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I'm David Subar,
Managing Partner of Interna.


We enable technology companies to ship better products faster, to achieve product-market fit more quickly, and to deploy capital more efficiently.


You might recognize some of our clients. They range in size from small, six-member startups to the Walt Disney Company. We've helped companies such as Pluto on their way to a $340MM sale to Viacom, and on their path to a $1.5B sale to Linkedin.

The Growth Equation - PE Perspectives on Product With Tim McAdam of TCV

In the latest episode of “The Growth Equation: PE Perspectives on Product”, we dive deep into the pool of tech investments with Tim McAdam, a general partner at TCV. Tim has over thirty years of experience in software growth equity investing. 

Throughout this discussion, Tim sheds light on the delicate dance between visionary entrepreneurs and the market demands they aim to satisfy. It's a delicate balance to strike, and not all visionaries possess the real-world prowess to pivot according to evolving customer needs. If you've ever wondered how investors sift through the multitude of promising pitches to unearth the true gems, this episode is a must-listen.

Investment climates are in constant flux, influenced by external factors such as interest rates, geopolitical tensions, and economic shifts. Tim touches on these elements, explaining their impact on both the psyche of investors and the dynamics within the entrepreneurial ecosystem. 

Tim delves into the fascinating world of artificial intelligence and machine learning, discussing their transformative roles across different sectors, which could fundamentally alter how products are created and services are rendered.

From discussing the necessary evolution of investment approaches given technological advancements to exploring the characteristics that define successful tech leaders, this episode is packed with insights that challenge conventional thinking and inspire a deeper understanding of the tech landscape.

For more about us: and find more posts like this at

Don't miss a single episode of “The Growth Equation: PE Perspectives on Product”! Click the links below to follow our podcast on Spotify, Apple, and YouTube. You'll get notified as soon as new episodes drop.

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00:00 Tim McAdam discusses tech investments and AI.

05:39 Invest in profitable companies, and help founder professionalize.

07:43 Surprising ease of building successful businesses today.

10:58 TCV created separate fund to gain advantage.

15:01 33-year history with successful B2B/B2C investments.

17:40 TCV excels in IPOs and strategic acquisitions.

21:32 Assessing tech companies; passion vs customer needs.

24:01 CPOS must build products customers truly need.

27:40 Founder-market misalignment can pause potential investments.

33:45 "Decreased exits, limited capital inflows in 2024."

35:09 Tech private equity expects normalcy with IPOs.

40:18 AI building labeling side for efficient large models.

44:41 Businesses to bring products to market more efficiently.

48:10 Product-led growth emphasizes minimal service and education.

49:52 Frictionless onboarding, selling, and self-service are vital.


David Subar [00:00:00]:

In this latest episode of the growth equation, peer perspectives on products, we dive deep into the pool of tech investments with Tim McAdam. Tim is a seasoned investor with over three decades in the software investing field that way at TCV. Throughout this discussion, Tim sheds light on the delicate dance between visionary entrepreneurs and the actual market demands which they aim to satisfy. It's a delicate balance of strike, and not all visionaries possess the real-world prowess to pivot according to the evolving customer needs. Tim also talks about investment climates. They're in constant fluctuation, influenced by a myriad of factors such as interest rates, geopolitics, and economic shifts. Tim touches on these elements, explaining their impact on the psyche of investors and the dynamics within the entrepreneurial ecosystem. Finally, Tim also delves in the fascinating world of artificial intelligence and machine learning, discussing their transformative roles across different sectors and how they could fundamentally alter how props are created.

David Subar [00:01:10]:

TCV's portfolio includes Airbnb and Netflix. Tim talks to listeners about how some of those success stories were made and the significant evolution in technology investment strategies over the years. Join me as I talk with Tim. Thank you, Tim, thanks for joining us. Looking forward to our conversation.

Tim McAdam [00:01:38]:

Great to be here. Thanks for having me, Dave.

