Personal blog of Yzmir Ramirez

The coronavirus pandemic has bruised and battered many technology startups, but it has also boosted a small few. One such company is Zoom, which has shouldered the task of keeping us connected to one another in the midst of remote work and social distancing.

So, of course, we’re absolutely thrilled to have the chance to chat with Zoom founder and CEO Eric Yuan at Disrupt 2020 online.

Yuan moved to Silicon Valley in 1997 after being rejected for a work visa nine times. He got a job at WebEx and, upon the company’s acquisition by Cisco, became VP of Engineering at the company. He pitched an idea for a mobile-friendly video conferencing system that was rejected by his higher-ups.

And thus, Zoom was born.

Zoom launched in 2011 and quickly became one of the biggest teleconferencing platforms in the world, competing with the likes of Google and Cisco. The company has investors like Emergence, Horizon Ventures and Sequoia, and ultimately filed to go public in 2019.

With some of the most reliable video conferencing software on the market, a tiered pricing structure that’s friendly to average users and massive enterprises alike, and a lively ecosystem of apps and bots on the Zoom App Marketplace, Zoom was well poised to be a public company. In fact, Zoom popped 81% in its first day of trading on the Nasdaq, garnering a valuation of $16 billion at the time.

But few could have prepared the company for the explosive growth it would see in 2020.

The coronavirus pandemic necessitated access to reliable and user-friendly video conferencing software for everyone, not just companies moving to remote work. People used Zoom for family dinners, cocktail hours with friends, first dates and religious gatherings.

In fact, Zoom reported 300 million daily active participants in April.

But that growth led to increased scrutiny of the business and the product. The company was beset by security issues and had to pause product innovation to focus its energy on resolving those issues.

We’ll talk to Yuan about the growing pains the company went through, his plans for Zoom’s future, the acceleration in changing user behavior and more.

It’ll be a conversation you won’t want to miss.

Disrupt 2020 runs from September 14 to September 18, and the show will be completely virtual. That means it’s easier than ever to attend and engage with the show. There are just a few Digital Pro Passes left at the $245 price — once they are gone, prices will increase. Discounts are available for current students and nonprofit/government employees. Or if you are a founder, you can exhibit at your virtual booth for $445 and be able to generate leads even before the event kicks off. Get your tickets today.

When Zoom started having security issues in March, they turned to former Facebook and Yahoo! Security executive Alex Stamos, who signed on as a consultant to work directly with CEO Eric Yuan.

The goal was to build a more cohesive security strategy for the fast-growing company. One of the recommendations that came out of those meetings was building end-to-end encryption into the paid tier of the product. Those discussions led to the company buying Keybase this morning.

Stamos says in the big build versus buy debate that companies tend to go through when they are evaluating options, this fell somewhere in the middle. While they bought a company with a lot of expertise, it will still require Keybase engineers working with counterparts from Zoom and consultants like Stamos to build a final encrypted product.

“The truth is that what Zoom wants to do with end-to-end encryption, nobody’s really done, so there’s no product that you could just slap onto Zoom to turn it into key encryption. That’s going to have to be thought out from the beginning for the specific needs of an enterprise,” Stamos told TechCrunch.

But what they liked about Keybase in particular is that they have already thought through similar problems with file encryption and encrypted chat, and they want to turn the Keybase engineers loose on this problem.

“The design is going to be something that’s totally new. The great thing about Keybase is that they have already been through this process of thinking through and then crafting a design that is usable by normal people and that provides functionality while being somewhat invisible,” he said.

Because it’s a work in progress, it’s not possible to say when that final integration will happen, but Stamos did say that the company intends to publish a paper on May 22nd outlining its cryptographic plan moving forward, and then will have a period of public discussion before finalizing the design and moving into the integration phase.

He says that the first goal is to come up with a more highly secure version of Zoom meetings with end-to-end encryption enabled. At least initially, this will only be available for people using the Zoom client or Zoom-enabled hardware. You won’t be able to encrypt someone calling in, for instance.

As for folks who may be worried about Keybase being owned by Zoom, Stamos says, “The whole point of the Keybase design is that you don’t have to trust who owns their servers.”

Zoom announced this morning that it has acquired Keybase, a startup with encryption expertise. It did not reveal the purchase price.

Keybase, which has been building encryption products for several years including secure file sharing and collaboration tools, should give Zoom some security credibility as it goes through pandemic demand growing pains.

