Several CVC units are targeting generative AI, but customer service software provider Zendesk has launched one of the few that can onboard that technology right now.
No one really knows the full potential of artificial intelligence yet, but everyone agrees the one area it makes immediate sense is customer service. For a company like Zendesk, which produces customer experience software, that makes now the ideal time to launch an AI-focused venture arm.
“It’s been in the works for three years now,” says Terry Evans Jr, head of newly unveiled corporate venture capital subsidiary Zendesk Ventures.
“But I think the timing is perfect because the large language models and generative AI were coming out to the public towards the end of last year, and we thought: this is the perfect match. We can come out and be focused primarily on AI and generative AI companies within the customer and employee experience [sector].”
Zendesk formally launched the unit last month to invest in startups using AI to enhance the customer and employee experience. Evans came to Zendesk in 2021 after two years at telecoms firm Verizon’s CVC unit, with a brief to formalise an investment structure that had previously revolved around one-off deals.
That initially meant focusing on acquisitions as the company sought to strengthen its core capabilities. But as Zendesk’s director of corporate development, he’s now looking to integrate that with early-stage investments in a two-pronged approach.
In March, the company bought Ultimate, the creator of a platform that uses generative AI to automate parts of the customer support process. That kind of product is Zendesk’s bread and butter, Evans explains, but an area of AI it isn’t traditionally strong in is voice control and response. That’s why Zendesk Ventures was part of a $50m round in May for PolyAI, the developer of a voice-based chatbot platform that can be used with the Zendesk offering.
“Another of our latest investments was in UnitQ,” he says. “We have a whole team who are just searching through Twitter or other social sites to find out what people are saying if we change pricing, or whether they’re happy or not. But then it turns out there’s a company called UnitQ that takes your ticket data and matches it with all your social channels using AI, and then surfaces those insights to you.
“So, now you don’t need a large team to manually search through all these digital channels, social boards and tickets. You have software that uses AI to do it. Those are the kinds of things we’re looking to invest in.”
Zendesk Ventures’ portfolio also includes existing investments in Alliants, which provides digital customer experience technology for the travel and hospitality industry, as well as conversational intelligence software producer Observe AI and Zuper, developer of a field service management tool. They’re part of a strategy Evans sees as ‘very wide and focused too’.
“We’re not going to be a venture fund that just invests in the best enterprise software companies,” he says. “My goal is that whenever you see us invest in a company, you’ll see it and think: ‘That makes sense for Zendesk’. That’s what I’m trying to achieve overall.”
“My job isn’t just to invest in you, it’s to educate everyone around Zendesk”
Zendesk Ventures is looking to invest globally but not to lead rounds or take board seats at present. The unit will be active from seed stage up to series C, Evans says, with an average ticket size of $500,000 to $1m per deal.
“We are investing off balance sheet,” he adds. “We haven’t publicly disclosed how much has been allocated but it’s in the tens of millions of dollars. We expect to make several investments per year – we’re at two so far this year.”
Evans expects that initial allocation to grow in time once the CVC model has been definitively proven within the company. But there’s another area the unit has space to expand: right now, Evans is Zendesk Ventures, making those investments as a de facto one-man band.
“We’re in the startup phase, where of course you want all the people you need to hire for your business to grow,” he says. “But it’s also: ‘How do I get my first customer? How do I make that customer happy?’ And that customer is Zendesk corporate.”
“So, I’m in that stage now, but there will definitely be plans to expand the investment team and hopefully [hire] business development folks as well.”
Evans does however get to work with an investment committee that has been put together over the past three years. And he’s looking to hook portfolio companies up with people within Zendesk – an organisation still less than 20 years old – that can help them tackle strategic issues around areas like pricing or marketing.
“I believe we are the best and the most knowledgeable when it comes to customer experience,” he says. “So, if you’re building in that space, the knowledge we have from years of being in the space and the number of customers we have battle-tested feedback from, means we can hopefully help them avoid problems we’ve run into ourselves.
“An example is that one of our portfolio companies wanted to restructure their pricing. At that point I brought in our head of pricing at Zendesk, and they basically did a two-hour workshop about how we think about pricing and what we’ve learned from our own pricing journey.”
The other area Zendesk can help is through distribution. Its Zendesk Marketplace features more than 1,200 apps that can integrate with its products, and if an emerging startup can get exposure through that, it can bring in extra customers while beefing up the Zendesk’s capabilities.
The startups get more exposure to the wider world while increasing the market intelligence of the Zendesk staff who interact with them. And that in turn reflects well on Zendesk Ventures.
“My job isn’t just to invest in you, it is to educate everyone around Zendesk about the company we’ve invested in,” Evans says. “I want the companies we invest in to meet our sales team…so if the sales team hears a certain problem a customer has brought in, they can say: ‘Hey, we can bring in one of our investments’.
“I want there to be a lot of PR and joint customer success stories and I’m tracking all of that information. I feel like that’s showing why we did this. I’m looking at commercial partnerships, how many joint customers we have, stories and insights. What are we learning and bringing back from these companies and how are we adding value to them as well?”