David Subar [00:01:41]:

So let's just start by you, tell us how you got into the career where you started. How'd you get to TCV? What are all the steps that got you to where you were today?

Tim McAdam [00:01:56]:

Yeah, sure. So it's been somewhat of a circuitous journey. I started in this business almost out of college, believe it or not. In 1991, I started with a firm called TA Associates back in Boston. TA at the time was frankly one of the only tech investors on the planet, a handful of tech investors that were focused on software investing. They have been around since the sixties. I interviewed coming out of college. I actually didn't get a job coming out of college with them.

Tim McAdam [00:02:38]:

I took a job in the tech and emerging growth group at an investment bank on Wall Street, and six months into that job I was called by TA. They had a position opening up. One of their associates was going back to business school. They needed to replace her unexpectedly. So I chose to quit my investment banking gig after six months and packed up my U-Haul and drove up to Boston from New York and never looked back. I've been a software investor since then, so it's coming up on or just past 33 years in the business. So, after grad school, I went to Stanford for business school. After TA, I worked with two other firms prior to joining TCV 15 years ago now.

Tim McAdam [00:03:38]:

So my 15th year at the firm, I had a stint doing early-stage venture for ten years just before joining TCV. And for four years after Stanford, I was doing more control-oriented tech investing. So the equivalent of buyouts or really late-stage growth equity compared to what TCV does today.

David Subar [00:04:10]:

Okay, so that brings up like three questions for me. Okay, let's talk about what TCV does today. And then I ask you to get to a historical thing about TCV.

Tim McAdam [00:04:23]:

Yeah, so TCV today, we're on our 12th fund, been around for almost 30 years now. The firm kind of made its reputation over the last three decades investing in a combination of business-to-business companies and business-to-consumer companies. We've been pretty true to our roots. We look for businesses that are redefining big chunks of the IT economy, going after incumbents with just better solutions, better ways to attack problems in the IT economy. And we've done it in kind of an interesting way. We not only focus on hyper-grower businesses that are rapidly taking market share from incumbents in big niches of the IT economy, but we also have a very vibrant part of our portfolio where we're targeting businesses that are more, we call them durable compounders. They're already fairly well established.

Tim McAdam [00:05:39]:

Oftentimes they've been bootstrapped, haven't taken outside capital, they're already profitable, and they're really looking for a partner. We think of ourselves as invited guests in these cap tables where we're oftentimes the only investor. And we come in and help a founder, oftentimes a founder, professionalize his or her team, build a real board, and position the company for, an IPO, potentially, or an eventual exit. So unlike a lot of our competition, who focuses on, one part of that Barbell or the other, the hyper growers, the companies that are still taking market share and most often still losing money, or the other side of the barbell, the firms that are focused on just profitable, durable compounders. We have a really nice strategy of a hybrid barbell approach where we have exposure to both types of businesses, but not straying from businesses that are business-to-business oriented companies, primarily software companies, or business-to-consumer, primarily subscription companies.

David Subar [00:07:05]:

Got it. So 33 years, I think you said lots changed. Lots changed. The technology industry there. Since then, lots changed in funding. There's obviously been cyclical things, macros changing, but those always come back. What have you seen change over your career that you think is permanent? What do you think has been really interesting, and it's different about the technology world and the technology investing world.

Tim McAdam [00:07:43]:

Yeah, a lot. I mean that's probably a multifaceted answer, but one of the things that is surprising to me, has been surprising to me over the last 33 years, and maybe even particularly the last ten years, is how far a company can get on a very small amount of capital, and by how far I mean product market fit, demonstrable moats and differentiation, and really hard differentiated IP that customers need to have for very little invested capital compared to when I first started. In this business where you needed heavy metal to start a business, you needed real racks and racks of compute power, lots of time and dollars to actually code and bring products to market. It was very tough to get a customer's attention when there was no Internet, for example, and it was old-school marketing. Now between the cost of compute in storage going down, everyone's carrying a supercomputer in their pocket. So it's very easy to ingest information to be marketed to, to compare and contrast solutions. It's just much more inexpensive to bring the same quality of product to a buyer of that product as compared to the early nineties PC revolution. PC into mid-range, into hosted, into multi-tenant into now cloud.

