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[Music]
I want to start, Ron, with the following. As
[inaudible] said, you have invested in almost 500 companies.
Now, if you take the 15-year span that you have been
investing, that's about one company every six days. So, the
question I have is, how do you organize yourself to be able
to invest in so many companies? And, in general, what's your
strategy for investing?
So, like the introduction said, the best decision I ever
made from a macro point of view was back in 1994 when I
teamed up with Ben Rosen and we had this crazy thought. We
were both as gray-haired as I am today in 1994 and we said,
"Let's only invest in this thing we call the Internet." So
one of the reasons that I attribute my success to is that I
have stayed only focused on the Internet, I haven't got
distracted with health care or green tech or anything else.
Now, since 1994, the Internet has completely exploded and we
could almost be criticized for not focusing on some sector
of the Internet, which in fact we do have a sector focus,
but we take a portfolio approach where we try and invest in
the top 10 companies in each of these sectors and hope that
one of those 10 becomes the company that blossoms, because
you don't know that the day you invest. The venture capital
community tends to invest in one company per sector and hope
that that company is going to win. And that's a more rifle-
focused approach where my approach is more portfolio.
[Informal Talk]
The other part of it is this is one company every six or
seven days, so how do you organize yourself to just be able
to process that many deals?
[Informal Talk]
Well, actually it's been a lot more than that. But if you go
back to 1994, it was me and Ben Rosen for a couple of years,
and when we got to investing in one company a month, I said,
"Oho, we can't process the deal flow and especially, we don'
t have the time to do the due diligence on the deal flow."
So, that's when we formed Angel Investors, LP in 1998 which
was a $25-million fund. And then, remember this is the
height of the Internet, so people were investing very
rapidly in Internet-only funds. So we did a fund the very
next year which is kind of unusual, 1999, we raised a $175-
million fund. Now, in that fund, from 1998 to, let's say,
2003, we had a staff at our peak of 13 people and we charged
a 3% management fee. We kept the GP salary at 300 k each.
But a 3% management fee gave us enough money to hire a lot
of people to manage that huge portfolio. Of the 500
companies I have invested in, 225 of them were at this peak
of the Internet, '98/'99. So, at that time, we had a huge
staff. When the bubble burst, we actually very quickly
reacted when the stock market crashed in May of 2000, and I
told all of our staff "we are not investing anymore, this is
going to be awful, everyone go, find another job." And we
basically triaged that 225 company portfolio waiting for
Google to go public, AskJeeves had already gone public in
that portfolio which gave it some return, but Google was the
monster return. And Venture Investing and Angel Investing is
a its business in my opinion, but I have lots of facts to
prove it, because in the '98/'99 funds - and I am back to
not answering your question, I am sorry, but I am thinking
of interesting stuff - 78% of those 225 companies went out
of business. That is how traumatic the bubble bursting in '
98, 1999, how traumatic that was, because most of the people
in this room don't remember that. But you were me, I never
believed the market would come back the way it has and
Google really helped bring it back. We are fortunate enough
to be investors in Google and that basically paid for those
funds. And we ultimately sold those funds, the balance of
that portfolio after Google went public.
So now, we are in 2003/2004, I started Angel Investing on my
own again. Now, at that time period, I was all alone. And
then, I couldn't keep up with the due diligence because
startups started to percolate. From 2000 to 2003/'04, there
wasn't a lot of startup activity. There was no money for it,
there was no appetite for it, I mean this valley was very
dry at that point. But I started investing again in 2003,
and when the deal flow got active enough, I teamed up with a
fund called Baseline which helped me process the deal flow
up till two years ago when we got really excited about real-
time data. And we got so excited about that, we spun off of
Baseline and we started SV Angel. SV Angel today - so
Baseline had about four people, SV Angel has five people.
