LISTEN: Ben Spero Featured on Growth Investor with GrowthCap‘s RJ Lumba Podcast

In the episode The Investor Instinct, RJ Lumba talks with Ben Spero, Managing Director at Spectrum Equity, a leading growth equity firm that specializes in partnering with internet-based software and information services companies.

Spectrum was started in 1994, and recently closed its tenth fund with $2 billion. The firm has an exceptional track record partnering with founders of high growth, bootstrapped companies as their first institutional investment partner.

Ben joined Spectrum in 2001 and is co-head of the firm, leading their San Francisco office. Some of the investments he’s led for Spectrum include Grubhub, SurveyMonkey, Lucid Software, iPay Technologies, The Knot Worldwide, AllTrails, and Headspace. We chat with Ben about how the firm and growth equity have evolved during his long tenure at Spectrum and some of the investment areas he’s most excited about.

Listen to the episode here.

Full Transcript

Ben Spero of Spectrum Equity on the GrowthCap Growth Investor Podcast

In conversation with host RJ Lumba

RJ Lumba: In this episode we chat with Ben Spero, managing director at Spectrum Equity, a leading growth equity firm that specializes in partnering with internet-based software and information services companies. Spectrum was started in 1994 and recently closed its 10th fund with $2 billion. The firm has an exceptional track record partnering with founders of high growth bootstrap companies as their first institutional investment partner. Ben joined Spectrum in 2001 and is co-head of the firm, leading their San Francisco office. Some of the investments he’s led for Spectrum include GrubHub, SurveyMonkey, Lucid Software, iPay Technologies, The Knot Worldwide, AllTrails, and Headspace. We chat with Ben about how the firm and growth equity have evolved during his long tenure at Spectrum and some of the investment areas he’s most excited about. I’m your host, RJ Lumba. We hope you enjoy the show.

RJ Lumba is the managing partner of GrowthCap and the executive chairman of Market Insight Media. He is the host of Growth Investor, a podcast featuring today’s best investors, executives, and founders. In the minutes ahead, we’ll uncover insights and strategies for accelerating growth and succeeding in business.

RJ Lumba: Ben, great to chat with you today. By the way, great post on LinkedIn — it seems to be really resonating with people. I’m excited to talk to you about that because I’m amazed at how long you went without taking a proper break from your career. And so I’m interested to hear a little bit about the experience of being on the sabbatical, but then also how it has changed the way you approach life, or the way you approach each day.

Ben Spero: Oh, great. Well, first I should thank you for having me on. It’s great to be here, RJ, and have been listening to a bunch of your podcasts over time. We’ve had a great set of speakers, and it’s a great program you put on, so thank you for including me.

And the context for everyone is I took a sabbatical this summer, and I took 10 weeks off. So I did a post because so many people, when I got back, were sort of super curious about it. It definitely felt like it was resonating with people to sort of think about how I spent my time and how I thought about that. And I tried to be really purposeful about it because this was something I had planned in 2020 and had to put off for a couple years because of COVID. So I had like three, four years to plan the sabbatical, and I wanted to make the most of it. So I did a post on LinkedIn about it which, as RJ said, it seems to have struck a chord.

RJ Lumba: We’ll have plenty of time to talk about Spectrum, but I’m asking about this because you’re not the first. Actually, another podcast which is going to be released was with another fund manager who talked about other aspects of their life, and I thought it was just super interesting, and people like to hear about it. Everyone’s kind of in this daily work schedule, and so to be able to take a step back I think is super helpful. And so, I guess, how has it changed you, or has it changed you?

Ben Spero: I’ve been at Spectrum for 22 years and hadn’t taken more than a few weeks off that whole time, and I think it’s a common experience. Like, I started in 2001 and there were no smartphones, no BlackBerries, you couldn’t get online when you were in an airplane, and when you left the office there was a real demarcation and you didn’t feel the constant pressure to be connected. And I think it’s sort of table stakes now to sort of move at that pace. So it’s not that I’m bemoaning the fact that we’re all, you know, getting messages all night long, but it does take a toll on people, and when you’ve been doing it for a long time I felt the real need for a break.