Tim McAdam [00:09:44]:

Those evolutions of the way both B2B software is ingested and consumer software is ingested has just made the cost of providing solutions need to have solutions so much cheaper. So it's kind of a version of Moore's law, but it affects every functional area of bringing a product to market.

David Subar [00:10:11]:

It's actually, I was at a meeting of a bunch of CTOs and Chief Product Officers the other day and there was a question is what was been the most important technology change? And I said cloud for that reason, for that exact reason is the reduction of cost of startups means that we can generate a bunch more innovation we couldn't generate for. But let's, okay, so let's. Given that, how does that change the investing landscape? Does that mean that there's more companies that go from zero to TCV or investors like TCV as their first outside investor? Does that make that better? Does that make that more competitive from the buy side? How does that change things for you?

Tim McAdam [00:10:58]:

Yeah, it's a good question, it’s frankly it's one of the reasons we stood up an early-stage fund a few years ago. We call it TCV velocities. We saw some of our competition who we would normally run into in a, just to use VC parlance, kind of a series DEF type of round, or even in situations where a company hasn't taken his traditional venture capital, but has bootstrapped or maybe taking some regional venture capital. We started to see our competition go earlier and earlier in order to have an insider's view or front-row seat to controlling those later stage rounds. So I think that the dynamic of companies being able to get pre for around the path on limited investment is here to stay. And I guess what has changed competitively for us is we found that it would behoove us to have a product, have a separate fund to take stakes in the Series A through C type companies in order to have a front-row seat or an unfair advantage to evaluate later stage rounds. Now we're not going to be able to fund every company in the velocity fund with growth fund. That's not really, the goal here.

Tim McAdam [00:12:36]:

But what we are doing is educating the firm writ large with the velocity team on earlier trends. So we're able to evaluate opportunities in these earlier-stage companies that are getting pretty far on the path on, sub $10 million of invested capital. So really, enjoying product market fit and scale pretty quickly, which gives us a lens into like trends across similar categories. So it's something that we're reacting to real time. I will say that our belief is that having a separate fund and a separate team, as opposed to having growth equity investors who are used to later-stage companies invest in venture-stage companies, we thought it was important to have something that was separately managed, but also quite connected to the mothership.

David Subar [00:13:42]:

Over time. Does the distinction between PE and VC go away?

Tim McAdam [00:13:47]:

No, I don't think so. I think those are totally different skill sets and lenses through which a company, should be evaluated. I think those are distinct asset classes. I think LP's think of them as distinct asset classes. I think the return profiles are different, in those two asset classes. And by the way, I would also add that VCP and growth equity, where TCV plays, are all, totally different, just different ways to make money.

David Subar [00:14:25]:

Yeah, yeah. Okay, so let's talk about a few of the key portfolio companies that you're particularly proud of that had a good exit or a good return or exit. I'm going to talk about this very broadly where you can define that it's not necessarily economic, but just, where they're going as well as economic and how TCV was part of that. Give me part of that. Part of the TCV story.

