CIBC Innovation Banking Podcast

[00:00:00] Jager McConnell It was a bumpy ride, hiring the right people, trying to retain the right people that were in that original group, identifying the things that we had to do to build the stuff in time, sell it in time. It was a rough year, but it all worked out. 

[00:00:18] Michael Hello, I'm Michael Hainsworth. The CIBC Innovation Banking podcast explores the world of startups, growth stage companies and late stage companies that have made a big splash in their industries around the world. Crunchbase has blazed its own trail since its spinoff from the wildly popular TechCrunch. The company recently raised 50 million in a Series D round. And it comes at a difficult time for raising funds, not just for B2B software as a service, but for the industry as a whole. Nobody knows that better than Crunchbase CEO, Jager McConnell. So how did he do it? How do you manage the uncertainty about where things go from here? And how did Jager's experience at Salesforce help him drive Crunchbase to the level of a success it's seen so far? I began our conversation by asking about his latest funding round. Congrats on your Series D, 50 million dollar round. That's a lot of walking around money. What's it for? 

[00:01:20] Jager McConnell Yeah, great question. So we are all about trying to get to profitability with these dollars. Can we get to ultimately an IPO? This is what these dollars are for. In terms of the company itself, we're thinking about how do we extend this prospecting platform that we've built? We've built this thing that allows companies to find other companies to sell to, to invest in, to partner with. Can we push even further in that workflow to help these prospectors kind of get what they need to do, what they need to do their job and be successful, and also help those companies be successful. It's all about finding opportunities on Crunchbase and we see a lot of opportunity to do a better job there. 

[00:01:57] Michael It has been a difficult time for growth equity rounds, but you're calling the decimation of multiples from as much as 100 times down to five times today, a good thing for the industry. Why? 

[00:02:08] Jager McConnell Yeah. I mean, things were so hyper inflated that it put companies on this path of failure. When you go and raise, you know, I have a friend who raised a $1.1 billion dollar round, he had $15 million dollars in revenue. So when he thinks about what his next round had to be, it was impossible. There is no way he could get to that three, four, five billion dollar valuation. What revenue do you have to get to? A hundred million dollar? That's a huge gap for him to go and fill. So that pushed him and other CEOs like him to go and do growth at all costs. And that growth at all cost makes you do very dumb things when you have that much money in the bank. You go and hire way ahead of your skis. You go in and have billboards all down one and one in Silicon Valley, hoping that maybe that might work. You know, you just try a lot of things, throw a lot of money around, and ultimately put yourselves up for failure. Now, some companies might stumble into success by doing that, but the vast majority won't. And that means that you're putting people's careers and even the companies existence on the line to support these inflated valuations. So when they come down, now it's you've got a realistic valuation with a realistic goal. You've got investors talking about efficient growth rather than triple, triple, double, double, double. And that's so much healthier for our entire ecosystem because we're building strong, viable companies rather than dreams. 

[00:03:36] Michael I can imagine, though, it's hard on employees working at those companies. 

[00:03:39] Jager McConnell Yeah, it feels good in a moment, right? Because when money is no object, you get all these crazy perks. You've got the ping pong tables and the keg kegerator in the office or whatever it is. 

[00:03:50] Michael And the options. 

[00:03:52] Jager McConnell For sure, the options. You're doing the math every day to sort of see how much you think you're worth on paper. But the reality is, is that when these down rounds happen and they are happening, these employees realize that all of that is kind of fictional money. The only exit that matters is the last one. And the reality is that when employees and really CEOs focus too much on the virtual valuation, they again make big mistakes. They think of themselves as the next Uber when really they haven't even proven that they can get off the parking lot. You know. 

[00:04:26] Michael Has B2B SaaS been hit harder than the rest of the industry? 

[00:04:30] Jager McConnell I mean, I think there's been a lot of people have been hit hard. I think SaaS is certainly one of those areas. It follows public markets. Right. Like you look at a Salesforce as an example, like their stock certainly has taken a beating this year, sort of outsized the way they often lead the Dow as the biggest decliner. That trickles right into the private market valuations, same way as like a maybe this isn't such a sure thing after all. To be fair, the multiples are still pretty good. When you go rewind back to early 2000, it's only in comparison to the insane inflation and valuations that they were having, so they were outsized inflation on the valuations. Now we're seeing outsized compression on those valuations back to more realistic levels. And I think the levels were at feel pretty good. It's just not something that, it's just not something that, when we look at other industries, they didn't have that expansion, so they didn't have as much compression. 