And the way I wanted to do that break was to make it a real deliberate sort of disconnection from my work life. So I didn’t check email — I actually had never done this, but I turned on my auto-reply that I was out of the office all summer, and didn’t log in, didn’t check in, told all my CEOs and all my colleagues here at Spectrum and all our LPs that I was going to be gone, and stuck to that. And that left a lot of space for other things. I think the sort of tendency for a lot of people is to fill time with other to-do lists — you know, replacing your work to-do list with a sabbatical to-do list is the tendency when you tend to move at that speed, and I really wanted to slow down. So I spent a lot of time with my kids, I did a little bit of travel, but I didn’t spend 10 weeks sort of traveling the world or trying to do an around-the-world tour. I really tried to slow down and left a lot of time for other things, in particular family, and just sort of learning and reading and being just a little bit slower paced.

With my summer was great, and I come back energized. Like, I come back to your question around what has changed about me — it was kind of affirming for me that I was excited to get back to work. I missed the sort of stimulation and the challenges and all the partnership I get with my portfolio companies and across our firm, and so I really missed it. I was looking forward to getting back, and that’s a nice realization when you kind of realize you’ve been doing something for 22 years and you still love it. So fortunate that way.

On the margin, I feel like I can change some things about my life and more breaks in between the day. I feel like in particular during COVID my schedule would get back to back to back to back all day, with like 30-minute slots sort of wedged right next to each other and long board meetings on Zoom, and it was a grind, and I feel like at the end of every day I was exhausted. So I’m trying to find ways to sort of organize my calendar and be a little bit more deliberate about how I plan my time. Coming back and having that distance, I kind of just realized that I can sort of impose that on my calendar going forward.

RJ Lumba: I’m glad we can touch on this because I do talk to a lot of folks in the growth equity / private equity space, and it’s a common thing that folks are back to back to back almost every day. It’s hard to take a break, especially you got kids, you know, that are going to go off to college before you know it, and as everyone knows, like, you spend the most time with your kids in their entire lives when they’re living in your home. So glad we were able to touch on this. Now let’s hop into Spectrum Equity. For those in the audience who don’t know — I mean, you’ve invested in some great names, I mean, like household names: Ancestry.com, you got Headspace, Lynda, and others. You know what I was surprised about is how you’re able to identify these brands that have long-standing power, and they’re a big portion of your overall portfolio. So how do you identify these companies?

Ben Spero: Let me just give you a little context for that. We’ve been around since the kind of early '90s — we were started in '94 is when we closed our first fund, and I joined the end of 2000 along with a couple of us who are now running the firm. And, you know, at the time this was sort of pre-internet, so we always started as a very sector-focused growth equity firm. Our expertise of our founders and that early team was around traditional media and communications and information businesses, but again it was in an offline context, so it was things like the Yellow Pages and radio and cable and early days of cellular. And so the vocabulary that we developed in those sort of 1990s funds — our first three to four funds — I think sort of positioned us really well in the early 2000s to spot that the internet was happening and scaling.

And we hadn’t done much internet investing during kind of the dot-com boom. I think we’ve always been sort of driven to financial models that were already sort of working and unit economics that were working, and so those were sort of upside down in the late ‘90s, but by the early 2000s these businesses were starting to scale, and scale in a really efficient way. And to be honest, when we started looking at internet businesses, whether they’re B2B SaaS models or consumer-facing ones, it was contrarian. Like, in 2001, two, and three, saying dot-com was sort of a dirty word — like the dot-com thing was over in many investors’ minds, and that was right when we really started paying attention.

