Table of Contents
Jake Saper of Emergence Capital reveals detailed investment lessons from Salesforce, Zoom, and AI startups, emphasizing founder-market fit, data-driven diligence, and evolving SaaS dynamics.
Key Takeaways
- Emergence Capital’s early investment in Zoom was a $20 million check—7-8% of their $250 million fund—at a $200 million valuation, with the company generating just $2–3 million revenue.
- Discovering founder Eric Yuan’s misunderstanding of churn metrics revealed the business was healthier than reported, underscoring the importance of deep diligence and founder transparency.
- Emergence adds value beyond capital by helping early-stage product-led companies like Zoom build enterprise sales motions essential for scaling sustainably.
- The firm’s investment thesis prioritizes market pull—customers desperately needing solutions—over hype, founder charisma, or early growth alone.
- Deep, team-wide diligence is standard: every partner conducts customer and reference calls, onsite visits, and shares detailed findings, creating a collaborative truth-seeking culture.
- Emergence emphasizes “what you have to believe” in each deal—crucial hypotheses tested with data to decide if the investment fits the fund’s goals.
- AI startups like Together.ai reflect Emergence’s strategy of betting on market inflections, focusing on open source LLMs and domain-specific AI to build defensible advantages.
- SaaS retention, particularly net dollar retention (NDR) of 120%+, is now a crucial metric for identifying generational companies beyond just rapid growth rates.
- Despite rapid AI advances, Emergence believes SaaS vendors offering opinionated, maintainable, supported software will endure over DIY no-code alternatives.
- Emergence sees a three-segment market: startups, growth-stage companies, and incumbents; startups win by narrow focus and agility, incumbents by distribution but must innovate quickly.
- The firm rejects “winner-take-all” assumptions in many SaaS categories, believing multiple players can coexist by serving distinct verticals or niches.
- Emergence recognizes the challenges of pricing AI-enabled SaaS; usage-based models dominate early experiments, but outcome-based pricing is emerging despite complexity in human-in-the-loop cases.
- Founders are increasingly evaluated not only for vision and traction but also for their ability to build defensible moats and adapt as markets and AI evolve.
- Authenticity and founder alignment with the VC’s approach are critical; Emergence’s high-touch, collaborative diligence attracts founders seeking strategic partnership over mere funding.
Zoom: A Thesis Made Real
When Emergence Capital first evaluated Zoom in 2014, the company had just $2–3 million in revenue but was growing fast. CEO Eric Yuan, a former WebEx VP, rebuilt Zoom’s core codec technology, delivering superior call quality that sparked rapid organic growth.
Emergence’s diligence revealed a founder who miscalculated churn, counting upgrades and paused accounts as lost customers. Correcting this view showed the business was healthier than expected, reinforcing confidence in the investment.
Despite Zoom’s early success, Emergence committed to help build an enterprise sales motion—a crucial step beyond product-led growth for long-term sustainability. This hands-on approach was key in scaling Zoom into a $10+ billion revenue company.
Investment Philosophy: Market Pull and Founder Fit
Jake Saper stresses that market pull—the desperation of customers to solve a pressing problem—is paramount. Investors look for products that transform users’ day-to-day lives, evidenced by customers who would pay out of pocket if their employer stopped funding the product.
Emergence’s team-driven diligence process ensures diverse perspectives and deep engagement with customers and founders, reducing risk and improving decision quality. Every partner participates in calls, reference checks, and sometimes onsite visits, fostering collective truth-seeking rather than siloed decisions.
The firm uses a “what you have to believe” framework to identify critical hypotheses unique to each deal, using data to support or challenge these beliefs before investing.
AI Era: Opportunities and Cautions
Emergence views AI as a profound market inflection with startups like Together.ai betting on open source large language models (LLMs) and domain-specific applications. These startups aim to embed AI as a “coach” within workflows, improving productivity and decision-making.
Retention metrics like net dollar retention (NDR) of 120%+ have become critical indicators of SaaS company health, complementing rapid growth. Early AI startups face unknowns in retention longevity, with some expected to disappoint but others finding sticky “wedges” that embed them deeply in user workflows.
Despite AI democratizing coding and software creation, Emergence believes opinionated SaaS vendors remain valuable because they offer expertise, maintenance, and accountability—qualities DIY solutions often lack.
SaaS Market Dynamics: Multiple Winners and Pricing Evolution
Emergence rejects the myth that SaaS markets are strictly winner-takes-all. Many categories, such as domain-specific CRM or no-code tools, support multiple large players serving different niches.
Pricing is shifting from traditional per-seat models to usage-based and eventually outcome-based models. However, outcome pricing poses challenges when human support remains involved, complicating attribution and billing.
Founder Partnership and Authenticity
Emergence values authenticity in founders, seeking those who want more than money—a partnership that adds value through advice, connections, and go-to-market support.
Jake shares that his firm’s collaborative, high-touch diligence and limited investment pace (about one deal per partner per year) enable them to deeply engage and bend the odds in favor of portfolio success.
Emergence Capital’s journey—from the early, deep diligence of Zoom to embracing the AI era—offers a roadmap of disciplined, data-driven venture investing focused on founder-market fit, long-term value, and navigating the evolving SaaS landscape with authenticity and insight.