[00:05:30] Michael It sounds like you see this as a Great Reset. Can we look to the dotcom crash for insight into how to navigate this claim? 

[00:05:38] Jager McConnell Hundred percent. So and when you talk about the dotcom crash, I got back to 2000, right, when the pet.com just got crushed, bbq.com went away. And this is no exception. So I think the companies that survived that emerged much stronger. And the reason  that was true is that they focused on building real businesses with efficiency and measured growth. And we're in that same mode again. Were like at Crunchbase certainly, we're thinking about what is our best MER efficiency ratio, right? How do we go and what's our ARR per employee? What is our rule of 40? These are things that we didn't normally talk about until this big shift happened, and it's allowed us to build a much stronger, sustainable business that can grow with yes longer growth horizons but with much more interesting opportunities. I think that's going to be true, just like it was back in 2000, 2001. 

[00:06:40] Michael McConnell is applying to Crunchbase the lessons learned at SaaS Jager Salesforce. It's helped him in taking over a company spun out of a larger media property. He admits it was a rough start, but his background in product development has helped steer the company forward and lessen his reliance on the advertising model that TechCrunch was known for. He tells me his experience at Salesforce was instrumental in his early success. 

[00:07:04] Jager McConnell I loved how Salesforce gave back to the community and really made their mission for their employees, not just let's build great sales software, but it was also let's go and build a great community and give back in all the ways that the community has helped us. And Crunchbase has taken a similar approach with the Pledge 1% program, with giving donations every week, letting employers choose where their donations go and matching those donations, like, oh, those are all the things that came out of my DNA being a Salesforce employee. Other things, there was a strong focus on diversity at the end at Salesforce. I was at the end of my tenure at Salesforce. At the beginning there wasn't. So I first saw this shift as an organization from prioritizing diversity, and I saw how hard that was. So something that I learned was wouldn't it have been great had we prioritize diversity at the very beginning of Salesforce. And I brought that to Crunchbase as well. Certainly I've hired people at Salesforce, so that has informed how we build product. So we think about scalability. We think about building it the right way from the beginning. We think about platform and API first. All of those things that product insights of seeing the benefits of that in the long term at Salesforce translate into benefits of how Crunchbase works. Again, I could ramble on for a while here, but there's just about everything I do, I boil it back to what would Salesforce do. WWSD I guess, and then and take it from there. 

[00:08:34] Michael Yeah. You're not a sales guy. You're a product manager. You're product development guy. 

[00:08:39] Jager McConnell Well, so my first job at Salesforce was actually in sales. I was a product guy before that. And I was like, well, you know, I could probably get a sales job at Salesforce being a sales engineer. That was my first job at Salesforce. I did that for about a year, and then I got promoted to managing sales engineers, and then at some point I was like, I'm not really a sales guy. I have to admit this. So, I wrote an email to Mark, and I sort of told him all the things I thought we should do with the product. And he got excited, and I put my career on a different trajectory back into product. It was it was a wild ride. So I have done sales, but I am definitely not a salesperson. You're right about that. 

[00:09:17] Michael So then what was it like taking the reins of a company that was spun out of a larger media property? 

[00:09:23] Jager McConnell It was the hardest year of my career, that first year. First, this thing was a part of America Online, you know, slash Verizon. There was a lot that had to change in terms of work ethic and how we, how do you become a startup, right. How do you go and have that push and drive in this limited runway? Like we were out of business in a year and a half if we didn't make something and sell it and raise more money. So there was a lot of how do you change that DNA of those people? Back to the diversity comment, like it wasn't very, that group that we spun out wasn't a very diverse group. How do you start shifting that and changing that around? How do you quickly build that private? All those things were crazy, just from a fundamental priority standpoint. Verizon, well, had a very different mind frame of how to make money, compared to let's go build B2B SaaS. You know, like that's a very different thing and not something that they were familiar with, which is why they had the great insight to spin it out. Right. Like we know that's the direction, that's the direction we can't take it. Let's have that go on their own. So it was a bumpy ride, hiring the right people, trying to retain the right people that were in that original group, identifying the things that we had to do to build the stuff in time, sell it in time. It was a rough year, but it all worked out. 

