From Shadows of Death Camps to Sequoia: Journey Through Peril & Possibility - Sir Michael Moritz

It's the challenge of not having a homogeneous market. In America and in China, if you start a company, you have a vast market on your back doorstep. In Europe, by contrast, the consumer habits, business habits are very, very different. Success builds on success. And in California in particular, there is a pattern of success that every generation in Silicon Valley is extremely aware of.

You will have one or two gargantuan companies emerge from this and a real concentration of value or market capitalization in a couple of those companies, including incidentally the incumbents, Google and Facebook, and the rest will be wreckage and carnage.

It's a delight to be on George Street.

I didn't have any great plan. I left Britain 50 years ago actually this year and went to America as soon as I graduated from Oxford, not really knowing what, without any grand plan or anything. But I had known that despite the fact that I went to the Wharton School at the University of Pennsylvania, I wanted to be a journalist. And I had tried to get a job in Britain before going to America, but the union restrictions were very, very tight. And at that time I wanted to go and work on a broadsheet in London and they had rules forbidding them from hiring university graduates for fear that it would upset the apple cart for their apprentice schemes of people that they hired who were 16, 17 years old. And so I went to America knowing that I wanted to be a journalist and I'd written to a whole bunch of places in America, the Washington Post, New York Times, and then I got lucky with Time magazine. And they told me that as soon as I knew exactly what I wanted to do after I graduated, I should become a journalist. And I enjoyed that. I did that for about four years and one thing led to another. I started with Time. Actually my first job was in Detroit and then I got transferred to Los Angeles and then I got transferred to San Francisco. And after I got transferred to San Francisco, I began to learn about Silicon Valley and it was that that began my voyage towards the venture business.

Well, it's a very long time ago. I joined Sequoia when I don't think it was, I think Kleiner Perkins at that point was by far and away the best venture firm in Silicon Valley. And it was a very different business. There were, even though there was an element of competition to it, it's nothing like it is today. And it was a very small firm. We could, you know, we had our holiday party around one table including everybody, it was so small. And there were two dominant personalities: the founder of Sequoia, a gentleman called Don Valentine, and then another person called Pierre Lamond, a Frenchman, both of whom had come out of the rough and tumble of the semiconductor industry. They'd both worked at Fairchild Semiconductor, which was the real forebear of everything that came later in Silicon Valley. And that was a blunt, tough, confrontational, incredibly competitive business and they took all those attributes and those were present and alive at Sequoia when I joined.

A brilliant entrepreneur. For me, the trademarks of someone who potentially might shine, and it's very difficult to tell this when you're talking to somebody who's 19 years old or 20 years old, is that they can educate the investor about something that they know in tremendous depth that few other people really appreciate and understand. And that they have a complete grasp of that subject and that they can communicate very clearly what it is that they want to do. And that they have an irrepressible hunger to ensure that the product that they want to build becomes a reality. I think those are the three hallmarks. People tend to complicate all of this stuff, but I think it boils down to those three attributes. And I could very quickly explain how those attributes were apparent and evident with, you know, some of the people that are well known to have sprung from, you know, have built formidable companies in California.

Well, it was only, this is, we're talking about the start of a business now known quite around the world, a payment services business called Stripe. And it was Patrick Collison that I first met. And I'd had the good fortune of being involved with the formation of PayPal about a decade earlier, you know, at the end of the 1990s, which is a story in and of itself. And there were two things that I remember from that initial conversation with Patrick. The first was that I remember him saying that he wanted Stripe to take off where PayPal left off. By which he meant that PayPal had got very complicated for new customers to use and that he and his brother had started this company to simplify the process of opening Visa accounts and making payments on the internet and getting rid of a lot of the gobbledygook that had clogged up the works. And the second thing was, and you know, there's always a danger that these one-liners come across as sounding glib, that they wanted to enable e-commerce. By which he meant they wanted to be the payments mechanism for anyone who wanted to start a business online, irrespective of where they were located. It was those two things.

Well, I was incredibly lucky that Don in particular and Pierre took a risk on me at Sequoia because I had talked to the leaders of four other firms, all of whom rejected me because I didn't have the qualifications that they thought would make for a good venture capitalist, which were some sort of technical degree and a few years of work experience at one of the Silicon Valley companies. I had neither of those. I was a history major and a journalist. And Don said that he really had no clue about the attributes of what made for a successful venture capitalist because some of the people he'd seen come into the business whom on paper he had expected to succeed had failed. And on the flip side, there were several that he could point to who had unlikely backgrounds. Arthur Rock being the most notable, who had succeeded wildly. And I've always thought that I owe Oxford one thing and journalism another. Both taught me in different ways how to deal with uncertainty and unfamiliarity with a particular topic. By which I mean at Oxford under the tutorial system, one was assigned a subject at the beginning of a week about which he didn't know a thing and then dispatched with a list of books and a question to answer and then to return a week later having purportedly mastered or pretended to master a particular topic and deliver an opinion with some sort of lucid authority and conviction even though to some extent you were bluffing your way through a lot of it. And then in journalism it was very similar. If you think about being assigned a story about an unfamiliar subject or an unfamiliar person, again, you have to arm yourself with the facts and be as diligent as possible in an abbreviated span of time to come up with a story that is going to hold water and survive the scrutiny of the lawyers and eventually be published. But again, you're dealing with uncertainty and not a complete mastery of the facts, but yet to have an opinion. And those two things, I mean, Oxford and journalism, those were the skills that really I felt gave me an advantage in Silicon Valley. Although I didn't really appreciate it at the time because when I got into the business, I was very much, you know, considered the least likely of the few people who got into that business in that area. I was clearly the least likely to have any degree of success whatsoever. But people I found particularly with engineering or scientific degrees, and you know, they know vastly more than I do about particular subjects, they have a very difficult time making a judgment about something where they don't feel they have all the facts. I've never had that debilitating problem.

