Sean Jacobsohn labored at HR software program startups lengthy earlier than he started investing in them. He held senior roles at WageWorks and Cornerstone OnDemand as each corporations grew from single-digit hundreds of thousands in income to tens of hundreds of thousands, and he additionally labored at Upwork. All three of which went public. He later grew to become a enterprise accomplice at Emergence Capital earlier than becoming a member of Norwest in 2014.
As a accomplice at Menlo Park, California-based enterprise agency Norwest, Jacobsohn focuses on enterprise software program, drawing on his background in finance, gross sales and enterprise improvement. His 15 energetic portfolio corporations vary from pre-revenue startups to companies producing greater than $300 million in income. Much of his portfolio falls inside finance and HR software program, though he additionally invests in provide chain and development know-how — typically in corporations constructing finance purposes for these industries.
Norwest, based in 1961, manages $15.5 billion and is investing out of its seventeenth fund, a $3 billion car raised in 2024. Over time, the worldwide enterprise and progress fairness agency has backed greater than 700 corporations in sectors spanning enterprise, shopper and healthcare.
In an interview with Crunchbase News, Jacobsohn discusses the place he nonetheless sees openings within the crowded marketplace for finance software program, how far corporations ought to belief AI with accounting work, why HR startups could also be higher off attacking the secondary merchandise of huge platforms, and why he assessments a CEO’s gross sales capacity earlier than investing.
The interview has been edited for readability and brevity.
Jacobsohn: I’m targeted quite a bit on corporations which might be disrupting legacy gamers, and there are numerous legacy gamers within the workplace of the CFO. We had greater than 500 corporations on our Office of the CFO market map, and possibly three-quarters of these are legacy gamers.
What’s attention-grabbing about finance is that the CFO approves all software program purchases throughout the group, however CFOs additionally purchase software program for themselves. There’s really one much less layer of approval once they’re shopping for their very own software program, so it’s a little simpler to exchange it once they’re the direct purchaser.
I’ve discovered numerous alternatives in each finance software program that sells to each business and software program targeted on particular industries. I’ve invested in numerous horizontal purposes, and to date the vertical options have been in development and manufacturing. We’ve additionally invested within the healthcare house, however that’s not my space of focus. I’m additionally taking a look at corporations in transportation and logistics.
Are there particular finance workflows that also strike you as surprisingly guide and subsequently extra ripe for disruption?
Jacobsohn: I really assume most workflows have been automated, however some are being automated by legacy options. Some might nonetheless be on-premise. Some may very well be corporations making the transition from on-premise to the cloud which might be nonetheless very legacy. You may even name them SaaS 1.0, as a result of an organization could be thought of legacy and be solely 5 to 10 years previous now that numerous the brand new era is AI-native.
Every firm desires to purchase AI-native merchandise lately. Some legacy corporations have executed a greater job of reinventing themselves, and others are having extra problem. Since most every thing has been automated by somebody, I’m targeted on new-generation disruptors of legacy options.
What are a number of the areas you assume are ripe for disruption?
Jacobsohn: I’ve a portfolio firm in a few of these classes, and never in others.
One space the place I don’t have an organization is ERP. I feel there’s a possible alternative to disrupt NetSuite and Sage. Those corporations have been round for a really very long time. I’m seeing extra disruption downmarket, and a few of these corporations will ultimately transfer upmarket.
I feel gross sales tax is one other class with some historical legacy gamers the place there’s a possibility to disrupt them. Treasury administration additionally has some very previous legacy gamers. Another space I’ve invested in is procurement.
Finance is especially delicate with regards to accuracy and audits. Is that affecting how a lot work corporations will really hand over to AI brokers, particularly in accounting?
Jacobsohn: We take into consideration this quite a bit. Finance individuals are risk-averse, they usually want constant solutions. There’s some concern that there may very well be errors with AI, and there are.
It’s vital to infuse AI into your finance merchandise, however you need to watch out about what you’re giving AI to do. You don’t need AI doing calculations as a result of it isn’t good at math. There are sure workflows it may well deal with the place it doesn’t produce exact numbers. But once you want precision, accuracy and calculations, you may’t depend on AI for that.
In Norwest’s current HR tech market map, you talked about that classes together with payroll, advantages and workforce administration could be tough to disrupt due to the time and expense related to switching. If a startup desires to take enterprise from Workday or ADP, how can it make switching extra engaging?