So my whole theory about investing is if you have great deal
flow and you get great deal flow by helping entrepreneurs,
getting a good reputation and then they come back and then
they recommend you, that's how you get good deal flow but
that's easier said than done, but once you get the great
deal flow, you have to process it and do due diligence on
it. And that's what you need four or five people for. We
could see five new deals a day all from people and e-mail
addresses that we know and we only invest in one out of 30
that we see.
[Informal Talk]
That's 29 turndowns for every one that we invest in, and
these are people that we know. So, that's the hard part of
the business but that's a lot of work doing the due
diligence, because you want to invest in the winners.
So, Ron, let's go back to Google and talk about interesting
an example. That's certainly an interesting example. And can
you tell us a little bit about, when you got involved with
them and, more generally, what stage do you like to become
involved in companies, and sort of how did that work with
Google?
So, we like to invest at a very seed stage, one, two or
three cofounders usually at that point, the three people are
all cofounders of the company, and that's when we like to
invest and that's the vast majority of our investments.
Google definitely was in that bucket. Google started in
1997, probably '98, now that I think about it. I found out
about the company at Vivek Ranadive's holiday party in
December of '98 and I ran into David Cheriton, who is a
professor at Stanford and David was an investor in the Angel
Funds. And the Angel Funds had all investors in them who
were unique to the Internet. It was Internet entrepreneurs
or Stanford Professors. And at that party - and it was
funny, it was a black tie party and I had never seen David
Cheriton in a black tie, I don't think I have seen him once
since. Now, if you know David Cheriton, he is not prone to
black tie. And I said, "Hey, there has got to be something
going on at Stanford. I want to know what it is and give me
the name of a company that I can go home with." And he said,
"Oh, there is a really interesting one called BackRub." And
that was the name of Google in the very, very beginning, it
was BackRub. And I said, "Well, what does it do?" And he
said, "Well, it's quality search based on page rank and
relevance, and page rank as determined by popularity by
users." And that summer before, we had just taken Askjeeves
public. So even though I am not an engineer, I knew the
search space pretty well. And I said, "My God, I want to
meet that company tomorrow." And he said, "Oh no, they are
not ready to see any funders yet because they have already
gotten the money from Andy Bechtolsheim and Ram Shriram,
Jeff Bezos, and David Cheriton. There were four people that
did that original Angel round. So they had enough money but
I badgered him and literally, three months later, he said, "
Okay, they are ready to meet you."
So we went in and met Google on University Avenue and it was
probably no more than six people. And I brought one of my
partners who was technical - I always hook up with somebody
who is really technical - and we decided ahead of time,
because of our knowledge of AskJeeves, and because of what
we heard about the search engine, we felt like this was
something big. So I said, "I will keep them busy talking and
after the demo, we will ask them, can you just keep playing
with it." So I talked to Larry and Sergey, Bob Bozeman, kept
playing with the search. And halfway through the interview,
he just nodded to me, like go for it, this thing is awesome.
And so, I said to Larry and Sergey, "Hey, we want to invest
like right now." And they said, "Well, we are going to get
the big VCs first, but maybe you can help us close the VCs."
And Sequoia was one of the VCs, they wanted to invest
because of Sequoia's partnership with Yahoo and Larry and
Sergey were smart enough to say, "We are going to need
distribution for this search engine. We are going to want to
deal with Yahoo. Let's go, get the VC who invested in Yahoo
to invest in Google." And so, they basically said, "You help
us close Sequoia and you will get an allocation." And so,
that's how we got an allocation in Google.
So you used the term "badgering".
Here's a cute story. So, getting the VC round done was not
easy because it was KP for AOL and Sequoia, they wanted two
VCs. VCs don't like doing deals together, especially at the
height of the Internet. And so, Sequoia and KP didn't want
to work together. And we kept saying, "Hey, if you don't
work together, maybe we will just do an Angel round." And
Larry and Sergey, I could tell, were getting really serious
about this. So we called KP and Sequoia one day and we said,
"Guys, neither one of you are going to get this because
Larry and Sergey are saying, if these guys don't hurry up
and work together, we will just do a big Angel round." And
they asked me "Can you raise $10 million in an Angel round?"