And I think some of it is driven by the fact that our origination model is sort of bottoms-up, and we have a very bottoms-up sort of culture in terms of sort of how our franchise evolved. So I was starting as an associate in first day of 2001, and, you know, attending a conference sort of saw Barry Diller present, and he was talking about IAC in its early days and match.com. I remember being like, wow, that’s a really good business. And so started reaching out to a bunch of businesses. One of the first ones we did was Ancestry.com, which we invested in early 2003. And I think our whole partnership was able to sort of get their head around that because the unit economics were actually quite similar to the unit economics of a cable business or a radio business. They had a lot of parallels around their kind of core IP, their core subscriber acquisition costs, churn rates; the margin profile was very similar. So I think sort of as a traditional media and information business investor, we were particularly well adapted to spot these internet models.

And it was sort of a fork in the road for our firm, because I think many investors who were used to doing cable and radio and Yellow Pages and communication services actually became buyout firms as those sectors matured. These were growth businesses in the '90s, and by the early 2000s they were maturing and generating a lot of cash flow, so many investors sort of stayed with that traditional media and communications focus and became sort of leveraged buyout investors. We sort of followed the growth. And so taking that offline experience and bringing it to these online models — I think it was just really fortuitous timing that we spotted that. And I think we’ve gotten really good at sort of understanding what is sort of defensible and being really clear-thinking about our strategy.

You asked sort of how we spot these — I think we’re very data-driven, but it’s also because our pattern recognition gets really good because we’re really sector-focused and really strategically focused. So everything we do are, you know, software and information businesses delivered over the internet. That, for like almost 20 years now, is the whole strategy. It means that we don’t do a lot of things that are hardware-driven or have different gross margin profile. We’re really, really business-model focused. And we also try to be flexible in other areas — that being rigid I think would sort of limit our opportunity. So we’ll do both minority and majority investments, we’ll buy secondary, we’ll buy structured securities, we’re pretty creative and flexible on some aspects of it, including doing both consumer and B2B, but really disciplined around business-model focused and sort of the culture of how these businesses are grown within ROI lens, as opposed to that kind of growth-at-all-costs more sort of typical venture capital play. The DNA of our companies are typically profitable growth bootstrap companies that grow very quickly. I mean, the growth rates in our portfolio are pretty attractive, but they’re not blitz-scaling in the same way that many in Silicon Valley are trying to pursue growth.

RJ Lumba: I’m interested to hear about Headspace. There was a span of time where there’s a lot of capital, it seemed like, that was going into, broadly speaking, the mental health space. It seemed like in sequence there was another announcement about another big investment. How has the company performed? I know it was on a tear in the early days; I haven’t kept up with it. I’d be curious to hear how it’s evolved.

Ben Spero: You should have Russ Glass on your program. You’ve had a couple of our other CEOs — I listened to both the AllTrails CEO and then the Kajabi president who you had on recently, two of our other portfolio companies. But Headspace is doing great, and we made a really important strategic decision. It was a consumer-facing business, and at the time we invested five, six years ago all of the business was consumer, but we thought there was a big opportunity, and they were getting some inbound calls from large corporations that wanted to give it to their employees as a sort of wellness path. And over time our sort of playbook and our understanding of sort of the ROI that an employer would get on why they would want to make this available to all their employees became clear, and we really invested in that B2B motion and sort of product capability early days.

I think that there’s a sort of theme throughout our portfolio that there are many of these businesses that start as sort of direct-to-consumer internet e-commerce products but then can evolve into sales-assist models with a sort of product-led growth philosophy, and Headspace is a great example of that, where now a really big portion of our business is B2B — over half — and we’ve done a big merger with a company called Ginger that brought us more into not just doing wellness and sort of meditation and sleep training, but also for those who have more acute needs to do clinical interventions. So teletherapy and getting coaching and psychiatric support is now something we can offer — the kind of full suite of sort of mental health needs that an employer has, from everyday wellness all the way through to clinical interventions. And we think that’s the right formula in this model, and it’s been going really well.

So that B2B strategy is a big part of the growth in the company, and in many ways having that great consumer brand and the sort of easy-to-use product that is kind of consumer-grade usability is a differentiator in the sort of B2B side, where there’s been a lot of capital raised. I think when you sort of referring to the capital raise, a lot of it came on the B2B teletherapy side.