[00:10:44] Michael I can imagine, though, you had some significant wins in that first year as well. You know, you hit 50,000 ARR in the first week, and that would take months for a regular startup. 

[00:10:53] Jager McConnell Yeah, we had some unfair advantages, which is why it was so appealing to become the CEO of Crunchbase. We had about 20sh million people using Crunchbase at the time for free. And yes, there are questions how could we sell them something? Could we change that model to actually be a paid model? But when you have that many people come to your website, it's a lot easier to sell them something if it's valuable. So yeah, we saw a very fast acceleration compared to most startups, which was refreshing. And honestly, that product like growth, that notion of using our website to sell what we have with very little sort of input from us is something that we still leverage today as we have many, many tens of millions of dollars in recurring revenue. 

[00:11:36] Michael And I can imagine, too, the spin out gave you the ability to expand Crunchbase as a per view. You know, you moved away from this ad model. 

[00:11:44] Jager McConnell That's right. The ads were not good. It was, ad businesses are hard. You have to have huge scale to be successful in them. We had medium scale, like 20 million sounds like a lot, but in the grand scheme of selling ads, it's really not that much. So we were seeing, you know, a couple of million dollars maybe in revenue. That's not enough to pay the salaries of 20 people, let alone expand and go beyond. And then and then you also have the user experience impact. What you do to sell more expensive ads, you take up more real estate on the page. So your Costco hotdog ad, you know, it gets goes larger and larger. And that really impacts the user experience for our users. And that isn't good when you're trying to build a software company. So it wasn't part of my DNA to build it. Maybe there was a business model there, but it was a pleasure turning that off, and letting us focus on adding value to our end users rather than trying to sell them things that they didn't necessarily want. 

[00:12:41] Michael But was it hard to turn off that revenue stream? 

[00:12:44] Jager McConnell Yeah. I mean, it took us a couple of years because it was so hard. It was I mean, on day one, it was our largest revenue stream and that helps pay the bills. And it was always this balance of, do we have enough money in the bank and are we making enough money to turn that off from other sources? I mean, it did take us, if memory serves somewhere in 20, so we put on by the end of 2015. It was like early 2017 or so, that we turned off ads. I might be wrong, but it was somewhere around that time period. So, you know, when you're at the beginning and you're not so sure. Yeah, you don't turn that off. But again, it was a real pleasure to finally turn off that switch. 

[00:13:25] Michael So while it was a rough start taking the reins of a spin off, McConnell leaned on his product background and shifted gears dramatically. With one year to build a product and sell it, he built a strong brand that ultimately led to 50,000 ARR in the first week. Something that would have taken regular startup months to accomplish. Crunchbase started by focusing on venture funding, but it's now moving into becoming a private company resource too. So I asked him why the pivot? 

[00:13:54] Jager McConnell When I picked up the reins, that transition was already taking place, where we were, you know, at the time, only about, I want to say, half of our companies had funding information. These days, about 75 percent of our companies don't have funding information. So there's something that we definitely have focused on. We care more about fast growing companies who are users, whether they be salespeople or investors or entrepreneurs. We care about the companies that are growing the fastest, regardless of whether or not they're bootstrapped or funded or even large companies. Our mission has always been, let's make sure that we have the companies that matter in Crunchbase. And what's interesting is over time, we're finding more and more companies that aren't funded that still fit that description. So can we be the private company resource, the LinkedIn of private companies? Right. That's what we think about. So if you're ever like, what does this company do? Who is this company? I just heard about them. You look them up on Crunchbase, and they're there. And if we scoped it, the only funding, it would be a not a great experience for users, because you wouldn't necessarily know which companies would or wouldn't be in Crunchbase because you don't know if they have funding or not. So we need to make sure that we're more inclusive. 

[00:15:05] Michael So now you've got this strategy of Crunchbase Pro, the new licensing system. 