And I said, "For this, you bet I can." And Sequoia and KP
called me in a Starbucks Coffee Shop in Foster City in 1999.
I said, "Great," and they agreed to work together which I
meant I was going to get lower allocation, but better for
the company because getting Google and Sequoia behind you
early is the best thing you could do. So, we were super
happy for Larry and Sergey. But I hung up the phone and I
said to my wife, "This was a historic phone call." And she
laughed and she goes, "All of your calls are historic." And
I said, "No, no, no, I want you to really remember this one
because this is going to be a huge company." And she does
remember to this day that I said "this one is going to be
huge." And we kept telling our LPs for years - we could talk
about Google all day, we should probably stop - but what a
hot technology Google had. And in the early days of Google,
investors didn't get it. They said, "Isn't it just like the
rest of them?" And we said, "No, go use it. It's actually
relevant, it delivers relevant answers. And therefore, it's
going to be a huge company. Now, we don't know how, but it
will be" and sure enough.
[Informal Talk]
And so, you said you always get somebody to help you, but
take it back, how do you even know who to get and have you
ever felt disadvantaged because of the lack of a technical
background?
Well, I haven't felt disadvantaged because of not being
technical myself because every step of the way because I
know I am not an engineer and I am not a PhD. I have always
made sure for every fund that we had a very technical person
that we can turn to who can actually do a code review if
they have to. Usually, they can get what they need just by
talking to the entrepreneur. So, a non-technical person
could definitely succeed. Most of our founder teams, if they
have four people, the fourth person is usually the
businessperson, they have marketing person. And so, if you
are not technical in a founding team, you can be that
person.
One of the things you do, as you get involved with the teams
above and beyond just investing, so when you do that, you
are helping to organize a technical company. Do you ever run
into problems there?
Well, no, because we have done our due diligence through our
technology person that we have at the time.
In terms of your advice to them.
Well, in terms of our advice to them, our MO as we get
involved at inflection points during the company's history.
And by inflection points, I mean we help them get a great
Angle syndicate once we decide to invest. We lead them
completely through the VC round, helping them pick the VCs,
back channeling to the VCs, getting the valuation right,
getting the VC round done. And then when traction happens,
then companies need lots of distribution. We help companies
get their distribution. So, if you need to deal with Google,
Yahoo, IAC, AOL, we will go, get that to happen with the
management of those companies.
We will also help on recruiting, we will help with
management turmoil. Every company has management turmoil at
some point in their history. But when those inflection point
events aren't happening, we are not there. So we are like
the "doctor on call". We don't take board seats. We only get
involved when the entrepreneur needs our help.
So, what I mean, the longwinded answer is we don't get
involved in product strategy, we don't get involved in
engineering decisions. When we invested in the entrepreneur,
we assume he or she knows the product and the engineering
and the code base, because we don't get involved in that and
we don't want to be involved in that because a lot of our
companies end up morphing into each other's spaces. Today,
we are in Gowalla and Foursquare, for example. We are in
Blippy, and Swipley. So we don't get into product strategy,
we don't want to. So, we just want to help with those rifle
shot company defining events. And it's funny, when our
companies get to liquidity and they call up and we are
congratulating each other, so many of them likely say, "It's
so weird. You are only involved in our company four times
for like a week each but now, when I look back at what we
did, those are the four things that made us big. You just
swooped in, helped us and got out," because we got to go hop
the other company.
[Informal Talk]
So, you just think about the Angel community. Are you at one
end of the spectrum and what's the other end of the spectrum
in terms of the way in which you interact with companies?
Well, if you take the Angel investing category, because it
is becoming a category, there are people who invest just as
an individual Angel themselves and they usually do one to
five investments a year. I personally think that's a hard
way to do it and I think you need to build a portfolio of
companies, so somewhere in that portfolio is the winner. And
then, there is Angel groups like ours. SV Angel is a $20-
million fund. The managing general partner is David Lee. I
don't want to be a fiduciary. So David Lee, an ex-Googler,
lawyer and engineer, is the managing partner of SV Angel.
