The following interview is a conversation we had with Phillip Liu, CEO of Trustero, on our podcast Category Visionaries. You can view the full episode here: $8 Million Raised to Build the Future of Compliance AI.
Phillip Liu
Great. Thank you for having me.
Brett
Not a problem. Really excited about our conversation here. Kick things off, could we just start with a quick summary of who you.
Phillip Liu
Are and a bit more about your background? Yes, I am the Founder and CEO of Trustero, and then my background is one of a technology wise. So my basically trade is a software engineer and basically worked my way through the ranks and then became a starter Founder. I founded multiple companies. Trustero is my second one. Prior to Trustero, I co-founded a company called Signal Effects, which had a nice healthy exit, was sold to Spunk in 2019. And then prior to that, I spent a few years at Facebook. I was one of the early infrastructure engineers at Facebook. And then before that, I spent quite a bit of time at loud cloud in offscore. For those, the listener may know that the book hard things about hard things from Ben Horowitz was basically a big part of my life from 1999 through 2007.
Phillip Liu
I worked with Ben for many years throughout my career, including the time at signal effects. So I started out as a hacker back in the Apple two and Commodore 64 days. And I’ve always enjoyed being in software and I always come into my colleagues that in the early days when I first started in my career that I can’t believe a company will pay us to do this. And that’s how much fun I have with technology. And that’s one of the reasons why I started another company in technology space, because I truly enjoy what I do.
Brett
Yeah, we ask most guests that, come on. We ask them about their favorite books. And I got so tired of hearing about the hard thing, about hard things that I had to ban it and say, okay, we already know that’s probably going to be top of the list. Let’s go a little bit deeper. So you’ve had a unique experience there. It sounds like working with Ben Horowitz, being a chief architect at Opsquare. Can you provide some insight into what it was really like working at that company during that time that so many genres have read about in the book?
Phillip Liu
Yeah, I’ll try to stand up with a few things. I think one thing I found going through many different startups, including Facebook, is that there’s a lot of hard work in a startup. Everybody hears about athletes for the winning startups, about all the glory that comes around with it. Everybody knows about Zuck, Steve Jobs, Ben Horowitz among those. But the great thing about the book is that it actually tells you the toil that it takes to build a successful startup. And I would know a lot of things I’ve learned. Probably two of the biggest lessons is that innovation clearly is not enough. It takes grit to basically make your innovative idea to become reality and to become a winning business. I think that my time at Lao Cloud offsquare definitely went through a lot of that.
Phillip Liu
There were a lot of downs, a few ups. Obviously it turned out well for everybody. But I mean, going through the.com bubble and having to see all your businesses disappear from you overnight was definitely very unsettling. At the time, I was the architect of Opsquare in loudcloud. Having to see all your work, the customers vaporize overnight was definitely very disheartening. And having to live through that and then be able to sort of build up from that takes a lot of toil. And I think that a big part of every startup I’ve encountered have gone through some aspect of that.
Brett
And what about signal effects? Can you tell us a little bit more about that journey? I know you said it had a happy ending, it had a great outcome. But what was your experience like founding and then selling that, you know, signal.
Phillip Liu
Effects started when I left Facebook. And toward the end of know I was thinking about, hey, what do I want to do now? Now that Facebook has gone public and then it’s become a huge company and that I have always gravitated towards smaller companies. And then one of the things that struck me was that this is a time where AWS was starting to take off. And I thought a lot of the techniques that we used at Facebook around how do you monitor distributed applications? By using data. And using data science was actually quite novel. And I thought that all the companies who actually are building off of this new modern technology on AWS at the time would benefit from this. So that’s sort of the genesis of the signal fuse at the time that became signal effects.
Phillip Liu
And I will say, like going through these startups there are always these interesting beginning. There’s euphoria in the beginning. At the time it’s pretty easy for us to raise money. We actually raised $8 million on basically seven slides. But after the euphoria wears off, then you start to understand. Well, yeah, that might have been my impression about what everybody would need in the AWS ecosystem or distributed system ecosystem. Just in terms of observability is one of the things that we help. Point was something that is required, but at the time it wasn’t clear that was going to be the case. It took us again after initial release of product.
Phillip Liu
The response wasn’t quite as what we hoped for, and that took us a little while, sort of build up a demand for the product, and then went through many different sales teams to eventually get to a sort of a go to market motion that worked for Trustero. And then we started out as a sort of SMB motion, and then we sort of pivoted to an enterprise motion. And then the enterprise were more sophisticated. People who actually adopted data science were the ones that turned out to be our best customers. It also happened to be aligned with a lot of IP that we have put in the product and that worked out well for us. And then obviously then eventually led to a successful acquisition of Splunk.