[00:15:11] Jager McConnell Yeah. So Pro, we launched that, that was the first thing we launched. So we launched Pro in at the end of 2016, so just about a year after we spun out. And so we developed and built on top of that over the years. And then we launched Crunchbase Enterprise just about a year ago. So that strategy has been let's make sure that  for the prospect prospector. We have something for them. There's something called Starter, which is more of the tool for the researcher who wants to go and find things. We've got Prospectors who are like, want to make sure they're the first to know when a company gets funding, first to know when there's some sort of growth signal that we're tracking that they care about. That's, again, targeted towards those individuals who want to just do a better job of their prospecting. And then Enterprise is I'm a team. I have a team of people, and I want to go in and and figure out a strategy to go and tackle a large number of prospects. Our mindset is let's be the number one prospecting platform, so that you can get the job done using Crunchbase. 

[00:16:14] Michael So building an enterprise product is no easy feat. What was the hardest lesson you had to learn? 

[00:16:20] Jager McConnell You know, for us, it's really focusing on our target user, right? We're thinking about who is the user that's right for us. And certainly in sales and even more specifically, it's those SDR's who are probably trying to figure out who their next opportunity is. It's hard at Crunchbase because now we're at 75 million people using Crunchbase today. They aren't all sales people. In fact, they're only 20 percent or so are salespeople. So you have a lot of different use cases. And all of them, everyone, all those use cases buy Crunchbase Pro and Crunchbase Enterprise for their purposes. We have so many investors buying it. We certainly have entrepreneurs buying it, BD people, HR people or recruiters, you know, they're all using Crunchbase for different use cases. And so the temptation is to then go and try to build something for everyone. But what we've learned is let's focus on a very singular use case, and build it in a way that all these other use cases can still benefit from that. But we as a private organization are building towards this one specific use case. And that was a lesson to take probably longer than it should have to figure out. Just because if you're too nervous to tackle the low hanging fruit, you can you can stumble. In our case, those, like it's a little, like a lot of people say, well, you're building something for salespeople, like Crunchbase is becoming a different kind of tools, it's really not. Just like LinkedIn didn't change into a different tool because they've built LinkedIn Sales now, right. Like they still they have sales tools. You are sold to when you are there. But people get enough value of being in LinkedIn through the recruiting and through people finding opportunities that way that they're willing to go in to get that, like the other side of the coin through the sales side. We have a similar sort of thing where companies find investors through Crunchbase, they find investment through Crunchbase, they're discovered through Crunchbase, employees figure out if these companies are even companies they want to work at, because of Crunchbase. Those are enough benefits that it offsets any other use cases. 

[00:18:18] Michael So then what would you say the unexpected hurdle was, that you had overcome when pivoting to an enterprise product? 

[00:18:24] Jager McConnell Oh, I mean, at the beginning it was getting the right people in the door internally. Right. Just like actually the building the team was, I think, harder than I thought it would be. Crunchbase was this kind of an old brand, right? When I joined in 2015, and we became independent company, that in my mind, that's where we started. But the reality is back in 2007 is actually when Crunchbase came into existence. So trying to hire the right people with sort of a legacy brand like that was tricky. And I thought that would be easier, and it wasn't. So that's probably one thing. The other thing is, you know, all those different use cases translates into people buying and churning at a rate that we didn't expect. Right. Like some people use us for job seeking, as in "I want to find a company that matches the kind of company I want to work for. There's a fast growth company in Minnesota", well, Crunchbase can do that for you. Like we could figure that out. So you buy it and then you cancel because you found a job, and you don't need that any more. So that's something I wasn't used to coming out of Salesforce because Salesforce was so sticky that, you know, and to this day, like we're figuring out how do we add more value and make it more of a recurring use case. That was an unexpected challenge that we still push forward with today. 

[00:19:46] Michael McConnell is building an organization he wants to be a model for other companies. He pledges to give back to the community one percent of what he brings in. He uses the company website to communicate social perspectives that otherwise may not have been used. He admits he might take a hit on traffic, but he's decided there are important things to discuss. And he uses Crunchbase as a megaphone, as he calls it. As a result, he tells me he considers himself a social issue driven individual. So you consider yourself a social issue driven individual? 

