Why TAM is a Misleading Metric with Alexander Niehenke of Scale VC

Building a career is a series of choices, outcomes of those choices, and then reacting to those outcomes. Sometimes a small choice can have an outsized return, sometimes the reaction to an outcome can lead you down a new path. In investing we are looking for power-law returns, the small bets that we can return exponential value.

Our guest today is an investor who has seen some amazing choices turn into huge returns and even better stories to teach and entertain us. Alexander Niehenke is a Partner at Scale Venture Partners where he specializes in Vertical SaaS investing.

And John Ruffolo is back to talk about the news!

About Alexander Neihenke:Alex Neihenke is a Partner at Scale Venture Partners since 2017. He has focused on early investments in vertical software markets where incumbents have failed to invest in advanced technology offerings. That thesis has led to investments in Archipelago, Dusty Robotics, Motive formally KeepTruckin, Root Insurance, Scout RFP, Spruce, Proscia, and Proxy. Motive has been one of the fastest growing SaaS companies of all time; Scout RFP was acquired by Workday in late 2019 for $540M; and Root completed its IPO in late 2020.

He received his bachelor’s from UC Berkeley.

In this episode we discuss:

(0:00:56) News rundown with John Ruffolo(0:16:27) Alexander’s path to becoming an investor(0:18:45) The effect of watching his dad work so hard(0:20:50) Alex’s experience working in the banking industry(0:24:31) How the experience at Crosslink Capital shaped his career(0:25:56) His role advising Dollar Shave Club(0:28:08) On investing in friends(0:29:46) Joining Scale Venture Partners in 2013(0:32:17) How he focused on Vertical SaaS(0:35:23) Alex’s definition of Vertical SaaS(0:36:20) Misconceptions around Vertical SaaS(0:38:11) Why there’s a misunderstanding around TAM(0:40:08) Case studies around misaligned TAM(0:44:04) Lessons from his investment in Root Insurance(0:48:59) How Scale’s outlook has evolved over the last few years(0:52:06) Why Alex invested in Ripple Portfolio company Rose Rocket(0:54:30) Rules he lives by when joining a new board(0:57:29) What makes a good board member(1:00:00) Why Alex writes about industries prior to investing in them(1:02:52) Thoughts on the AI investing craze(1:05:47) Using data to analyze massive volumes of startups and their success(1:09:16) What would he be doing if he wasn’t an investor

Fast Favorites:

* 🎙- Favorite Podcast: I’ll Drink To That

* 📰- Favorite Newsletter / Blog: Scale Studio Flash Updates

* 📲- Favorite Tech Gadget: Pokeball

* 📈-  Favorite New Trend: 90’s Fashion, Open Water Swimming

* 📚- Favorite Book: Catch-22

* 🤔 - Favorite Life Lesson: Find humor in things

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