Oh, I thought you on my side there was just going to be shallowness and a very slim grasp and dilettantism. I've, you know, in times than the ones that we're living in at the moment. I've always thought it was fairly simple and that neither side, the people starting the company or the people investing in it, wanted to feel after they'd shaken hands, I know this isn't the precision of the answer that you're looking for, neither side wanted to feel like they'd had the enamel taken off their teeth because they were going to have to live together and work together for a very long time and the arrangement was always going to be slightly imperfect. But you could look each other in the eyes and feel that you're on the same side after the papers been signed.

But yeah. So it's different with Sequoia. You're invited in as an LP.

Mhm.

For sure. Well, there was again, you know, times are different today, but we had always looked for investors because where we felt we'd be proud to work for their institutions. They were the customers.

It's the challenge of not having a homogeneous market. And, you know, I know that from I've had a few experiences with investing in European businesses. And in America and in China, if you start a company, you have a vast market on your back doorstep that even despite the size of America and China, have very similar tastes. In Europe, by contrast, as both of you know very well, better than me, each country, despite the EU and, you know, the federated state of Europe today, the consumer habits, business habits are very, very different. And so you don't have a 300 million population that has, you know, identical or fairly close tastes. So that's one very big thing. Second big thing is that success builds on success. And in California in particular, there is a pattern of success that every generation in Silicon Valley is extremely aware of. And if you start a company in Silicon Valley, you are surrounded by people who have experienced success at a massive scale. That's the second thing that's absent in Europe. And the third is the board governance in Europe is just terrible compared to America. And I think a large part of the issue, it's got a little better over the last decade, large part of the issue with young European technology companies is that the people on their boards have, particularly the ones who've never worked for a technology company or a fast growth company, have no idea what success smells like.

I always thought when we went to hire, well there were two different things: hiring people for Sequoia and hiring people for portfolio companies. So portfolio companies, when we were hiring people, I always wanted to feel that I would want that person at Sequoia even if, you know, the role, we didn't have a role for them or anything like that. And number one thing at Sequoia was hunger and competitiveness.

I have a very big bias for investing in long-term compounding operations that generate increasing amounts of cash and profits for a very long time. And which rules out, you know, certain things that may be wonderful opportunistic short-term investments but don't give you that flywheel of compounding for 20 years which is the magical property that makes all the difference. And having a very long time horizon. And don't confuse having a very long time horizon with inexhaustible patience. That isn't the case. But being in a business where you know you look at some of the really great technology companies and then there are other companies, industrial companies and companies that fly below the radar that just compound their earnings year in and year out and they may, you know, go through patchy times, you know, financial crisis here or recession there, but the underlying trends are in their favor. And if you are able to be an investor in one of those companies and then have a capacity that most investors don't have, which is to do nothing, you should be very well rewarded.

Well, I'm reluctant to talk about Heritage because we try and keep it very quiet, very discreet. But I think if you go back to my previous answer about looking for places where we can compound money for a very long time, that's really all we're trying to do.

Yes.

For sure.

I'm no currency expert whatsoever. But certainly in the West, believe that the US despite all the issues that you have just correctly remarked upon probably is the best place to be in a very imperfect. It's an imperfect place to be, but its imperfections, I think, are still less than most of the other places that you could choose to invest. And obviously there are all sorts of major structural issues that need addressing in the United States, but I think those structural issues are more profound in Europe.

I think the pattern that we're used to from the last 50 years will repeat itself here, which is that you will have one or two gargantuan companies emerge from this and a real concentration of value or market capitalization in a couple of those companies, including incidentally the incumbents, and Google in particular, Google and Facebook in particular. And the rest will be wreckage and carnage.

From the east, China. Well, by chance, its whole future revolves around AI.

And everybody's criteria are different. I'm not pretending that Harriet, my wife, and mine are the right ones. We've tried. We're, you know, both of us were very conscious given where each of us started about, you know, people who in different areas have got left behind. And so that's where we've concentrated our efforts. And we've also, you know, I live in San Francisco. San Francisco is where we raise our kids and it is home. And so about 60% of what we give is to organizations around the Bay Area and then occasionally we will go outside of the Bay Area. And then as for measurement, we try and keep it very simple with the organizations that we give grants to and ask them usually to provide three measurements that we can readily agree with about their particular goals and see if they meet them. And without asking any of these small organizations, we back are very small, they don't have much infrastructure or anything, so we want to keep it as easy as possible for them. And at the end of each year, we'll assess progress or lack of progress.

14% of undergraduates at Oxford and now Crankstart scholars, which is the name of the scholarship program that we started. And that's the result of two things. It's the result of challenge grants that we gave to others and many others rallied to the cause. And the second, which always gets overlooked with philanthropy but it's invariably the first question I ask when we sit down and talk to a larger organization, not one of these smaller service not-for-profits, is how they manage their money. Because it's a lot easier for an entity like Oxford or another institution like Oxford, it's much easier for them to make money than to raise it.