And our investor base is all Internet entrepreneurs
themselves, just like the Angel Funds were. So, it's the
founders of many of the great companies in Silicon Valley
and they contribute to a lot of the deal flow.
So, SV Angel is kind of a friends and family fund. And then,
you have this new group called Super Angels or Micro VCs,
and these are people who have institutional money behind
them and they act much more like a fiduciary. And I don't
like the term "Super Angel". Super Angel because they go and
raise money from the same people that Sequoia and KP and
everyone else raise their money from. I think Super Angels
are just small VCs, the bucket of money they have is
smaller, but they are actually competing with Sand Hill Road
as far as I am concerned, and it's just how big the bucket
of money is that you have.
What I think you need to look at is which one of the
partners in these firms is going to add value to your
company because raising money today is - nothing is easy.
Starting a company is not easy. That's why I have been
quoted and it's true that I think anyone who has the guts to
start a company should get funded because it is not easy,
it's a ton of work. But getting funded, hopefully, if you
have got a great idea, you get multiple people wanting to
invest and then it's about picking the partner in the fund
that you are getting money from who you think is going to
add value, who has the biggest Rolodex, who has the best
business sense, who is going to help you when there is
management turmoil with great advice. That's what you need
to look for. It's the individual, not the fund or who
invested in that fund.
So you have a $20-million fund and you call yourself an "
angel". How do you differ from a small VC?
Well, we don't take any money from institutional investors
who then have other investors that they answer to. So, Super
Angels are also what I would call "super fiduciaries". They
have institutional money that also has investors watching
them. There is three pairs of eyes watching your money, and
I personally think that takes your eye off the ball. All I
want to do is help entrepreneurs. I don't want to be a
fiduciary. So, with SV Angel, it's a very unique
relationship, but I have the best of both worlds. But that
doesn't occur very often.
[Informal Talk]
So let's just spend one more minute on the Angel community
because it's changed a lot in the last 15 years. You
described sort of what it is now. How do you see this
moving? And one of the things that seems to have happened is
that some of the VCs have pulled out of the early-stage
funding which is where you are and do you see this continue
like this or do you expect that to change over the next 5 to
10 years?
Well, I think it's ever evolving. What I like about it is
there is more people investing which says more companies get
started which means there is more innovation in Silicon
Valley or elsewhere in the United States. And I really do
believe that Silicon Valley must live up to its legacy and
be the most innovative place on earth, and that's part of
the reason I do this. The fact that there is more funding
sources, say, there is going to be more great companies and
more great ideas funded who say "we will dominate in
technology." A lot of the VCs though, most of the VCs that I
know on Sand Hill Road wants to invest at the seed stage and
do invest at the seed stage, and it's a misnomer that they
don't.
KP and Sequoia make and benchmark these firms when they have
conviction about an entrepreneur. They will invest 150 and
then go to the next level. The problem with that is if they
don't invest in the series A or B round, there is a stigma
on "oh, well, why didn't Sequoia invest in the next round?"
It actually makes it harder for the entrepreneur to raise
money because everyone says, "Well, why isn't Sequoia
investing?" And that's why you don't see a lot of
entrepreneurs doing that. But as far as the Super Angels, I
mean the number of Super Angels and Micro VCs out there, in
the last couple of years, it's been doubling or tripling
every year, and I view that as a good thing for the
ecosystem.
[Informal Talk]
By the way, I am assuming from what you just said that you
don't invest in second or third rounds, is that true?
We typically do not.
So you avoid the (overlapping 27:04) why did you not invest?
Yeah, we avoid that. And in our case, when you are investing
as an Angel, you usually don't get asked anyway. But two
exceptions would be I invested in follow on rounds of AdMob
and Twitter. It think there are vivid examples of companies
that were far enough along that a shrink would say, "Are you
crazy not to take your pro rata in those types of companies?