Phillip Liu
I have to say that one of the vcs, I believe it was Tiger Global, who invested in the last round of signal effects, basically doubled their money in 60 days. I’d always thought that was one of the best investments that any VC could have made. But I little bit of anecdote in the side to that story.
Brett
That’s awesome. And I see in the media reports that it was over a billion dollars that you sold for. That’s obviously something that I think any Founder listening in would dream of having happen. Right. That’s obviously a major life event. What did it feel like the day this deal closed? Take us back behind the scenes. What was going on inside your head when this deal was finally announced?
Phillip Liu
I think it was one of relief in the sense that with all the startups I’d been at, it’s always this continuous sense of urgency and always the fear that it’s not going to succeed. And then when an exit comes, then you get sort of the sense of relief. I think euphoria sort of starts out at the beginning of the cycle, and then relief comes at the end of the cycle. The fact that it was a great bit of money for everybody, and everybody there made money. I’m happy for everyone there, but I think there was a sense of relief that I remembered the most. I’m sure it changed the lives of many people who were involved as part of Signal FX, me included. But I think the sense of relief of, hey, we built something that’s successful.
Phillip Liu
We made money for a lot of people, and then we build a lasting product. Now, today is still one of the foundational pieces of spunk about to be acquired by Cisco. And I think that was the moment sort of reflected on more than anything else.
Brett
Post exit, did you have any doubt that you would go and start a company again? Did part of you, did your family say, philip, why don’t you go take it easy? Why don’t you go relax? Was there anything that made you not want to go and do another startup?
Phillip Liu
I think the minute Singlefx exited, I kind of thought about, what am I going to do next? And then this has been this lingering thing, sort of lead us a little bit into Trustero, is that while at Trustero, obviously there are a lot of ideas I had about how to expand the business. One of them was actually to deal with compliance. I know it’s kind of odd in that what does infrastructure monitoring have to do with compliance? At the time that went through the process of getting signal effects to be compliant with SoC two, a lot of that process was very analogous to monitoring. Instead of monitoring just the physical, virtual infrastructure of an application, you also have to monitor the ongoing business of processes.
Phillip Liu
And I kind of thought, well, what a great platform to take a data analytics monitoring system, expand that into compliance. I always thought that will be one of the next things that we do as signal facts. Obviously, we never get around to it. And then social stero became sort of the follow on of what I would have extended one of the signal facts.
Brett
To do you tell us about traction and growth and adoption that you’re seeing right now with Trustero.
Phillip Liu
It’s been a journey for us. I think one of the things we did earlier this year is we invested generally in a go to market motion, actually, and that sort of coincided with our launch of our AI capabilities. One of the reasons why we started out Triscara was we dealt with data science at SealFX, and I kind of thought the next motion is really more around using large language models and machine learning to solve problem rather than statistical know. So that’s one of the foundations that we had when we started Trustero, and all along we’ve been building technology. And then this year we finally reached a point where sort of the confluence of large language models being released and all the noise that’s going around with it.
Phillip Liu
And we actually reached a point where our technology and the use of LMS basically help us solve and sort of replace not only tasks, but almost complete roles of what a compliance professional will have to do. I think that sort of led to a very rapid sort of growth for us. And so ever since then, I think we’ll say this more of Q two this year. We’ve seen probably 50 to 70 times mql growth since then. So it’s been a pretty amazing growth, mostly because what we built foundationally happened very different from what we see in the rest of the industry. And now that the feature is actually pretty concrete, it is very much that we could just show you exactly how we do things by using AI and is completely differentiated from anything that anybody has seen before.
Brett
Something I want to ask about that you just mentioned there is this replaces or eliminates current compliance roles. What do you see the compliance role looking like in the future? Is that still going to exist? And they’re just going to have to dramatically upscale and learn how to use AI or what happens to all of these compliance professionals in the old compliance market that exists today?
Phillip Liu
I think with most technology, AI included is not a flat out direct replacement, is more of a reduction in the amount of labor that’s required and then until the point where you could trust the system so much and where it’s so intelligent that you could forego the functionality altogether. I think we have ways to go before we get to that point. But I think the step one and step two are basically, well, reduce data gathering. I think that’s sort of the step one that’s already been taken with many different companies in this space. And then step two basically take away specific roles, like for example, a compliance professional. Today, let’s say that you’re on the buyer side of this equation and where the buyer have to look at, hey, our company wants to use Google or G Suite, our company wants to use slack.
Phillip Liu
One of the CISos or somebody in the securities team is actually have to vet to make sure that, well, how much do we trust Google? How much do we trust slack? And part of that process involves getting hold of their sock two report or ISO 27,001 report. These are standardized compliance framework reports and then sifting through them to see, to understand how they operate internally. So one of the functions that trustero provides is the ability to basically sift to this report automatically for you and tell you about the key points that what a normal compliance professional look for. So then, thereby reducing amount of time that a compliance professional will have to sift through those reports. So that’s one example. Another example is that one of conducting an audit.
