Emergence has $1 billion to invest. Give us the update.

Today, we're announcing Fund 7, which is $1 billion to back the next generation of founders building amazing B2B software companies. This marks a little over 20 years in business, and I and we have never been more excited. It's just an insanely exciting time to be investing.

From my vantage point, Emergence has long been part of a small group of high-quality firms that have stayed really disciplined overall: model, fund size, strategy, focus. I assume things with the new fund are staying largely the same, and the fund size has increased a little bit. Give me the update there. Is that a reaction to something specific, or how did you and the team end up where you are now with the current fund?

Focus is the operative word. We've been focused from the beginning, and focused in three ways. The first is on what we invest in, which is just B2B software. That's all we've done since we started. The first investment was Salesforce, and we've been investing in B2B software companies ever since. The second is in terms of how we invest. We aspire to be the most important partner to our founders, and part of how we do that is by making a limited number of investments. Each partner here makes on average one investment per year, so it's very much a high-touch, low-volume model. And the third way in which we're focused is in terms of how we grow our people. We grow all of our partners from within. All of us, including myself, were grown painstakingly by the folks above us into general partners. The same will be true across all three of those dimensions for Fund 7.

In terms of fund size, it's effectively the same fund size as our last series of funds. Fund 6 and our opportunity fund totaled $950 million. Those were raised in 2021, and we decided to consolidate it into one fund at $1 billion for the next stage.

Are there pros and cons to that model? How do you think about keeping them separate versus consolidating?

AI companies are so dynamic that we wanted to maximize flexibility. A separate structure has a lot of pros to it, but one of the challenges is that it makes it harder if there's a really exciting early-stage opportunity that requires a larger check. The opportunity fund is intended not to lose money, so it has slightly different investment criteria.

A great example of this would be a company like Together AI. We invested in the Series A in Together AI. It was still very early, very high risk. It's still relatively early; it's only been 18 months since the Series A. The company was at about $2 million in revenue at the Series A, and they raised a $100 million Series A. Not valuation, that was round size. That was in part because these types of companies do require a fair bit of capital to build, but the company has scaled nicely. I think there's some data on the internet now about how they've grown well past $100 million in revenue in about a year and a half. They've grown into the valuation we paid at the A, but it meant that writing bigger checks for riskier situations is something we want the ability to do going forward.

Focus has been the name of the game for Emergence. If we rewind a bit, why hasn't Emergence played the platform mega-fund game over the past five to 10 years? I'm sure there have been a lot of conversations internally amongst you and the partnership over the years about scaling or not. Why have you intentionally chosen to say no to that?

We have very intentionally made that choice, and it comes down to that value of focus. If I use those three dimensions of focus for this decision: if we became multi-stage, we'd have to be doing consumer. We'd have to be doing space tech to be able to spend that cash. We'd have to defocus, which we think takes away some of our strategic advantage.

We also wouldn't be able to aspire to be the most important partner to our companies, because when you're a multi-stage fund, a lot of your investing is option bets. You're writing a lot of checks to see which ones pop out, and then you double down. If we went that path, it would take away from the way we like to do the craft.

And the last one is that if you're a multi-stage firm with lots and lots of people, your HR model becomes very different. You have to hire a squadron of people and have them battle it out to see who's able to move up the stack. It also creates really weird incentives around economics, which is, again, part of the reason why you're seeing an increasingly fast game of musical chairs taking place in venture capital right now, with people leaving their firms.

Do you think the specialist model will continue to persist and thrive over the next decade? Is there room for all parties here? How do you see that evolving in venture over the next decade or so?

I generally think that having a diversity of products is good for any market, and I think that's true for venture as well. What I think is important is for founders to understand what they're buying when they're buying a certain fund. For us, a lot of our value prop is that we believe that by partnering with us, we'll help you bend the odds of success. As part of this fundraise, we did a bunch of analysis on whether that's true. Over 90% of our early-stage investments go on to raise successful follow-on rounds, which is just the very first milestone on the journey, but obviously a very important one. Over 20% of our early-stage investments go on to raise rounds at north of $1 billion. And the stat I'm most proud of is that over 10% of our early-stage investments have gone public.

That's an incredible number.

There's something to this model that's working, and it's not just us that have this high-touch, low-volume model. Obviously, Benchmark, Union Square, there are some great other firms playing a somewhat similar model. Obviously, I and we are bullish that that model will continue and there will be a subset of founders that want to buy that product. But there will be others who want a higher-volume, lower-touch model, and that's okay.

My partner, Kyle, talks a lot about venture being different SKUs, and I think you're completely right that there's a product for everyone, even at different points of the founder journey. Founders often want different things. Sometimes they want a board member who's more hands-on, sometimes less hands-on, sometimes a super small firm, sometimes a big one. It seems to vary, often depending on the stage. So I agree with the sentiment.

This is back to the question about being multi-stage or not. I agree with you. I think the high-touch, low-volume model makes the most sense in the earlier stages, in general. It's not always true, but in general, it's true. What that means is that the majority of our investing focuses around the Series A. We do some seed investing and some Series B investing, but that range is generally where you need us, where it's worth buying our product. That's where we can go in and help you figure out who your first VP of sales should be, how to figure out channel partnerships, all that stuff.