" But in general, we don't because I would rather spend all
of my money investing in three entrepreneurs starting a new
co. That's what I enjoy. Just writing another check for
AdMob and Twitter, yes, it puts money in the bank, the
reason I do it is it puts money in the bank so I can go
invest in more startups, but that act itself is not as
exciting as investing in a brand new raw startup.
[Informal Talk]
When in the evolution of an idea or an opportunity do you
think an entrepreneur ought to approach an Angel? How far
along do they need to be and what advice would you give them
on that?
Well, my advice is to bootstrap as long as you possibly can,
and there are a lot of companies where the entrepreneur
bootstraps are all the way to profitability. Let's use
Michael Arrington as an example, TechCrunch, everyone must
note Michael Arrington at TechCrunch. He is a bootstrap
entrepreneur. He started TechCrunch and never ever took a
nickel and sold it to AOL a month ago for a lot of money, I
mean he is a wealthy person now. That is the best scenario.
Now, how did he do that? He got quick traction and he
monetized it quickly enough and he was able to hire enough
people and always make a profit.
So, how does that translate here? Try and bootstrap as long
as you possibly can, and try and get some traction that you
can show investors, so that you do get multiple investors
bidding on your company and you can get a higher evaluation
so you don't get diluted as much. So, the best case - and
Michael Arrington is the exception, not the role. Most
companies do have to go out and get funded. But if you get
funded where you have written the initial program and you
can show some traction, i.e. there is X thousands of users,
that's much easier than getting funded with here is an
executive summary, and you need a good executive summary
regardless, here is a great executive summary but the code
is half done, we are going to go beta in six months but we
have five people and we can't bootstrap it anymore. That
company is not going to get a optimal evaluation.
So, the long you can bootstrap, get the program finished,
release it, don't procrastinate. Google, the father of
released products to beta and iterate and iterate, I am a
huge believer in that now. We still have very prestigious
companies who don't do that. They want to wait till it's
perfect and then release it, and I happen to disagree with
that. And that's why companies are becoming more successful
as Google is the one who took the stigma off of releasing
beta software. But get the product out there, get traction
and then raise money. That's the optimal crossover.
And when you have done that, gone as far as you can, then
would you suggest to try to find an Angel or try to go to VC
community? What are the conditions under which you would go
to an Angel versus VC?
It's all about the amount of traction you have. So, there is
no doubt in my mind that if you can get funded by KP,
Sequoia, Accel, Benchmark, Greylock right out of the gate,
that is a better thing for your company. But those VCs are
going to want to see more proof points, they are going to
want to see a business model of some sort, although they
didn't on Google but the product was so spectacular, it
overcame that, and they are going to want to see user
traction and huge growth.
So if you go from - Facebook had a tiny amount of angel
financing, so maybe if you just forget that that happened
that Peter Thiel put in a little bit of money with a few
others. Facebook, Accel came in and bid against the
Washington Post six years ago and they had skyrocketing
growth. And that allowed them to go directly to the VC
community and get an $80-million valuation. It was like
unheard of. But they had proof points and everyone knew that
you could advertise to that audience.
So if you can't leapfrog to the VC, for sure, you should go
and find the highest quality value-added angel who is going
to open up their Rolodex to finish rounding out the angel
syndicate, because we invest like 100k-200k, most companies
raise a million to start or half a million. So no matter
what, you need a syndicate of angels, not just one angel.
And so, the lead angel better go get other great angels to
invest because that sets the pedigree for your company from
day one onward. So if you can get four high pedigree angels
to invest, you are already a hot company. But they are not
going to invest unless you have got some market traction,
product is up and running and you have got some amount of
growth. The life blood of Silicon Valley is growth. How we
pick our market segments? Anything that grows at 2000% a
year, that's the market I want to be in as long as it's in
the Internet. We don't have to do any market research. It's
all about growth. We love growth. It's the life blood of the
Valley. So, if you show any investor growth, they are going
to give you money.