Phillip Liu
So many, especially mid sized enterprise companies, they actually conduct internal audit periodically to make sure they could pass a real, let’s say, stock two audit list for simplicity’s sake. And they have to do this on a regular basis for a couple of reasons. One is to make sure that various departments within the company are abiding by the security standard that security has set up for them. And then two, just to know where the gaps are. And then, so this is yet another functionality that we’re actually using, AI, generative AI, to basically help solve this problem. So now we’ve basically taken away two functionalities that a compliance professional have to deal with, and they’re reducing their times.
Phillip Liu
And then a third thing that as proceed will soon launch is we actually heard from many different compliance teams that they spend at least 20% of their time, at least as a buyer of other SaaS businesses or as a seller of SaaS businesses, have to deal with SaaS business buyers in answering security questionnaires, part of the buying process here, any SaaS transactions, specifically large enterprise SaaS transactions, that you always start out with a security questionnaire as part of the initial vetting process, and then follow along by addition by compliance framework reports ongoing basis. And the security questionnaire is somewhat different. So every company, every securities team who are buying a SaaS product, asking different set of questions. There’s some similarities in between, but they’re very different.
Phillip Liu
Again, if a compliance professional have answered these like 50 or 60 times, they all look somewhat the same in their minds because they understand how the process work. But the language and verbiage to answer these security questionnaires are always different. And then another feature that we’re providing is we’re able to automatically answer these questions for you. And then again, now that’s again, 20% of compliance, well quantified. So if you start adding these things up, then the number of compliance professional companies have to hire, therefore it gets reduced. And then what’s left is basically sort of a compliance architects or security officers that’s able to then deal and use systems like ours to deal with compliance.
Brett
This show is brought to you by Front Lines Media, a podcast production studio that helps B2B founders launch, manage, and grow their own podcast. Now, if you’re a Founder, you may be thinking, I don’t have time to host a podcast. I’ve got a company to build. Well, that’s exactly what we’ve built our service to do. You show up and host, and we handle literally everything else. To set up a call to discuss launching your own podcast, visit frontlines.io slash podcast. Now back today’s episode. November last year was really a watershed moment with AI and ched GPT. It kind of crossed this threshold to the point I call it like the mom tests. As soon as my mom starts talking to me and asking about emerging technology, that’s where I feel like it’s really reaching into the mainstream.
Brett
So that happened with bitcoin in, I don’t know, 2015, and then it happened with AI November of last year. So what’s it been like for you leading this business? How did that change for you? Did demand dramatically increase post Chat GPT release, or was there no major difference? What’s that change been like?
Phillip Liu
Yeah, it’s been dramatic for us, and certainly one of the reasons that our go to market message in Q two this year became more AI focused, even though that has been the foundational for us, is because we’re trying to leverage some of this widespread awareness around generative AI. Right. And then we think this will definitely continue. I think that this specifically, at least from what we’re seeing, affects the mid market to enterprise the most. A lot of compliance professionals are thinking about, hey, these three features I discussed earlier around reading soft reports, around conducting internal compliance scans, and around basically dealing with security questionnaires are things that you can imagine the AI should be able to help you with. And then as we talk about these on a sort of a drumbeat of, hey, these are things that we’re releasing one after the other.
Phillip Liu
And then the fact that people are helping with people like your grandmother, who’s been hearing about generative AI that definitely piqued your interest. And I think that this is true for the industry in general. And then I think one of the things, or at least a lot of people out there are thinking about how does chat GBT, aside from being a very robust completion tool, how does it help me with day to day tasks? And then, so we’re sort of demonstrating that sort of this is the beginnings of the next step, that generative AI is going to have an impact on the not just compliance space. I think a lot of professional tasks as well.
Brett
When it comes to your market category, is it compliance AI or how do you think about your market category?
Phillip Liu
Yeah, we think of it as a compliance AI. We sort of want to differentiate that significantly around sort of a traditional GRC space, where if you think about traditional GRC space, that’s one more of a workflow tool and then a data gathering tool, a knowledge base of sorts. We don’t think of ourselves at that. We actually think about how we basically solve the end problem for you and not just provide a tool or repository for you to deal with the problem yourself. I think that’s a key differentiation, and I think that I sort of go back to one of the reasons, another reason why I sort of trust era was because when I had to deal with compliance, it was not something that I wanted to do.
Phillip Liu
Certainly it was the last thing that I wanted to do as part of building signal effects and having these AI based technology to be able to then remove that functionality, remove the tasks that you do not want to do, basically helps quite a bit.