The company has faced a number of security issues in the last couple of months as demand as soared and exposed some security weaknesses in the platform. As the company has moved to address these issues, having a team of encryption experts on staff should help the company build a more secure product.

In a blog post announcing the deal, CEO Eric Yuan said they acquired Keybase to give customers a higher level of security, something that’s increasingly important to enterprise customers as more operations are relying on the platform, working from home during the pandemic.

“This acquisition marks a key step for Zoom as we attempt to accomplish the creation of a truly private video communications platform that can scale to hundreds of millions of participants, while also having the flexibility to support Zoom’s wide variety of uses,” Yuan wrote.

He added that that tools will be available for all paying customers as soon as it is incorporated into the product. “Zoom will offer an end-to-end encrypted meeting mode to all paid accounts. Logged-in users will generate public cryptographic identities that are stored in a repository on Zoom’s network and can be used to establish trust relationships between meeting attendees,” he wrote.

Under the terms of the deal, the Keybase will become a subsidiary of Zoom and co-founder and Max Krohn will lead the Zoom security engineering team, reporting directly to Yuan to help build the security product. The other almost two dozen employees will become Zoom employees. The vast majority are security engineers.

It’s not clear what will happen to Keybase’s products, but the company did say Zoom is working with Keybase to figure that out.

Keybase was founded in 2014 and has raised almost $11 million according to Crunchbase data.

In the old days of enterprise software, when companies like IBM, Oracle and Microsoft ruled the roost, there was a tendency to shop from a single vendor. You bought the whole stack, which made life easier for IT — even if it didn’t always work out so well for end users, who were stuck using software that was designed with administrators in mind.

Once Software-as-a-Service (SaaS) came along, IT no longer had complete control over software choices. The companies that dominated the market began to stumble — although Microsoft later found its way — and a new generation of SaaS vendors developed.

As that happened, users saw a way to pick and choose software that worked best for them, as they were no longer bound to clunky enterprise software; they wanted tools at work that worked as well as the ones they used in the consumer space at home.

Through freemium models and low-cost subscriptions, individual employees and teams started selecting their own tools, and a new way of buying software began to take hold. Instead of buying software from a single shop, consumers could buy the best tool for the job. This in turn, led to wider adoption, as these small groups of users led the way to more lucrative enterprise deals.

The philosophical change has worked well for enterprise startups. The new world means a well-executed idea can beat an incumbent with a similar product. Just ask companies like Slack, Zoom and Box, which have shown what’s possible when you put users first.

Brianne Kimmel had no trouble transitioning from angel investor to general partner.

Initially setting out to garner $3 million in capital commitments, Kimmel, in just two weeks’ time, closed on $5 million for her debut venture capital fund Work Life Ventures. The enterprise SaaS-focused vehicle boasts an impressive roster of limited partners, too, including the likes of Zoom chief executive officer Eric Yuan, InVision CEO Clark Valberg, Twitch co-founder Kevin Lin, Cameo CEO Steven Galanis, Andreessen Horowitz general partners Marc Andreessen and Chris Dixon, Initialized Capital GP Garry Tan and fund-of-funds Slow Ventures, Felicis Ventures and NFX.

At the helm of the new fund, Kimmel joins a small group of solo female general partners: Dream Machine’s Alexia Bonatsos is targeting $25 million for her first fund; Day One Ventures’ Masha Drokova raised $20 million for her debut effort last year; and Sarah Cone launched Social Impact Capital, a fund specializing in impact investing, in 2016, among others.

Meanwhile, venture capital fundraising is poised to reach all-time highs in 2019. In the first half of the year, a total of $20.6 billion in new capital was introduced to the startup market across more than 100 funds.

For most, the process of raising a successful venture fund can be daunting and difficult. For well-connected and established investors in the Bay Area, like Kimmel, raising a fund can be relatively seamless. Given the speed and ease of fund one in Kimmel’s case, she plans to raise her second fund with a $25 million target in as little as 12 months.

“The desire for the fund is to take a step back and imagine how do we build great consumer experiences in the workplace,” Kimmel tells TechCrunch.

Kimmel has been an active angel investor for years, sourcing top enterprise deals via SaaS School, an invite-only workshop she created to educate early-stage SaaS founders on SaaS growth, monetization, sales and customer success. Prior to launching SaaS School, which will continue to run twice a year, Kimmel led go-to-market strategy at Zendesk, where she built the Zendesk for Startups program.