[Audience] Are you still investing exclusively in Internet
companies or you are looking at branching out in the near
future to other industries?
We are exclusively Internet and we are sector focused right
now on what we call "real time" which is a lot of companies,
believe me. It's anything where users are spontaneously
contributing content of the web. So, any QA sites, any
content sites, the flash sale space, these are all real-time
companies, especially Twitter, it would be the flagship
company of real-time data.
But I can tell if you have an Internet-based company,
sometimes they deviate from that particular segment.
We will still look but probably 75% of our investments are -
100% of our investments are in the Internet, 75% are in the
strategy around real-time data, and that's because of the
growth.
[Audience] What are a couple of investments that you
overlooked and were very successful and what could have the
entrepreneurs said to convince you to invest?
The most famous is Salesforce.com. Marc Benioff reminds me
every time he sees me. It was right in 1999 when we believe
the market was going to crater and it did crater and we
couldn't agree on the valuation. So, the only thing he could
have said was, "Okay, I let you invest cheaper." And at the
time, he had plenty of investors and so he didn't let us do
that.
[Audience] We are starting from zero and we want to be
[inaudible] about 20 years, what are the kinds of the things
that we need to get right?
Well, for sure, I would go, get an operating job in a
company. I co-founded Altos Computer, that that was a 10-
year stint. Then, I went and acquired a company in the
software space that was a five-year stint. But I did not
like being an operator, but it gave me very valuable
experience. I don't tell an entrepreneur anything that I
haven't done myself. I would also say, "You need to fire
that person." And they will say, "Wow, that's pretty harsh."
"Well no, no, I have fired hundreds of people in my career.
It's not easy but you have got to be decisive." So I would
get an operating job. And then, once you get a big enough
bucket of money, start angel investing but angel invest with
a syndicate that you enjoy working with. And I would find if
you are technical, find someone who is a good marketer, so
that your little fund is well rounded. Social media is a
huge space today, and David Lee and I are the old farts of
angel investors. We have three people who are 25 or younger
and we couldn't do effective due diligence today on most of
the social media companies without that team. So, whatever
segment you are going after, make sure you have the right
people that help you do the due diligence. Great deal flow,
great due diligence equals a good portfolio. And I laugh at
these 25-year-olds that we have, one of them is my son,
because in five years, they will be stale. We will have to
go - if social media is still a very huge high growth sector
and I think it probably will be, in five years, we will have
to go, find a 20 year old and tell us what this is. I mean
everyone probably knows, I don't use these services but I
understand the dynamic of the services and I am getting all
that data from 25-year-olds.
[Informal Talk]
So, any other personal attributes that you think young man
out there who wants to be in your shoes should --
Well, I would be decisive. When you are an angel investor,
you don't trust your gut. We invest in the entrepreneur
first and the idea second, and the idea second by a long
shot. It's all about the chemistry we are going to have with
that entrepreneur because the ideas are on morph a lot. So,
you would need to become a good judge of people, so to
speak, and that's I have been doing after investing in 500
companies and talking to 10 per investment, that's 5,000 - I
have talked to way over 5,000 entrepreneurs. So, within 10
minutes, I have a real feel of I think that's going to be a
great entrepreneur and we are investing and I don't care
what the idea is. That's the point you - if you want to be
like me, that's the point you want to get to. It's intuitive
about the people.
[Informal Talk]
You said the deal flow is the key thing to get. So, take
yourself back to, was it, 1997 when you started your first
angel fund, how did you begin to get deal flow?