Tim McAdam [00:15:01]:

Yeah, we have an interesting history over our 33 years, going back to our two major buckets of the IT economy. B2B and B2C we had a really healthy mix of terrific investments, outcomes and companies that are heading towards outcomes in both niches of the IT economy. And I would also add, maybe unlike some of our competition, we've had a great mix of household names of companies that have redefined categories from Airbnb to Spotify to Netflix to toast to GitLab, Nubank, Expedia, Rapid Seven, Hashicorp, which was just bought by IBM today for seven point something billion. I mean, a lot of those companies are very well known, at least in tech circles, and in some cases nontech circles would be able to relate to paying for their coffee on a toast POS device at a coffee shop, or finding a rental home on HomeAway or Airbnb, or playing one of their favorite playlists on Spotify. Those are all pretty well-known names, but I guess the dirty secret, or the beauty of having this combination mix of both b two B and b two C, as well as hyper growers and durable compounders, is that we have a whole bunch of non-household names that have driven amazing financial gains for the firm over time. Companies like, which I was involved with, a company called EtQ, a company called Osisoft Genesis. I mean, companies that even folks in the tech world wouldn't know of that were off the beaten path in tertiary geographies, had not taken traditional venture capital. But through our efforts of proactive sourcing and thematic market mapping of niches of the economy, we, over the course of usually multi-years, four or five years of relationship building, identified opportunities, paid it forward with these entrepreneurs, added value well before we cut a check.

Tim McAdam [00:17:40]:

And we became the obvious choice for these entrepreneurs when they were considering raising outside capital. So we've had 80 IPOs in our history, and those are all well-documented outcomes and terrific. But I think we're equally proud of the businesses that we've found homes for with strategic acquirers or with increasingly these days. And this niche of exit for TCV is going to become, I think, a much larger portion of the way we generate returns for LP's is selling to the ten or 15 private equity firms that have raised tens of billions of dollars over the last decade and are eagerly looking for well run businesses to use as platforms to make other acquisitions, or just standalone investments, or acquisitions that are just demonstrating terrific free cash flow characteristics and growth characteristics. Rule of type businesses. We have quite a few of those in our portfolio now, and we're certainly hunting for more. So it's one of those questions that it's hard to answer because I feel like each one of these stories is unique and compelling in and of itself. And many of the names I've mentioned to you have generated terrific outsized returns for our funds.

Tim McAdam [00:19:13]:

And others who that I've mentioned that haven't achieved liquidity yet are well on their way to generating great returns for the funds.

David Subar [00:19:25]:

Great. That's great. Congratulations on Hashicorp. I know Mitchell, and that was certainly a great story, and also an interesting, interesting path from the founders becoming CTOs and Mitchell becoming a developer and then stepping out, but at the same time providing a new management team that would grow the company and then today's exit, or maybe yesterday's exit to IBM. So that's. Hashicorp is a very interesting company.

Tim McAdam [00:19:56]:

Yeah, I mean, it's the type of company that we gravitate towards.Companies that are product-led and have the best product for solving a hard problem, ultimately end up generating outsized returns. I'd much rather have a business. I put GitLab in this category, which I'm involved with. Again, very similar go-to-market product-led growth. A lot of their products were open source at one point or another, and they have a familiar brand, and they went over the hearts and minds of developers the world over, and much easier to sell additional products into loyal customer bases that believe in your brand and where you provided value time and time again across. Across a product suite.

David Subar [00:20:52]:

Yeah. So that brings us to the next topic that it's near and dear to our hearts and Internet about Chief Technology Officers, Chief Product Officers product creation and with growth equity, what that relationship looks like, what that relationship should look like. Tell me about your experiences of, about CTOs and Chief Product Officers and what, when you look at a company, what do you like those people to look like? What kind of experiences or instincts do you want them to have?

Tim McAdam [00:21:32]:

Yeah, it's a good question. It's something that we think about a lot, and we're looking at literally dozens and dozens of opportunities every week. And I'm in these deep dives almost daily with CTOs and usually CPOs, the person who's running the product strategy for any of the software businesses that we're considering investing in. I think some of the characteristics can be boiled down to more of a mindset than specific, successes on their resume or even customer testimonies on the quality of a product. The characteristic or attribute that I tend to sort on most often when I'm interviewing CPOs or trying to assess the technical goodness of a company or CPOs who are truly dispassionate. And it sounds weird, right? Because you're always looking for hair-on-fire entrepreneurs who are taking the hill, or iconoclasts that are just disrupting categories. And oftentimes, in the face of multibillion-dollar revenue, competitors, they're just out there, selling and innovating and bringing new value to customers. But the thing that I think a lot of investors get wrong, I've certainly gotten wrong multiple times over my career, is, CPOs that are truly dispassionate are selling product that customers are asking them for.