Brett
What are you doing to really own that category, or what are you planning on doing to really own that category? If I look at just AI in general, it’s obviously a very crowded space. There’s a lot of noise there. There’s a lot of startups that are really doing. What you’re doing is trying to capture that demand for AI. So what are you doing to really rise above all that noise and stand out and make sure that when it comes to compliance AI five years from now, trust errors, who comes to mind?
Phillip Liu
Yeah, I think a couple of things. Compliance AI in general itself is not just AI, it’s basically building a specialist. So the way we think about this is that our thesis about how AI is going to evolve is that there will not be just one large language, one model to rule them all. Instead, there will be many different models. And compliance AI is one of these models. The way I like to sort of make analogy about this is that, well, think about the world of humans today. We have specialists. I’m a software engineer, you’re a broadcaster, we have doctors, we have lawyers. Each one of us have some aspect of specialized knowledge that we’re good at, but not everyone is good at everything.
Phillip Liu
There may be a few people who are exceptions, but we think that the world AI will shape very closely to this model, where there will be models which are really good at compliance, because the information that’s being fed to this model have a lot of nuances that’s just not generally available. Like I’ll give you one example where there are many different ways to satisfy particular requirement in a SoC, two, but there are generally within the compliance space, there are few markers that compliance auditor will look for. And then these markers are just not well known, they’re sort of passed down, there’s hearsay, but you have to capture them somehow. And then we believe that compliance AI would be one of those that capture that set of knowledge when it comes to funding.
Brett
As I mentioned here, you’ve raised 8 million to date for Trustero, but you’ve raised hundreds of millions of dollars in the past for your previous startups. So what have you learned about fundraising just throughout your entire career? Do you have a fundraising philosophy, or is there just anything you can share when it comes to fundraising that may be valuable to a young Founder listening in?
Phillip Liu
Yeah, I think fundraising is different strategy, different sentiments points. I think that right now, two years ago, in 2000 and 22,021, were flushed with money. And I think it was a wise practice to raise as much as you can. In retrospect, we’re also during that time as well. And right now, obviously, it’s very tough to raise money, and I think that it’s wise to be frugal and then to maintain as much of your business as you can, and then be as frugal as you can while still hitting the innovation milestones that you need to hit with your business. So it’s one of understanding the timing of things. But ultimately, I think the thing that’s most important is that you need to be in control of the business. To have a chance and raise a lot sometimes means that you have to spend a lot.
Phillip Liu
So I think the best thing, there’s no general algorithm for anything. The best thing is that to be frugal, and then to be conscious of where you spend your money at all junctures, I think that’s really the best way I could put this. There are times as signal feps, we would have taken as much money as possible and then grow as fast as possible. And that might have been a right sentiment and strategy at a time. And then there are other times where we wish we haven’t spent so much on go to market, and then wish we’ve been more frugal. So then basically reduce the amount of money that we have to raise.
Brett
Final question for you here before we wrap up, let’s zoom out three to five years into the future. What’s the big picture vision that you’re building?
Phillip Liu
It’s very clear to me that we now live in a world where all the businesses are somewhat interconnected, and we all want to understand and be able to trust, from a securities perspective, how other businesses operate. And in time, I think what will happen is that this notion of having to be compliant with a particular standard, a specific standard will probably give way to transparency and then transparency that’s vetted by automation. And so that, hey, just because the way your operations will automatically translate and then be understood by a buyer, and then a buyer will basically then tell you where your gaps are rather than going through business standards.
Phillip Liu
And then if you have this sort of automation in place, then you effectively build, logically, a trust graph of not only how you operate procedurally internal within your company, but the connection between companies, what company uses, what tools, and therefore what risks they may pose to a buyer of that company product. So I think that’s sort of where we’re heading in, and then compliance is fully automated.
Brett
Amazing. I love the vision. I’ve really loved this conversation, Philip. It’s been a lot of fun. Before we wrap up here, if there’s any founders that are listening in that want to follow along with your journey, where should they go?
Phillip Liu
Yeah, well, one, you could find me at LinkedIn under L-I-U. Philip with two l’s and also visit us at trustero. Www.trustero.com trustero.com awesome.
Brett
Philip, thank you so much for taking the time to chat. Really appreciate it.
Phillip Liu
Great. Thank you.
Brett
Keep in touch. This episode of Category Visionaries is brought to you by Front Lines Media, Silicon Valley’s leading podcast production studio. If you’re a B2B Founder looking for help launching and growing your own podcast, visit frontlines.io podcast. And for the latest episode, search for Category Visionaries on your podcast platform of choice. Thanks for listening, and we’ll catch you on the next episode.
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