RJ Lumba: Got it. And it seems like your other healthcare-related investments — GoodRx as an example — what are you most excited about now? Like, what areas are you paying most attention to?

Ben Spero: I think in many ways the sectors that we’ve invested in, if you look at our current portfolio, we still think have legs. I mean, the internet is such a profound macro as a sort of tailwind for all of our companies that we don’t think that’s sort of in the late innings and now we’ve got to find our sort of next act. The internet growth is still a sort of proponent, and there’s still on the B2B side a lot of sort of manual processes and sort of efficiencies to be gained and productivity tools for knowledge workers that are sort of out there and disruptive. On the consumer side we’re seeing a lot of innovative things going on. So I don’t think there’s any big pivot of a new sector, but we’ve sort of followed growth through some big vertical sectors of the economy.

You mentioned healthcare; few of us have worked on a bunch of things in financial services, education, legal, transportation, and logistics. These sort of macros are happening in every single big vertical of the economy, and that’s exciting to us. It’s sort of a still a big theme, and it’s even more global than ever because you can start a company from anywhere. And the sort of variability of what it takes to sort of start a company means you don’t need to raise tons of venture capital often to start companies. So you see this sort of efficient models sort of popping up, and we’ve always been pretty geographically flexible and sort of go to where the companies are, and that continues to be a big macro for us — is sort of the geographic diversification where companies are getting started.

RJ Lumba: It’s competitive, right, to get into the good companies, and with how available information is about various companies out there in the number of growth and venture firms, I’m sure you’re competing. And so the other thing that struck me was how you’re able to — it seems like — consistently win and get a spot in the cap tables of these companies. Why do folks select Spectrum Equity? Why do these entrepreneurs choose to go with you?

Ben Spero: Well, we don’t win them all, but we win our fair share, and fortunately we’ve been involved with some great companies along the way, and that’s really fun. I think the thing about being a part of a franchise that’s been around for as long as we have, since the early '90s, is we have a lot of founders and CEOs who we can point, you know, new prospects to and say, hey, go talk to them and hear for yourself what the experience is like. And we have a great set of companies that we’ve been fortunate to be involved with. So I think that’s important.

But I think the qualitative aspect of this is we take a real partnership approach. I think our philosophy is to get to know these entrepreneurs — it’s actually an average of about two and a half to three years that we spend getting to know an entrepreneur before we invest. And again, because these are bootstrap companies, they’re not doing the sort of tightly compressed “give me a term sheet 48 hours after you meet me” style deals. We’re usually the kind of first institutional capital in the companies, and these entrepreneurs have a lot of options and are going to take their time with that decision and do a lot of references and ask around about what we’re like as a partner. So we welcome those situations where they really care about the qualitative kind of value-add and the sort of spirit of the partnership.

And I think that actually goes back to our culture. You know, there’s a sort of a humility that I think we bring. We feel like we’re really good at what we do and we bring a lot to the table when we invest in a company, but we’re not going to sort of go impose our own sort of rigid playbook, and we’re going to be good listeners and good partners for our portfolio companies. And I think when they ask around about that, we show really well, and so we’re fortunate to kind of be one of those firms that often gets chosen — not because it’s sort of a broad auction with a sort of maximizing price to the last penny, or a sort of compressed timeline where you’re rushing to due diligence and not getting to know companies. We do better in situations where we have time for the entrepreneurs to get to know us and us to get to know them well.

RJ Lumba: I like to talk about value-creation capabilities, where you can have an impact on the company. I’m sure all situations merit their own set of assistance, but can you tell us about maybe a memorable company that you worked with and that turned out well?

Ben Spero: Yeah, there are a few fun case studies that I could point to. Maybe a couple that I particularly like because they ones I worked on, but they started really small and humble when we invested. So you had AllTrails on — Ron Schneiderman. When we invested in that company it was 12 people, and, you know, the brand was really early days, and it’s been explosive growth. It was really a bet on this platform and their sort of business model, but also backing Ron as a leader. And it’s grown — it’s almost a couple hundred people now, and to see a company sort of evolve from that scale when we invested, it’s probably approaching 10x in revenue in three, four years and probably 15 to 20x in employees, is really fun. And it’s becoming a global brand that’s really kind of crossed over, and I think we’ve had a really big impact in sort of partnering with Ron to make that all possible.

