Autodesk CEO Carl Bass on investing in the future

A year ago, the design-focused software firm Autodesk announced it would stop selling standalone perpetual licenses of its desktop software and instead sell subscriptions. Early last month, it began implementing that switch, a move that will be complete by mid-year, when the company’s older products will no longer be available.

Perhaps unsurprisingly, as part of its “restructuring plan,” the public company also recently laid off 925 people or roughly 10 percent of its workforce. At a StrictlyVC event last Thursday, Autodesk CEO Carl Bass – who sold two companies to Autodesk before becoming its CEO in 2006 – talked about that ongoing transition, describing it as “painful.”

Bass also talked about Autodesk’s new IoT fund and how it approaches investments generally. In fact, his interviewer was Ben Einstein, managing director of Bolt, a young San Francisco- and Boston-based hardware-focused venture fund that has received capital from Autodesk. (Disclosure: Autodesk hosted the event at its gallery in downtown San Francisco.) Some notes from that conversation:

On the pain of switching from a perpetual license model to a SaaS model:

CB: Yes, it’s painful. Here’s the painful part. We used to get $6,000 for a license. Now we get $2,000. So every traditional, conventional financial metric looks like crap while you cook through that. That’s the terrible part. The flip side, what people don’t realize, is you’re basically putting it on the balance sheet, and just as it doesn’t get counted on the way in, it gets counted on the way out.

The thing I like about it in a big company is that when you make a big change, it’s easy to motivate everybody to do it . . . [Big companies are] really hard to move, but when you get [them] to move, you can make a big impact.

On acquiring 40 companies in the past three years and generally being more acquisitive than people may realize (Autodesk has a $12.7 billion market cap):

CB: I didn’t know the number, but we’ve been acquiring things for a lot of years, and some of them are awesome; they’re the foundation of multi-hundred-million-dollar businesses. And some of them are total crap. We’ve bought things that I hugely regret. I was talking to the investors of one of those companies today and he said, Oh, yeah, you bought [our company, Revit Technology] for $133 million and it had $1 million in revenue three years going forward.

It was an incredibly hard sale to the board. One member had a policy at his own company that you don’t pay more than $1 million per employee and this company [we were acquiring] had 75 employees at the time, so he couldn’t wrap his mind around it. But we bought it, and that product is now the foundation of a $700 million to $800 million part of our business that’s incredibly profitable. There have been others that are just as big a disaster.

On how Bass thinks about acquisitions more broadly:

CB: The way I think about it [is] there are three kinds of companies: ones that are really people who have a technology that we want to [build up]; middle-size companies, meaning they have product that they’re selling, maybe even internationally; and third, [cases where] they really have a company. Everyone, even in the first category, thinks they have a company, but [not really, not in the sense that the business is] long term, sustainable, with multiple products being sold around the world and stuff like that.

What we really like to do is a huge amount in the first category, a handful in the second, and very rarely do we do really big acquisitions.

On Autodesk’s $20 million prototyping center on a pier in San Francisco, and why a software company would create it:

CB: First, people think because you built a shop on a pier that it’s incredibly expensive. It turns out that because of a deal with the city, a square foot of space down there is one-seventh the price of a square foot here [in the center of downtown San Francisco]. Because the city couldn’t invest in the piers, there’s this incredible deal that any improvements that you put into it get deducted from your long-term lease.

We also make software that drives machine tools and helps people get ideas and turn them into physical artifacts, and [that pier] is kind of our laboratory. In the old days, we might have had a room filled with pen plotters. Now, our customers have an idea, and they go from making a digital model into creating a real thing, whether that’s through our collaboration with Bolt, our artists-in-residence program, [or the] things we do with corporate partners.

Autodesk has no formal corporate venture arm, yet has created two $100 million funds in the last 18 months, one focused on 3D printing and the other on IoT. Asked about the company’s overarching strategy, Bass said:

CB: Someone tweeted the other day, and I was laughing about it, that IoT is like teenage sex. Everybody says they’re doing it. They’re not really doing it. Those that are doing it aren’t doing it well…[laughs].

As for why create funds, we’ve had good returns on the money we’ve invested but [more] it gives us incredible access to looking at deals. So on 3D printing, we get an incredible look at the deals there.

Many of the people in the room would know that most VCs do not like corporate VCs; they really want corporate VC to be dumb money at the late stage. It’s hard to aspire to that. [Laughs.] But the general tone is you could be useful later when you’re willing to pay too much and there’s not much to do. That doesn’t fit our need for what we’re trying to do, which is find people at the edge who are doing new stuff. So when we did 3D printing, it was on far-out 3D metal printing, including 3D printing combined with metal printing with 3D milling…

Also [yes], if nothing else, it’s a good way to form relationships with companies that, at some point later, may [turn into acquisitions].