Tim McAdam [00:23:30]:

They're not selling products that they think customers want to buy. That's a nuance. That's pretty important. Listen, all these product leaders are incredibly bright. They've got their own vision for what a product needs to do or provide. But it's almost like when you work with an architect on building a house. A lot of architects want to build their house for you. They don't want to build your house for you.

Tim McAdam [00:24:01]:

And it's a classic trap that even experienced CPOs and product leaders fall into, which is building cool stuff that they think the world really needs because they need it, or they think it's innovative. You really want CPOs who are building product that's pulled through, not pushed through, if that makes sense? And this can sometimes be dictated by the market, but oftentimes it's dictated by the utility of a product and what it can actually do for the business that you're selling it to. What I mean by that is, the product allows me, as a buyer of that product, to sell my stuff more efficiently, generate more revenue, generate more of kind of a top-line ROI mindset, or alternatively, it can take costs out of my business. I can gain more efficiency by buying this software. And great CPOs are listening. They're listening to what their sales leaders are telling them that customers are telling them they want.

Tim McAdam [00:25:25]:

They're listening to product marketing. They're coordinating with product marketing. It's a really tight loop, a really tight feedback loop that we look for, as opposed to entrepreneurs and CPOs who really want to make a mark for building cool stuff without listening.

David Subar [00:25:51]:

That's interesting that I've run into a certain percentage of founders and some Chief Product Officers who believe they're Steve Jobs. And there are. There. Well, I know the current number of Steve Jobs that exist in the universe. See, there was one. There's now zero. But, yeah, that doesn't mean that there's not other people with those qualities, but there are some people who have that vision, just maybe more people consider they have their vision that. How do you deal with that? Like Jensen Wong, Steve Jobs, obviously you're not investing in Apple or Nvidia, but what about those kind of folks? Or is there a way for them to distinguish themselves between the ones that really have the skills versus the ones that just think they do?

Tim McAdam [00:26:45]:

Yeah, it's a good question. Oftentimes it's not the CPO or the CTO or the head of engineering, it's often the founder. I mean, Steve Jobs and some of the folks that are true luminary, visionary types, technical founder types, are just that. They're founder CEO's and they're hiring people to execute on their behalf. But that's a hard dynamic. Sometimes you meet visionary founders who are effectively Chief Product Officers first and foremost. And there's always tension between the execution of what the vision is and what customers are really wanting. And then the CPO or the head of engineering gets caught in the middle answering to two masters.

Tim McAdam [00:27:40]:

And that's oftentimes awkward and can result in a product mindset as well as just a factory that's all gummed up where the best scrums and the best agile programming gets thrown out the window because you've got dissonance or you've got tension between what the founder thinks the world wants and what customers are telling the sales team and the sales team is telling the head of engineering or the CPO what they want. And we oftentimes will encounter situations like that. That's enough to cause us to press pause and honor evaluation and pass on an investment. If we're not seeing total alignment between what customers are telling us that they want and what a customer is actually providing, there oftentimes is a fair bit of space between the cup and the lip on what a founder believes he or she wants to build in what the market is saying they need.

David Subar [00:28:58]:

Got it? And in those cases, you walk away or you're looking for quick learning. Or is it easy, is it easy to say, hey, there's space between the cup and the lip, but these folks are going to learn their fast and get on top of it. Is it easy to predict what those executives, what those founders look like that can get over that hump?

