Bringing enterprise tech wisdom to the table - Keith Block on how his new VC firm will assist start-ups in a complicated world

Keith Block

If you visit Nantucket, off the coast of Massachusetts, there’s a very remote part of the island called Smith Point, which is an important place to enterprise tech veteran Keith Block. He tells me: 

You can only get there if you get in a four-by-four and let the air out of your tires. It feels like the end of the Earth. You're just staring out at the water. Most of the big decisions I've made in my life, I've done out there. 

It’s appropriate then that Block’s latest venture has turned to Smith Point as inspiration for its name. Best known as the former co-CEO of Salesforce and before that as Oracle’s EVP of North America, Block has just gone public with a venture capital initiative, focusing on growth stage investment in enterprise tech start-ups. 

Smith Point Capital has an initial commitment of $400 million for its inaugural fund, some 75% of which is expected to go to companies with $50 million to $250 million in Annual Recurring Revenue. ServiceNow is Smith Point's strategic partner and an anchor investor in Smith Point Capital Fund 1.

There’s a lot of enterprise clout behind the new firm. As well as his own pedigree and connections, Block’s co-founders are Burke Norton, former Head of Corporate Affairs at Salesforce and latterly Senior Managing Director at Vista Equity, and Chris Lytle, who brings over a quarter of a century of investment experience, most recently as President of Longfellow Capital. 

Passion 

Block has kept a relatively low profile since his departure from Salesforce in 2020. This latest move is, he says, a return to a personal passion: 

My passion has always been advising senior executives and coaching them. It goes back to my early days in my career at Booz Allen Hamilton, through my career at Oracle, and clearly my career at Salesforce, where I was advising other CEOs on digital transformation. I just really, really enjoyed it. I was approached by a number of entrepreneurs and young innovators who said, 'Would you coach me? Would you advise me?’. I started to do that and kind of test the theory, and decided there's something here that not only fulfils my passion, but also could give back a little bit to the industry as we shepherd these innovators into the next wave of technology and help set them up for success. 

It’s clear that Smith Point isn’t going to be just A.N.Other VC firm to tick off the list as entreprenuers take a drive down Silicon Valley’s Sand Hill Road in search of backers. Block explains: 

We're not your father's Oldsmobile. We're not your regular venture capital company. We really dig in. We work with a very concentrated portfolio of 10 to 15 companies, and we become the first call of the CEO. We're their trusted advisor. We help them all the way from writing their strategy and business plan, or advising them on that, through helping them create a scalable culture, bringing in great talent, advising them on product fit, looking at go-to-market strategies, how to focus on the customer, how to build an ecosystem, and of course, how to have operational discipline and financial rigor. 

Suitable partner companies are those with great products and ideas, but which need guidance and support to scale to $500 million, $5 billion, $10 billion run-rates. It’s accumulated enterprise wisdom that’s on the table, rather than just basic capital funding, Block adds: 

We're very active with our companies, and we think that they come to us, quite frankly, because they need that wisdom. If you think about what's happened over the last 24 months, they've been flush with capital. They've been told to grow at all costs, just grow, grow, grow! Twenty-four months later, fast forward to where we are today, it's now 'Cut everything! Cut everything at all cost!’. They've been whipsawed, and it's created tension between investors and CEOs. So, CEOs are now looking for a firm that will come in and look at things in the long term, that will be with them through thick and thin, and really build that trust-based relationship.

Balance 

That 'cut, cut, cut' message has been seen coming out of some of the most established enterprise tech players of late as the macro-economic crisis has taken its toll. But we’ve been here before, notes Block,  arguing that everything seeks equilibrium and balance at some point: 

We've seen this movie before. This is not the first time that there's been adversity in the economy or adversity facing technology companies. What's important is to understand that people need to learn a lesson here, which is that operating discipline should always exist-  period! - no matter what macro-environment you're in. 

If you're in a wild growth stage, that's great, but you want responsible growth, you want to be smart about how you make your investments. If you're in a period of austerity, you're not going to feel the effects if you've been running a good business. The advice I've been giving to a lot of executives is, 'Learn everything you can. 2023 is essentially over. Build your muscle, learn your operating discipline, carry it forward. But every decision you make right now is not about 2023; it's about 2024. That's the basis in which you're going to carry the company forward.

For its part, Smith Point has already made two investments and is about to lead a Series C on an Artificial Intelligence firm. Interest is ramping up among potential new clients to work with, says Block: 

We're already starting to get an in-flow of potential portfolio companies that want to work with us. These entrepreneurs have quite a network. They all talk to each other. They all share their horror stories, and their successes. The word is starting to get out, based on some of the success that we've already had with a couple of companies, and some of our prior work and our networks, that this is what we do and that we're highly differentiated from your classic venture firm.

For those who have a great product and ideas, there’s something else that Smith Point will be looking for in terms of selecting companies to work with. Block explains: 

What's really important to us is the CEO and the leadership team, because our job is to guide and advise. We will only work with companies that we feel will listen to the advice, and take action on the advice. There's a lot of great companies out there. Some people are open for advice, and some people aren't. That's fine and we wish them well, but we want to work hand-in-glove with executives and really coach them and teach them and advise them. So we're looking for that sort of a culture. We're looking for people who are open-minded about helping us help them to build that culture, bringing a beginner's mind to thinking about the future, thinking long-term, trying to avoid bad tactical decisions, etc.

It’s a more complicated world for start-ups today than it was when the team behind Smith Point were at similar stages to the kind of companies they seek to work with, concludes Block: 

We want to make sure that besides great returns for our shareholders, we want to make sure that we're ushering these CEOs and their companies into this new era in an adult fashion, in a responsible way, and running really great companies. So, it's a long game for us. 

My take

Salesforce CEO Marc Benioff told me once that when he and his co-founders were setting up the firm in the late nineties, they couldn’t attract investment from the traditional VC community. Would Smith Point Capital have backed Salesforce I cheekily asked Block? His reply was equally tongue-in-cheek:

I probably would have said yes, if I knew that Keith Block was going to be the co-CEO.

I’ve always enjoyed my conversations with Block, whose commentary I’ve found over the years to be informed and balanced, built on decades of enterprise tech experience. This is a guy who knows what he’s talking about. The Smith Point Capital network that’s in place, up to and including the relationship with ServiceNow, is very impressive and bodes well for growth companies who want to work with this team. 

It will be interesting to see what sorts of firms do end up as part of this ecosystem. I’m envisaging a lot of pitches from AI firms, particularly generative AI given current hype levels. With that in mind, I asked Block for his views on AI’s potential (and problems). What he said, we’ll pick up in the second part of this article tomorrow.