Jacobsohn: I feel it could be very laborious to disrupt the core merchandise of Workday, ADP, SAP, UKG and Dayforce. But it’s simpler to disrupt a few of their secondary merchandise, the place the class isn’t their core enterprise. Those corporations have actually good distribution. Often, the perfect distribution wins, not essentially the perfect product.
Workforce administration is a class I’ve invested in via Legion [Technologies]. UKG has a product within the house, however it began as an on-premise firm and moved to the cloud. We’ve been a cloud-native AI participant, and we’ve executed effectively towards it out there.
Another firm I invested in that enhances these gamers is Elevate, which is in the advantages house. What’s attention-grabbing to me is that I labored at WageWorks, a legacy participant within the house. Elevate is disrupting my previous employer. Benefits isn’t the core enterprise of the suite gamers I discussed, however it’s a large enough market the place a specialist can do effectively.
That’s how I have a look at it: What are some huge markets the place suite gamers aren’t placing a lot effort behind the product as a result of they will solely deal with so many issues without delay?
Is AI making it simpler or more durable to construct a sturdy software program firm? Features and merchandise could be constructed quicker, however they will also be copied quicker.
Jacobsohn: I do assume it’s making it simpler to construct corporations. We’re going from merchandise that retailer information and automate some workflows to essentially sensible options that perceive, predict and execute be just right for you. It’s altering workers’ jobs. Employees can deal with higher-value work and automate a few of their duties with brokers that may work actually shortly.
As for whether or not anybody can vibe-code one thing, I feel in case you’re constructing a easy horizontal workflow for small companies that isn’t very advanced, it may very well be straightforward to construct the product your self, or it might result in numerous competitors.
If you’re constructing one thing advanced for the midmarket or enterprise, one thing that wants deep area experience or one thing vertical in nature, any of these areas can be actually laborious for lots of people to construct internally or for too many startups to compete in. Those options would even be actually laborious to take care of. I’m not seeing a lot competitors from folks wanting to construct internally at my portfolio corporations which might be targeted upmarket, the place you want deep area experience.
The IPO market has improved, however it definitely isn’t the place it was. How does the present exit atmosphere have an effect on what you’re prepared to fund in the present day, if in any respect?
Jacobsohn: It doesn’t affect our curiosity in funding. Our major entry level is seed and Series A. I’ve executed some Series B and C offers, so we could be opportunistic on the later stage.
We’re targeted on backing entrepreneurs with deep area experience who’re going after huge markets with legacy gamers ripe for disruption, and we don’t fear in regards to the exit atmosphere. At some level, the IPO market will open up extra, and possibly that may assist us sooner or later. But extra corporations get acquired than go public.
I do wish to put money into an organization that, if it executes effectively, sometime has the choice to go public. But I’m real looking that the majority corporations get acquired earlier than that may occur.
How do you’re feeling about an acquisition as an end result?
Jacobsohn: You should assist your entrepreneurs and what’s of their firm’s greatest curiosity. M&A could be a superb end result, particularly since we are available so early. If an organization is acquired for lower than $1 billion, it nonetheless may very well be an excellent end result for us and the corporate.
The problem is getting into late, at a valuation above $1 billion. Not many corporations will purchase one other firm for billions of {dollars}. We like to return in early in order that if an organization sells for lower than $1 billion, which is the place most patrons have budgets, it may be a extremely good end result.
Is there a basic perception you have got about funding or constructing startups that you simply assume different traders may disagree with?
Jacobsohn: Something that’s completely different about me from most VCs is that I come from a gross sales background, and I feel the CEOs I again should be good at gross sales.
Just about each CEO I again comes from a product and engineering background, however that’s not sufficient. You should be good at promoting. You have to promote to clients, companions, traders and workers. Before I make investments, I’ll go on numerous gross sales calls I arrange with the CEO to see how good they’re at promoting.
To me, that’s a giant means of assessing the potential of an organization.
Have you ever handed on a CEO or startup since you felt the founder didn’t have robust gross sales expertise?
Jacobsohn: Yes. When I am going on gross sales calls and other people aren’t fascinated by a second assembly, and that’s a constant theme, it typically leads me to stroll away.
Tell me about your Failure Museum. What are a number of the greatest findings you’ve realized in constructing out the Failure Museum?
Jacobsohn: I’ve constructed a Failure Museum that features greater than 1,500 objects from failed corporations and merchandise. I’ve all of them on my web site, the place I examine why they failed.
People are desirous to share their successes and their failures. The museum evokes extra optimism than one may assume. People shouldn’t be afraid to take dangers. Failure could be a springboard to success.
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Illustration: Dom Guzman
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