Tim McAdam [00:29:24]:

We're oftentimes looking for alignment and a partnership. When we're marketing to founding teams and trying to position TCV to be a logical partner for that team, we tend not to have more of a, I'll call it a PE mindset. Or a controlled mindset because we're minority investors. So we're looking for data points from customers primarily telling us that they really need and admire this particular product. And it's a must-have. It's a kind of a top 10% of their budget type need. And if we do find that and we find teams who want to get better at what they do, learn, leverage our networks, leverage our experience, leverage the learnings we have from making over 200 investments over our 33 years, the stores then align and we lean in. If we find fixed mindsets or teams that are not great listeners, I use the word listening a lot in our business.

Tim McAdam [00:30:48]:

With our teams, it falls into the life is too short category. Could we help fix that mindset? Could we bring people in that can instill, better processes or,  help of inexperienced or relatively inexperienced founders and tech teams? You'll leverage best practices or mistakes from execs past or from companies that where we've had experiences, yes, we could do all that, but we prefer to find opportunities where we have coachable and dispassionate, but also lower ego entrepreneurs who really just want to win and bring expertise onto their board, into their kind of orbit of advisory type advice, as opposed to a little bit more of a know it all mentality, which you see a lot in Silicon Valley and you see a lot in the tech world. We tend to shy away from companies like that.

David Subar [00:32:08]:

Makes sense. Makes sense. There's this argument going on now that there'll be more investment when the macro is better, and the macro is better means when there was more exits, maybe more IPOs. There's some indication we've had a few good IPOs the last few months that maybe that's picking up. But then there's also pressure from LP's at a bunch of firms to further the GPS to start investing, to start getting the IRR. How do you think the world looks now? Do you think were starting to trend up or do you think were here for a while?

Tim McAdam [00:32:47]:

It's hard to know. I mean, I'm not a macroeconomist. I've seen and lived and invested through many cycles. We are in a period of time where there are a lot of exogenous factors that are affecting investor mindset as well as entrepreneurial mindset. We know them all. It's interest rates, it's inflation, it's the geopolitical stuff, it's China, it's the capital markets. It's gummed up the normal cadence of both investing in new companies or investing in rounds of established companies. It's also gummed up the works a little bit on inflows into the asset class, and that's a combination of several things.

Tim McAdam [00:33:45]:

It's. There haven't been as many exits over the last eight or ten quarters as we've seen historically. So the dollars flowing back to the LP community have been pretty anemic compared to, the average years over the last, 30 years. Tcvs enjoyed a lot of liquidity over the last 14 or 15 years. We've returned significant amounts of capital compared to outflows. Been effectively a source of capital for our LP base for 15 years running, which sits very well with our LP's on the new opportunity front. As you point out, I do think the capital markets, whether it's IPOs or strategic exits or activity with the buyout shops, the tech-focused buyout shops, that has come off significantly, and I do think that has affected inflows into new opportunities. Do I see the ice thawing a little bit here as we sit in Q two of 2024? I think more so than a year ago for sure.

Tim McAdam [00:35:09]:

But until we have kind of a normal calendar, normal being, call it 15 to 25 IPOs every year in a very normal cadence of weekly takeouts of later stage software and B two c companies, I think you're going to still see a little bit of sluggishness and hesitation on the part of all levels of the tech private equity class, from the seed stage investing up to buyouts. We are seeing a fair bit of activity in the early stage, on the early stage side of our business, probably slightly more so than the growth side. There's just, there's always innovation and great companies who are providing real value with demonstrated product market fit or going to get funded in almost any environment. You're just not seeing the environment that we saw in 2017 through 2021, let's say, which became, exuberant and kind of overly frothy with new fundings. I'm not sure we'll ever get back to that clip, but I'd love to be back in the 2015, 16, 17 ish pace, more normal pace of outflows and inflows. So we're hopeful that once some of these, geopolitical conflagrations across the globe, whether it's Ukraine or the Middle East or some of the recent tension of China, some of that subsides. I think that will loosen up the purse strings a little bit and allow people to be more aggressive. And I think obviously the interest rate environment and inflation are a dampening effect right now.

