SaaS incumbents and the verticalization trend

Chetan Puttagunta is a General Partner at Benchmark.

We talk about investing in Manus, the AI company that went from zero to $100M ARR in eight months and was recently acquired by Meta.

We also talk through the full history of application software, from mainframes to client-server, to the internet to cloud, why each wave reduced the barrier to entry and created an explosion in the number of new software, why legacy SaaS companies are making the same mistake on-prem vendors made at the dawn of the cloud, why software companies should be making big AI acquisitions, and how public market investors are begging private AI companies to go public.

We also talk about what Benchmark actually looks for in founders, how they make decisions, and why his last two investments were consumer AI and crypto.

Thanks to Sam Ross and Everett Randle for helping brainstorm topics for this conversation.

Thanks you to Numeral and Flex for supporting this episode.

Try Numeral, the end-to-end platform for sales tax and compliance: https://www.numeral.com

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Timestamps:

(0:08) Inside the $2.5B Manus acquisition

(6:24) Manus' three main use cases

(11:08) Taking heat on Twitter

(15:10) Starting to tweet about software in 2018

(22:50) The history of application software

(29:15) Benchmark’s 25x Fund 7

(31:33) SaaS incumbents got too dominant by 2020

(31:48) Going all-in on AI software in 2022

(39:31) Benchmark didn’t invest in the big AI labs

(40:48) How cloud companies beat on-prem competitors

(44:33) Why AI companies will beat legacy cloud competitors

(50:04) Software incumbents should make big AI acquisitions

(57:35) Why incumbents have not bought more AI companies

(1:04:43) Public markets are starving for AI companies

(1:10:14) Inside Benchmark’s fund strategy

(1:14:14) Benchmark’s history of non-traditional VC rounds

(1:17:56) Is the 20% ownership model outdated?

(1:19:20) Chetan’s rebirth as a consumer investor

(1:22:39) What Benchmark looks for in founders

(1:25:01) AI coding and gross margins

Referenced

Benchmark: https://benchmark.com/

Eric Vishria’s podcast episode: https://www.youtube.com/watch?v=I-5IsqFgrZM

Workday S-1: https://www.sec.gov/Archives/edgar/data/1327811/000119312512375787/d385110ds1.htm

Innovator's Dilemma: https://www.amazon.com/Innovators-Dilemma-Revolutionary-Business-Essentials/dp/0060521996

Try FOMO: https://apps.apple.com/us/app/fomo-never-miss-out/id6741115427

Follow Chetan

Twitter: https://x.com/chetanp

LinkedIn: https://www.linkedin.com/in/chetanputtagunta

Follow Turner

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LinkedIn: https://www.linkedin.com/in/turnernovak

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