We have a talent function that’s really important — almost always these growing companies, especially when they’re bootstrapped and don’t have a lot of the sort of plumbing of kind of making a business scalable, whether it’s the financial reporting and the controls and the audits and the technology systems and redundancy, they just need some of that kind of institutional support and sort of knowing what that looks like. And often there’s sort of go-to-market areas that they have to build. So, you know, AllTrails did no marketing really before, and so building out some of those capabilities is something we’re frequently involved with, and it usually goes back to people. So helping recruit talent into these companies is a real core competence, and we’ve got a great team that we’re continuing to grow on the sort of talent side.

And then it’s also just sort of peer networking. We have a small enough portfolio and we’ve sort of stayed disciplined fund size in a way that everybody can kind of get to know each other within our portfolio, and there’s a bit of a pay-it-forward mentality. So Tim Sullivan, for example, who was the CEO for many years at Ancestry.com, where I’d worked with him, joined the board of AllTrails and is sort of working with Ron as a mentor. And so there are a lot of those situations where our CEOs are kind of in regular contact, and our CMOs and our CTO and that sort of collaboration across our portfolio I think is unique, and we can do it at the scale that we’re at, where there’s usually some sort of experienced expert within our portfolio who we can kind of connect one of our portfolio companies that’s sort of facing a challenge with. And a real sense of spirit — we, I even joke, we call it the Spectrum Family. And so there is a real tight-knit nature of our portfolio, and I think you can really only do that if you’re an industry-focused firm.

RJ Lumba: You recently announced a new fund — it’s a sizable fund. Does anything change with the bigger fund size?

Ben Spero: Not really. So we closed a $2 billion fund; our prior fund was 1.5 billion. And just for context, in 2005 our fund was 1 billion, so we’ve doubled in fund size over 17 years, which relative to our industry is somewhat contrarian. I think our philosophy is that our fund size should be driven by our strategy and our investment approach, not the inverse. We shouldn’t go raise as much money as we can and then go figure out a strategy to deploy it, and that’s actually kind of rare in our industry. I think most people sort of grow AUM aggressively as a measure of your success and your financial opportunity, and we’ve taken a very different tack on that — to be kind of deliberate about growth in each fund and doing so in a way that we have confidence we can deploy and that our organization is set up to deploy, as opposed to having to aggressively grow headcount or bring in sort of lateral hires at a senior level that aren’t sort of indoctrinated in our culture.

Just to give you a sense, the average partner here has been at the firm for 17 years, so, you know, it takes a long time to sort of get ingrained in how we do things, and you can’t snap your fingers overnight and sort of scale that. And so we’ve been pretty deliberate about it, and we think that approach is also part of our success, because trying to double average deal size or double your organization, you lose focus in that process.

RJ Lumba: I’m looking at your picture on your profile and you look different on this interview. Is that a result of the sabbatical?

Ben Spero: It’s not a sabbatical thing, it’s a COVID beard. So, yeah, I’m sticking with it at least for now. This is a COVID thing where I decided shaving didn’t need to happen every day.

RJ Lumba: Got it, got it. I’ve got a couple more questions because we’re coming up on time. Notice you went to Duke — are you a Coach K fan, or do you follow Duke basketball?

Ben Spero: I do follow Duke basketball, and I met my wife there, so we’re a Duke fan. Yes, big Duke alums and fans of the basketball team.

RJ Lumba: What’s your prediction for the team this year?

Ben Spero: It’ll be interesting to see, with Coach Scheyer taking over from Coach K. I think everybody’s — he’s going to be under this spotlight, and those are big shoes to fill, but I’m excited about him as a leader and what the team can do. And the evolution — college basketball’s changing too, where when I was there even the best players would stick around for three, four years, and now it’s a shorter tenure. So the sport’s changing, but it’s still super fun, and I’m sure Coach Scheyer’s going to do a great job.