Well, from '94 to '97/'98, Ben Rosen, who was then the
chairman of Compaq and I had done about 40 or 50 investments
together, and AskJeeves was one of them. And we actually sat
in the board meetings and turn them into business
development sessions, it's the only time when we
participate, because we said, "Hey, this is a great idea but
unless we go, get distribution deals with EZ publishers, we
are not going anywhere" and we went to sign those. So, we
got this great reputation established where all the
AskJeeves team, when their friends would say, "Hey, I am
going to start a company," they would go, "Hey, that Rosen
and Conway were really helpful, you ought to go talk to
them." And then when we raised our funds in '98/'99, we went
to Marc Andreessen, Jeff
[inaudible], the founders of Yahoo, eBay, those were the
investors in those '98/'99 funds. They had just become
wealthy and I said, "Why don't you invest in the next
generation of the Internet? You are busy at your jobs, but
you are going to get lots of deal flow, Marc Andreessen, and
you are busy building Netscape. Refer that deal flow to us,
we will make sure, even if we don't invest, we try and get
them funded elsewhere." So we really like helping the
ecosystem. When we turn somebody down, many times we will
say, "Hey, go try that angel because we think they will be
excited about your company and your sector."
[Audience] How do you feel about ideas or companies that
could be easily replicated by large companies and maybe
targeting to be bought out like when people come to you and
say well, and you say I hear a lot like well, what's
stopping Google from doing this in a second or something
like that?
Well, so company is in a cluttered space, it depends how
cluttered the space is. I think wellness today and photos,
there is two spaces that when somebody says that to me, I
say, "My God, I can reside 50 companies in that space." Now,
we still listen to it, but we think those are pretty
cluttered. So we want to hear more about it. But we will
probably most likely turn them down. So, a better example
would be I think I have five companies in the space but it's
an interesting space, but there is no intellectual property
barrier to entry. Then I will look to the entrepreneur "How
fast can you execute? How fast can you make a decision? How
fast can you hire a team?" And we will tell the entrepreneur
"Do you know you are in an execution play? This space is
cluttered, there is these five people. Tell us how you can
execute those other four companies." And there is an
entrepreneur who says, "Here is my angle." And I say, "Wow,
you will probably execute best, therefore you win because
these are huge spaces." Facebook had a plenty of competition
but they executed. So you look for the one that will
execute. The group texting space right now today is hot as
hell. There is four companies going after it. We have made a
bet and it is an execution play. So, there are very vivid
examples of very exciting spaces that fit your example
perfectly, and it's all about executing.
Now, I have got a cluttered space that has a very large
company in it, let's say a Google, well Google could enter
[Informal Talk]
So what kinds of questions do you ask to your entrepreneur
in that case?
It depends what segment that they are going after, I mean we
would get really deep about - if you are going after Google
or Facebook, I am hoping there is some intellectual property
advantage. If it's just an execution play going after Google
or Facebook, we probably won't invest. But if they have
intellectual property that's very unique, then we will take
a look and invest. We invested several years ago in a
company called Blekko that just got launched today. It's in
every news media outlet and it's a search company but I
think it's going after a segment of search and it has very
deep intellectual property. And that's what we think that
advantage is.
[Audience] How long do you typically advise your companies,
what type of runways do you typically advise them to take
[inaudible] series A and do you see your model changing as
the early stage sort of series A venture industry trends?
[Informal Talk]
The companies usually raise a half a million to a million in
the angel round. That should get them - there ahs got to be
something to show, so hopefully, thousands and thousands of
users and maybe some monetization. And depending on where
your traction is, if you have lots of traction, you can
raise money a little slower. If you don't have a lot of
traction, four or five months before you are out of money,
you better start raising that next round or open the angel
round at the last valuation.
[Informal Talk]
[Audience] Hi Ron, I am Alan too. Question for you is, what
are some of the more promising monetization models that you
have seen?
[Informal Talk]
Here is a space that we didn't get into. We are in a few
startups that are in it now. But the flash sales/flash
marketing space, these are phenomenal monetization schemes,
I mean schemes and a positive vent. Gilt Groupe and Groupon
are fascinating companies led by defining entrepreneurs
[Informal Talk]. I was offered to invest in Gilt Groupe and
didn't, and that is a phenomenal company with a phenomenal
monetization model. Twitter is going to end up with promoted
tweets. I think that's going to be a phenomenal monetization
model. Facebook with traditional ads is a phenomenal
monetization model. But if you look at the flash sale space,
all kinds of different tweaks of the monetization are taking
place in that space and it's really early days. We haven't
seen half of the creativity on how they are going to
monetize.
