need or not a properly met need in a very efficient manner, through your product and you have figured out how to sell efficiently, you are onto something. And that hasn't changed.

And the good thing is there are far more unmet needs than people realize. Yeah. Very good. Well, I know we don't have a ton of time left, so let's go ahead and pivot into the rapid fire round.

It's how we wrap up every interview, basic premise. I asked a few quick questions and you share whatever comes top of mind. Sound good? Sounds good.

Sounds good. All All right. You mentioned being a voracious reader. What's your maybe favorite sort of recent book that you've read or even a newsletter that you're a big fan of?

Yeah. So, you know, my all-time favorite book is David Svensson's Portfolio Management. David Svensson was the head of the Yale Investments Office, and he's known as like the investing guru. Yeah.

All-time favorite book. Yeah. Cool. All right.

Let's see. What's one thing about the cyber industry that you'd like to see change? I think the cyber industry needs to be far more open to be enablers rather than stopping, rather than being like a showstopper. I'm talking about customers.

They really need to change the mentality. I'm just going to stop people from using this to how do I enable people from using this? Enable people for using this, right? And I think we have seen sub movement, but many security practitioner leaders are very risk averse and they need to be more risk tolerant.

What's the best piece of career advice that you've ever received? Always keep selling. I like it. Maybe a little bit more personal advice.

Now, you mentioned having a young baby and another baby on the way. I'm a new dad myself. What's the best piece of parenting advice that you've received? I don't know if I'm qualified to give, but all I can say is that it only gets better with time.

Love it. Cool. And last one, if you could go back in time and get a drink with your 20-year-old self, what advice would you give him?