 

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“You start by advising, then you start with very small angel checks,” Kimmel explains. “I reached this inflection point and it felt like a great moment to raise my own fund. I had friends like Ryan Hoover, who started Weekend Fund focused on consumer, and Alexia is one of my friends as well and I saw what she was doing with Dream Machine, which is also consumer. It felt like it was the right time to come out with a SaaS-focused fund.”

Emerging from stealth today, Work Life Ventures will invest up to $150,000 per company. To date, Kimmel has backed three companies with capital from the fund: Tandem, Dover and Command E. The first, Tandem, was amongst the most coveted deals in Y Combinator’s latest batch of companies. The startup graduated from the accelerator with millions from Andreessen Horowitz at a valuation north of $30 million.

Dover, another recent YC alum, provides recruitment software and is said to be backed by Founders Fund in addition to Work Life. Command E, currently in beta, is a tool that facilities search across multiple desktop applications. Kimmel is also an angel investor in Webflow, Girlboss, TechCrunch Disrupt 2018 Startup Battlefield winner Forethought, Voyage and others.

Work Life is betting on the consumerization of the enterprise, or the idea that the next best companies for modern workers will be consumer-friendly tools. In her pitch deck to LPs, she cites the success of Superhuman and Notion, a well-designed email tool and a note-taking app, respectively, as examples of the heightened demand for digestible, easy-to-use B2B products.

“The next generation of applications for the workplace sees people spinning out of Uber, Coinbase and Airbnb,” Kimmel said. “They’ve faced these challenges inside their highly efficient tech company so we are seeing more consumer product builders deeply passionate about the enterprise space.”

But Kimmel doesn’t want to bury her thesis in jargon, she says, so you won’t find any B2B lingo on Work Life’s website or Instagram.

She’s focusing her efforts on a more important issue often vacant from conversations surrounding investment in the future of work: diversity & inclusion.

Kimmel meets with every new female hire of her portfolio companies. Though it’s “increasingly non-scalable,” she admits, it’s part of a greater effort to ensure her companies are thoughtful about D&I from the beginning: “Because I have a very focused fund, it’s about maintaining this community and ensuring that people feel like their voices are heard,” she said.

“I want to be mindful that I am a female GP and I feel [proud] to have that title.”

Extra Crunch offers members the opportunity to tune into conference calls led and moderated by the TechCrunch writers you read every day. This week, TechCrunch’s Kate Clark sat down with Eric Yuan, the founder and CEO of video communications startup Zoom, to go behind the curtain on the company’s recent IPO process and its path to the public markets.

Since hitting the trading desks just a few weeks ago, Zoom stock is up over 30%. But the Zoom’s path to becoming a Silicon Valley and Wall Street darling was anything but easy. Eric tells Kate how the company’s early focus on profitability, which is now helping drive the stock’s strong performance out of the gate, actually made it difficult to get VC money early on, and the company’s consistent focus on user experience led to organic growth across different customer bases.

Eric: I experienced the year 2000 dot com crash and the 2008 financial crisis, and it almost wiped out the company. I only got seed money from my friends, and also one or two VCs like AME Cloud Ventures and Qualcomm Ventures.

nd all other institutional VCs had no interest to invest in us. I was very paranoid and always thought “wow, we are not going to survive next week because we cannot raise the capital. And on the way, I thought we have to look into our own destiny. We wanted to be cash flow positive. We wanted to be profitable.

nd so by doing that, people thought I wasn’t as wise, because we’d probably be sacrificing growth, right? And a lot of other companies, they did very well and were not profitable because they focused on growth. And in the future they could be very, very profitable.

Eric and Kate also dive deeper into Zoom’s founding and Eric’s initial decision to leave WebEx to work on a better video communication solution. Eric also offers his take on what the future of video conferencing may look like in the next five to 10 years and gives advice to founders looking to build the next great company.

For access to the full transcription and the call audio, and for the opportunity to participate in future conference calls, become a member of Extra Crunch. Learn more and try it for free. 

Kate Clark: Well thanks for joining us Eric.

Eric Yuan: No problem, no problem.

Kate: Super excited to chat about Zoom’s historic IPO. Before we jump into questions, I’m just going to review some of the key events leading up to the IPO, just to give some context to any of the listeners on the call.