[Audience] Hi. Can you tell us about what you see on the hot
trends at the moment and what do you see the hot spaces we
should look into especially?
Well, I just talked about flash marketing. Mobile overall is
monstrous, I mean computing is moving from the computer to
the mobile device in every way, shape or form. Gaming is
massive growth. Anything that's location based is massive
growth and location based with commerce in it, which is
where Foursquare for sure is going to go. And then there is
a brand new space that we are looking at right now. I heard
it first at Stanford, O2O, Online to Offline. I have two
examples. There is a company called shopkick which you walk
into a store that has an LBS device that knows you are in
the store and as you are walking down the aisles, it
delivers information about what's in that aisle and coupons
and specials that allow for instant monetization. And that's
a KP Greylock-backed company and we are lucky enough to be
investors as well. And then, a company called Milo which
gathers inventory of all the local stores around here, big
and small, so you would go to Milo because once you decide
what you are going to buy, you just want to know what's
there when you go to the store, you don't want to drive
there for nothing. You see that they have inventory, you
reserve it, you drive over and you pick it up. That's just
two examples of what I would call Online to Offline. This
could be another multibillion-dollar web opportunity.
[Audience] So, given that a lot of us have business
backgrounds and we are thinking about lots of different
ideas, do you think we should be concerned about the idea or
the team?
I would be much more concerned about finding the right co-
founders and then getting the right co-founders to agree to
the company, the market, the strategy. It's all about the
team. Now, that's just my bias. Don Valentine at Sequoia
spoke here somewhere at Stanford a month ago, I am dying to
hear it, in this room, in this chair.
[Informal Talk]
Don Valentine was the VC who invested in Altos Computer, the
company that I co-founded that went public in 1982, and he
is a rock star. He invests in a panel. A week ago,
[inaudible] startup school. I said, "Yes, I disagree with
Don Valentine." Don says, "The size of the market determines
how excited he gets." So, I don't just want to mislead
anybody here. This is the criteria I use. There are other
angels, many other angels out there where it's all about the
idea and the team, but let's hope we can work with the team.
And then, you have got Don Valentine which is it's all about
the market size that they are going after.
[Informal Talk]
[Audience] Hi. I was just wondering, we hear a lot about the
big successes and we know there are a lot of companies that
never make it. And I am just wondering how many companies
end up in your portfolio in the middle of the road where
they may have trouble attracting VC funds but they have cash
flows enough to sustain themselves? And if there is a
critical mass there, when do you decide to engage or
disengage if you have companies portfolio that are humming
along but they are never going to be the next Google
[inaudible] so many hours in a day?
We never disengage. We have become less active because the
company doesn't need our help. But 40% of the companies we
invest in today will go out of business. So, that's why I am
saying anyone who has the guts to start a company, I hope
they all get funded, because entrepreneur should know 40% of
you are going to fail, you return no money. Now, that's a
lot better - because I am an optimist - that's a lot better
than when the bubble burst and 78% failure rate. But the
companies in the middle where there are not hits, that's
what M&A is for, 80% of our liquidity events will be via M&
A. There is nothing wrong with M&A. Ask Omar Hamoui who sold
AdMob to Google for $700 million or the Zappos founders, $2
billion to Amazon, and YouTube $1.6 billion to Google. There
is nothing wrong with M&A. So, those companies should be
very proud of themselves, especially if they have positive
cash flow and say, "Hey, we are not going to go public but
let's merge into another company. Let's even merge into a
private company if we have to and reinvent ourselves." But
M&A is the vast majority of liquidity events for startups
and going into it, you should absolutely realize that and
not be embarrassed about it. It's awesome. Going public is
not easy.
[Informal Talk]