RJ Lumba: Will they make it to the Final Four?

Ben Spero: Every year at our firm we do a pool around the NCAA tournament, and I have a strict policy never to bet on Duke, because I can’t let my heart impair my judgment on my decisions.

RJ Lumba: All right, last two questions. Can you tell us about a book that has had a profound impact on you, or simply provide a book recommendation?

Ben Spero: Well, it’s good timing for me, because we talked at the beginning about my sabbatical. I had a lot of time to read this summer, which was one of the great things about taking the time off, and I took on a book that, quite frankly, was sort of daunting. There’s a book called The Power Broker by Robert Caro, and it’s a biography of Robert Moses, and it’s like this 1,300-page densely written just monster of a book. But I knew I wanted to read it.

I do a lot of work on affordable housing and homelessness as a sort of issue that I really care about. That’s a tough issue in the Bay Area and even nationally, getting a lot of attention. And I feel like the things that we’re doing — and I’m actually kind of optimistic about some of the solutions that we’ve got — but the context for some of those problems goes back decades. And this book talks about Robert Moses, who was the kind of head of the planning department and played a bunch of roles in New York City and New York State over 50 years, and the kind of current sort of complexion of what New York City looks like, and actually in many ways many cities have been designed, is told through this biography of Robert Moses.

And it gives you context for some of the great sort of developments, things like the Triborough Bridge and Lincoln Center and the UN and all the sort of leadership that it took to sort of pull those off, but also sort of the displacement and this sort of deep-seated racism in sort of housing policy and urban planning for a long time, but especially in the sort of middle of the 20th century, and how we’re still kind of living with the repercussions of that in many cities in America. So I was a history major at Duke and really kind of geek out on this stuff, but that book in particular was fascinating to kind of see that individual personality and the kind of lens for how cities are designed in America today through this lens of this one man, Robert Moses.

RJ Lumba: Excellent. Can you tell us about a leader that you particularly admire? And it could be cross any domain or field of expertise.

Ben Spero: I figure I should probably choose someone from the business world because this is a — it actually can be anyone — podcast about sort of growth investing. I’ll go with Brad Smith. So Brad was the longtime CEO at Intuit, and I got to know him — we worked for many years together on the SurveyMonkey board, which is one of my portfolio companies. And Brad has a big fan club, but his leadership style, in particular around his sort of empathy, his listening skills, his humility, are pretty extraordinary. There are a lot of people who get to his position of stature and accomplishment who, you know, stop learning and stop listening as well, and Brad sort of had this humility and sort of openness throughout his career and continues to.

A fun anecdote on that is he talked about how he would post his 360-degree review — so his feedback from his subordinates and peers and from the board — on the door of his office for everybody to see, to know what he was working on and all the challenges he was sort of working on, and was super transparent about. And that takes a level of courage and openness and willingness to learn and humility that is kind of unprecedented. He’s just so deliberate about everything he does and continuing to learn.

And actually continue to sort of avidly follow his career, because he’s gone and taken the job as president of Marshall University, having sort of stepped down after many years of CEO at Intuit. And he went to Marshall as an alum, and grew up in West Virginia, and is sort of taking this on as a sort of totally new challenge again — pretty rare for someone who’s as accomplished as Brad to kind of go take on something as daunting as a university presidency. And he’s just continuing to learn this far in his career. Really admire Brad, and he became not just a sort of a role model but a real mentor for me. So Brad Smith is the one I’d go with.

RJ Lumba: Yeah, I think I saw a video of his exit from the company when he was — actually his last day at work — and he had a standing ovation, and it looked like there was hundreds of people, if not thousands of people, gathered around. And it was quite touching just to watch. Everyone who’s worked with Brad is sort of touched by his leadership model. Well, Ben, want to thank you again for taking the time. This has been an awesome conversation. I know our audience will find this very insightful.

Ben Spero: Thanks for having me. I really appreciate it, RJ, and congrats on all your success.