Jason Green enjoys a strong standing within the venture capital community. The enterprise-focused firm he established 17 years ago, Emergence Capital, has provided funding to companies like Salesforce, Box, and Zoom, and continues to be a preferred choice for leading founders who develop and market business-oriented products and services, even with the current surge in software-as-a-service investments.

To gain insights into the trends influencing Green’s investment area, we recently spoke with him regarding topics ranging from SPACs to company valuations and the firm’s unique approach in a competitive landscape. The following are excerpts from that conversation, slightly condensed for brevity.

TC: What is your perspective on the idea that SPACs are utilized by companies unable to secure funding through traditional initial public offerings due to insufficient revenue?

JG: It’s certainly going to be a fascinating development to observe. This year has been quite remarkable for SPACs, with approximately $50 billion in capital raised, all of which needs to be allocated to companies within the next 12 to 18 months, or the funds will be returned. This creates substantial demand for SPACs to identify suitable investment targets. Companies demonstrating strong growth and profitability are likely to pursue traditional IPOs, in my estimation.

[Companies considering SPACs] will generally be those exhibiting sufficient growth to be appealing as potential public entities, but not necessarily at the very top of the market. I anticipate [SPAC sponsors] will focus on businesses that are either growing at a slightly slower pace than leading public companies but are already profitable, or those growing rapidly but still consuming significant cash and potentially deterring conventional IPO investors.

TC: Are you currently engaging in discussions with CEOs regarding the potential of utilizing SPACs?

JG: We’ve only recently begun these conversations. Several companies within our portfolio are likely to become publicly traded within the next one to two years, making this a viable option to explore. However, I don’t foresee any immediate plans within the portfolio. Most entrepreneurs harbor a desire to go public through the traditional IPO route, and SPACs often lack the same appeal. For a company potentially considering another private funding round before an IPO, a SPAC represents an alternative. I’d characterize it as a middle ground, so the companies evaluating this option are likely not yet fully prepared for a public offering.

TC: Given the considerable uncertainty surrounding the timing of public market opportunities, has the recent election outcome reduced that uncertainty?

JG: I don’t believe the level of risk and uncertainty has diminished since the election. Political uncertainty persists. The pandemic has also experienced a resurgence, despite encouraging news regarding vaccine development. Consequently, there are numerous potential scenarios that could unfold.

This environment generally favors higher-quality investment opportunities, meaning fewer companies but with stronger fundamentals, and SPACs could play a role in this context. I foresee SPACs being a more prevalent option for companies going public in the first half of next year. However, as vaccines become widely available and a sense of normalcy returns in the latter half of the year, traditional IPOs may regain prominence.

TC: Last year, you mentioned that Emergence Capital reviews around 1,000 deals annually, conducts thorough due diligence on 25, and ultimately invests in only a select few. Has this process changed in 2020?

JG: Over the past five years, we’ve undergone a significant transformation. We’ve evolved into a data-driven, thesis-driven firm that proactively reaches out to entrepreneurs shortly after they launch their companies or secure seed funding. Our three most recent investments stemmed from relationships established a year to 18 months prior to initiating the financing process. I believe this proactive approach is essential for building rapport and developing conviction, given the rapid pace of funding rounds.

Interestingly, we anticipate making more investments this year than in any previous year in the firm’s history, despite the challenges posed by COVID-19. We’ve refined our ability to build a robust pipeline and exercise conviction, and the current market environment, particularly the rise of Zoom, has broadened the scope of companies we’re willing to consider. We’re currently evaluating 50% to 100% more companies and working to narrow the focus to the 20 to 25 that warrant in-depth team analysis.

TC: What types of companies currently capture your attention, from the perspective of a founder seeking funding?

JG: As a firm, we typically concentrate on three core themes at any given time. One of these is what we call ‘coaching networks’ – the convergence of artificial intelligence, machine learning, and human interaction. Companies such as SalesLoft, a sales engagement platform, Guru, a knowledge management system, and Drishti, which provides video analytics for factory assembly lines, exemplify this category.

The second [area of focus] involves specializing in specific industry verticals. Veeva demonstrated the effectiveness of this approach in the healthcare and life sciences sector, and we now have a similar company, p44, in the transportation industry that is performing exceptionally well. Doximity, a LinkedIn-like platform for physicians with telehealth features, also falls into this category, as does Blend, a lending company in the financial services space. These companies are applying cloud software to address the most critical challenges within their respective industries.

Our third theme [revolves around] remote work. Zoom, one of our most successful investments, has evolved into a platform akin to Salesforce. We recently funded ClassEDU, a Zoom-specific offering for the education market. Snowflake is also emerging as a platform. Therefore, another opportunity lies not in simply creating another collaboration tool, but in focusing on a specific use case or vertical.

TC: Can you identify a company you missed investing in recently, and what lessons were learned from that experience?

JG: We certainly have a list of companies we regret not investing in. I believe it’s important not to assume that the outcome would have been different had we been involved, as the investors around the table can significantly influence a company’s success. Therefore, I try not to dwell on missed opportunities, recognizing that the company may have found a more suitable investor.

Rob Bernshteyn of Coupa is one example. I knew Rob from his time at SuccessFactors and always held him in high regard. We consistently evaluated the company but were hesitant due to valuation concerns. We likely passed on it when it was valued at $80 million to $100 million, and it’s now valued at $20 billion. That can be a difficult realization.

Sometimes, there are legitimate risks and concerns associated with a business, and other investors are willing to take a more aggressive approach, leading to missed opportunities. Fortunately, our industry isn’t a zero-sum game.