Tim McAdam [00:37:25]:

And let's hope back half of this year, first half of 25, we'll see some of that pressure released as well. But we're seeing an increased quality of opportunities in our pipeline. I think Q one was a lot more robust than Q three and Q four of last year. And as we start into Q two here, just looking at our pipeline, we have a really interesting group of businesses that we're evaluating, and hopefully every quarter it becomes more plentiful and more interesting.

David Subar [00:38:07]:

So I need to ask the Gen AI question, because every conversation anymore has to have a Gen AI question. We're breaking the applications of artificial intelligence and machine learning into three classes. I'm interested to, if you agree with these classes, they'll ask you about investing. One is accelerating developer productivity, so the co-pilots of the world. The second is internal IT usage that supports people inside the company, outside product development. And the third is additions to a product line that either make a product line more efficient for customers or into increased TAM. So being able to do things, the product, being able to do things that couldn't do before with Gen AI, maybe there's a fourth category of people saying they have AI just to get funding and attention. It's not real, but.

David Subar [00:39:05]:

So let's skip that fourth one for a moment. You break the world into those three parts as well, and then the following. Well, I'll give you the following question after that.

Tim McAdam [00:39:17]:

Yeah, I think that's a pretty thoughtful framework to think about AI. I might add a couple of others. Food for thought. One would be the infrastructure of AI, the picks and shovels, whether that's the hardware side of the business, the NVIDIA type businesses, or other chip-oriented businesses that are allowing AI to happen. And I would also put technology like labeling and some of the grungier side of the large language models that are driving some of the Gen AI growth. There's a really interesting business called scale AI, which we're not investors in. That's a really remarkable business.

Tim McAdam [00:40:18]:

Basically building the labeling side so large language models can actually work. There's a grungy side to AI that has to happen for images, for voice, etc., to be identified correctly. There would be more efficiency and accuracy when it comes to any of the chatbots you described or any of the large language models. The other category that I might put on your radar screen, and it might be embedded in the three that you mentioned. But AI, that's truly disrupting vertical software categories. We're seeing some really interesting businesses in and around areas like legal insurance, real estate, etcetera. Big niches of the economy where human capital, hours of legal work, for example, is being compressed down to minutes using AI, where it used to be human intervention, human research, hours and hours of time to produce a document or produce analysis that's been rendered down to literally minutes, tapping into some combination of proprietary and paid for large language models. So I think the three that you have are kind of the bulk of where the revenue is right now.

Tim McAdam [00:42:05]:

But I wouldn't underestimate the potential size of some of the vertical SaaS niches that will be, I think, big, big areas in the economy for AI, as well as the infrastructure side of AI. The picks and shuffles.

David Subar [00:42:24]:

Yeah, I buy all those. And I also would add to that that it changes economics for a bunch of companies. Like you've talked with law firms, and now you can generate things quickly. That changes the building model for law firms. You can go to the entertainment industry, the studios have to invest a lot of money for movies, and maybe those are much cheaper. And so that changes the whole power dynamics, does all of that. We talked the beginning about the changes over 33 years of your career that you've seen, and you said, hey, the cost of investment in technology companies dramatically gone down, and therefore you've seen a lot more companies, a lot more different kind of companies. Do you think AI does the same kind of thing, drives down costs for starting some of these companies.

David Subar [00:43:18]:

Do you think it creates new industries? Does it do both? Does it do a third thing? What does this mean? What does all this mean?

Tim McAdam [00:43:27]:

I think it's both. I mean, you mentioned the Copilot-like functionality on the development side, on the coding side of things. I don't think coders are going to be rendered useless anytime soon. I think there's always going to be human intervention in bringing differentiated products to market. I do think that AI, assisted coding, using Copilot-like functionality is going to dramatically increase productivity. It may reduce the need for R and D dollars. You may be getting a lot more utility out of developers than you did five years ago. In the coming years, I think you'll start to see R and D as a percent of overall revenue, not necessarily be a proxy for how hard it is to replicate a particular product.