[00:20:20] Jager McConnell I do. Yeah. I mean, this goes back to how I was raised, and like hats off to my mom for helping make that happen. But I've sort of always seen the inequity that certainly has impacted the world around me, and the even surprising ways that it's affected me in the sense that I, obviously, I'm a white male, like I've seen the benefits of that, where I got into school I shouldn't have got into, I got jobs that I shouldn't have had, I got paid more than I should have had. And compared to my compatriots who were of under-represented classes, like when I saw that happen, it just like this doesn't feel right. And what can I do about it? And so I always had this idea of, like, I would like to be a CEO someday, partly because I have a problem with authority, but also because I would like to go and make a difference in the world in the way that I can. And now I'm in a position where I can do that so that we can do things like Diversity Spotlight. So in Crunchbase, a couple of years ago, we launched Diversity Spotlight, which allows us to go and track the sort of what is the race and the gender of under-represented classes that are founders of companies. And what that lets us do is say okay, well, how much funding goes to women founders, you know, and how has that changed over time or black founders? And how has that changed over time? What investors are making the most investments? In today's market conditions, is there a pullback by investors? Are they investing now more in white investor founders versus not? That allows us to shine a spotlight on the inequities and these challenges, and make a difference by calling them out, and even helping drive some policies, saying like, well, maybe there should be sort of rules around how many diverse partners an investment firm should have, because that necessarily will drive investment into diverse founders. So there's a lot of areas that we push on. All those things come back to me feeling like that's my responsibility as a CEO to lead by example, certainly in my own organization, but also push where I can with a channel and a microphone or the megaphone that I have with Crunchbase to make a difference in the world. So I think every CEO these be thinking about that, obviously. 

[00:22:37] Michael Yeah. He once told me that you want to build an organization that's a model for other organizations, and that's why you take a stand using the company. 

[00:22:44] Jager McConnell That's right. So a good example was Black Lives Matter movement. A lot of people said we stand in solidarity. They posted on Twitter, they called it a day. In our case, we went and published our entire internal action plan with owners and tactical things that we had to do to make a difference to sort of take an anti-racist stance internally. The reason we publish is we're hoping that other companies might at least use as a model or use that as inspiration internally. That stuff is so important to me and to us as a company and to the people that work at Crunchbase. I think you start to attract the people that want to work at a company like that. Like even today I had two interviews and both of them were asking hard questions around our stance on diversity and inclusion. And I think it's because of these sorts of things that we do which helps change the narrative and helps the employees realize that they're doing something bigger than just making dollars and growth percentages for their company. 

[00:23:44] Michael Yeah. Your vibe attracts your tribe, sort of thing. 

[00:23:46] Jager McConnell It's accurate. 

[00:23:48] Michael So am I talking to you from Las Vegas? What's it like moving to Vegas, baby Vegas? 

[00:23:51] Jager McConnell You know, it's funny. I just did a, I met a group of people yesterday from Startup Nevada. So there's a bunch of like accelerators and things here, and I love it. Honestly, it was a big move for me. My life was changing in a bunch of different ways. I was in San Francisco. We went remote first, and I was like, well, where should I move to? And I did a whole analysis, and Vegas, popped up as the top choice for a bunch of different reasons. The easy one is taxes, you know. That really helps. And I like heat. So if you like heat, Vegas is a good place to go. It's got good proximity to California, so I can fly and be in the Bay Area an hour if I need to be. So all those things were were great. But what I didn't know when I came here was the diversity in the tech scene, like there's actually a merging tech scene here, a bunch of accelerators. Like I'm mentoring people. I guess, it feels like a scrappy Silicon Valley. And I kind of liked that. And I think Austin had some of that. And Miami has some of that. And there's kind of well-known exit areas for the remote worker to go to. But Vegas is definitely one that people need to consider, because it isn't just the strip. Everyone thinks, oh, you're just there to party every night. I don't go to clubs. I'm too old for, the only ones the dad at a club, you know. But there is an amazing art scene here. There's amazing food, great music, entertainment, great transport, like flights to the whole rest of the planet. It's a great little town, and it's a quarter of the cost of the Bay Area, and you don't pay taxes. Like there's just so many reasons to live here, as long as you like heat. If you don't like heat, wrong place for you. 

[00:25:38] Michael Jager McConnell continues to be a force within the B2B SaaS community. Whether it's using Crunchbase as a megaphone for social issues important to him and his employees, or leaning into a pivot into a new space and energizing the team to succeed. McConnell success is reflected in the company's ability to navigate a difficult environment. While the Great Reset in valuations may not be applauded in all quarters, McConnell believes it will return founder focus to putting out a great product, empowering employees to be their best and ultimately lead to a rising tide that lifts all boats. I'm Michael Hainsworth. Thanks for listening.