By the time you're getting to the pre-IPO stage, and I worked at a growth fund briefly before I was here, it's valuable for sure. But it's a very different day-to-day thing that you're doing. For me, what's most authentic to me, my parents are co-founders. I like this stage. I like the, "Okay, you got semblance as a product-market fit. How do we think about starting to build a machine around that?" That just energizes me personally.

You mentioned this briefly in the beginning, but let's fast-forward to today and talk about investing. A lot of our peers are proclaiming the death of SaaS after an amazing 20-year run. I assume you think they're wrong. Why are they wrong? Then we'll talk a little bit about AI after that.

We should define what we mean by SaaS. Unfortunately, in this debate, lots of things are getting muddied in terms of definitions. SaaS stands for software as a service. It's a business model. I don't think people are going to stop buying software. The way they buy software may change. It may move from seat-based to more outcomes-based, but it will still be software that is purchased in many cases.

Now, there are going to be some business models that are what we're calling AI-enabled services models, where you're buying fully an outcome. You're not really even touching the software. We've done a lot of investing. We actually wrote a playbook called the AI-Enabled Services Playbook on how to build in that way, so we're obviously excited about that too. But the idea that people are not going to buy software, I think, is a little bit crazy.

I think it's crazy for three reasons. There are three reasons why people buy software versus coding yourself, and this is the core question. You could pull up Bolt or any of these other products right now and theoretically build your own software. And we're investors in Bolt. We think that's great. Please do it. But I still think that many, many businesses are going to want to buy software, not build it themselves.

The first reason is that when you're buying software, you're buying an opinionated perspective on how to solve a problem. There's real value in buying something from someone who has spent thousands of hours focused on this craft of solving a specific problem.

The second reason is that the same things that make this stuff really easy to build yourself mean it gets out of date very quickly, because the technology is changing so quickly. Even if you do build something amazing yourself, in six months the tech is outdated. So how are you going to keep it up to date? What's the maintenance?

And the last reason I think people will still buy software is that they want a throat to choke. They want someone or something to say, "This broke, go fix it," or "This didn't work. I didn't get the outcome I wanted. What's going on? Please hold my hand." For all those reasons, I think that software is not going away as a business model. How it's priced may evolve, but I think those calling for the death of software are mistaken.

Think about the advent of AI and its effect on how you and the team think about the kinds of bets to make in B2B broadly. Has it made you lean in? I know you've talked in the past about an FTX moment in AI. Does it make you uncomfortable and want to sit on the sidelines? Are you somewhere in between? How are you, or the Emergence team more broadly, thinking about AI's effect on B2B writ large?

This is the scariest and most exciting time to do this job. It is both of those things. If you study emotions, fear and excitement are actually very, very similar valences, and that's what this moment is. We have companies that are growing more quickly than any company has in history. Famously, Bolt released that they went from zero to 20 in two months. That's never happened before. We did the first institutional round at Zoom, which was one of the fastest-growing original SaaS businesses, and that business didn't grow as quickly as Bolt is currently growing.

But obviously the fear is: how long will that continue? What will retention look like? These are all unknowns that really no one has an answer to, because things are moving so quickly and the underlying technology is moving so quickly. It's insanely exciting and very scary.

But the reality is that the moments where venture makes the most money are moments of great disruption. In moments of stasis, it's just harder to find outlier opportunities. This is the moment where outliers are being built. There will be many times over the life of this fund and beyond where we lose all of our money, but that's okay. Our job is to be amazing partners to these founders and help them build something that's enduring. Most of them won't make it, but our job is to help them find a great home. And the ones that do, that's how the economics work for our LPs.

Last question, Jake. Why should an entrepreneur listening today partner with Emergence?

I think it comes down to bending the odds of their success. Ultimately, we've proven that we statistically are very good at helping you meet every milestone, including the milestone of going public. But on a more human level, you've got to choose someone whose energy connects with you. I'm finance-y, obviously, and I'm very quantitative, but what I've come to realize in my old age, so to speak, is that I want to work with people who give me energy. And I think that should be the same for the founder as well.

A lot of this is still a very human business. You can look at the stats of how successful we have been and hopefully will make you successful. But ultimately, you still have to feel, "I'm so excited when I see that person's name pop up on my phone," because these relationships last so long.

I'm wearing the T-shirt today for DroneDeploy. DroneDeploy was the very first board I sat on, alongside my partner, Kevin Spain, in 2015. We led the Series A. I was just reminiscing with Mike, the CEO there, a couple of weeks ago about, A, how threadbare the shirt is and how I need to get into it because it's really gross now, but also where that business was almost a decade ago. Now it's become the dominant provider of drone software in the world, which is just so cool. I'm so proud of him. I'm so proud of them. It's such a lifelong journey that the energy between yourself and the founder has to be very good to want to lean in and do this for decades.

It's equal parts personal and quantitative, as you said. It's that personal journey along the way, combined with the facts that there are certain firms out there that have been better than others at helping founders bend the odds. Jake, this is awesome. It's great to see you, and congrats again.

Thanks, Eric. I appreciate it.