Tim McAdam [00:44:41]:

And I think that's a good thing. I think you're going to see businesses that ultimately it's almost like a step function to what I've seen over the last 33 years with cloud compute and storage and just bringing a product to market compared to the early nineties you're going to see businesses that are bringing products to market faster and more efficiently with less q and a needed. I mean, it could be the case that quality assurance in the software world goes the way of the dodo and AI takes over the entire QA function. And that is a decent chunk of R and D dollars these days. If you look at a typical SAS companies P and L, there's a lot of money spent on QA and on testing. That may be a small portion of the overall R and D budget for the average SaaS company in five years time.

David Subar [00:45:51]:

Yep, let's hope so. Let's hope so, because it's getting QA right is required for fielding or product, but it's also an impediment. So we're positing that the relationship between engineering and product management changes quite a bit because the product managers get much more empowered, much more towards writing code and the engineers are still necessary, the way you're saying. But the relationship between it are those different, which then does exactly what you were saying as far as makes it that R and D dollars don't need to be as big. Right. You can get to something much quicker. So we're thinking the relationship changes quite a bit. So you get a magic wand, you get to wave it over your portfolio companies or over companies that might come to you to seek investment.

David Subar [00:46:50]:

What do you tell them? What do you want them to know?

Tim McAdam [00:46:55]:

With respect to product management or project evolution in general?

David Subar [00:47:02]:

Yeah, product evolution, engineering in general.

Tim McAdam [00:47:06]:

Yeah. I think the thing that we preach a lot across, our portfolio is, and this sounds, a little bit spreadsheety, but really understanding the return on R&D investment. This goes back to my comment about products. We tend to gravitate towards products that are pulled through versus push through. And the rationale there is that the product cost, the cost of R&D is part of the P&L. Let's say it's 25, 30, maybe 35% revenues in a typical SaaS company. But the real cost is oftentimes sales and marketing. And we tend to want to gravitate towards investing in businesses that are sold with as little friction as possible.

Tim McAdam [00:48:10]:

We love product-led growth companies where consumers, businesses can try a product before they buy. They're familiar with the brand in that there's a lot of education that happens without me as a company needing to educate that consumer. So what we would tell, and what we do tell our product engineering teams, is that they need to justify know the bodies and just by the cost of what they're selling or what they're building to sell, I should say. And if they're building products that require a lot of handholding and education and integration and time to install and customization, those models ultimately are not very economical. So we're looking for product teams understand that and want to build products that have a low service intensity, a low education intensity, and a customer can find utility quickly, I mean within hours, not weeks or months or even days. They need to be able to realize that the product is changing the way they do business, making them more money or allowing them to save money almost immediately, almost out of the gate. So that's really what we're counseling. I can think of many conversations I've had with our portfolio companies where I'm on the board, where that's the North Star.

Tim McAdam [00:49:52]:

That really is what we're trying to achieve is frictionless onboarding, frictionless selling and self-service is another term that I use a lot. If a product is not digestible and usable without, a lot of handholding, it's a hard economic proposition. There's just, there's layers and layers of hidden cost that ultimately don't translate into a strong economic model and don't translate into strong brand loyalty. So much of what provides, ultimate value, terminal value for when we sell a business or take company public are KPI's that investors want to invest in. And those KPI's include the ability to sell more product into the install base and have a retention metric that's best in class and customers that are just raving fans of the products that they're using and the ability to sell into a customer. It's already your customer is a lot cheaper than going out and finding new logos.

David Subar [00:51:15]:

Well, thank you very much. I appreciate your time. A lot of great insights for the listeners. So thanks for being on team.

Tim McAdam [00:51:23]:

Thanks Dave. That was fun. Good questions.


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