Invest Like the Best with Patrick O'Shaughnessy
00:41:14 · Michael Moritz
[00:41:14] S2: So Don was the founder of Sequoia. He took a risk on me around 1985, hired me to join Sequoia when Sequoia is a very small firm. We're sitting around this table here in your studio. It's probably large enough to accommodate all of the people who work for Sequoia at that point. I was a journalist, I've been a journalist, but wanted to get into the venture business because I've become interested by it. And had met some of the people who were running these firms, all of which were very small at the time, and had written to five of them. This was in the days when you didn't send emails, you actually wrote letters. And had gone to see each of them, they were kind enough to give me some time. All save Don said, we don't really know what to do with you because you don't have a technical background, you don't have an engineering degree of any sort, You don't really have any technical knowledge. You don't have any work experience in a Silicon Valley kind of company. You've been a journalist. So maybe you should go and find a role in public relations or marketing or something like that, which is not exactly what I wanted to do. And Don was more willing to take a risk. And the reason was fairly straightforward because he had seen people that he expected because they had big operating backgrounds in technology companies, a few of them come into the venture business and not be very successful. And then he was aware of some who had carved out very successful lives as investors. There was a fellow called Tommy Davis, I think, who started a a fund called the Mayfield Fund. There was another guy who'd been an insurance actuary, but the one that Don pointed to more than anybody else was a gentleman called Arthur Rock who just celebrated his hundredth birthday. He was an investment banker at a small boutique here in New York called Hayden Stone. This is back in the 1950s. He had had the moxie to organize the original breakout and financing of Fairchild Semiconductor. And then in the 1960s, people won't know the names anymore, but he had helped finance Teledyne
00:43:30 · Patrick O'Shaughnessy, Michael Moritz
[00:43:30] S0: Finite of Henry Singleton, right? [00:43:32] S2: Henry Singleton. Henry Singleton who later became one of the early board members, our first board members at Apple, scientific data systems, and then became the chairman, original investor in Intel, day one. And then a few years later, backed Apple. Don said, look, there's nothing in this background that would have suggested to be successful. That was the main reason. [00:43:54] S0: And what did you see in him in the early days? [00:43:57] S2: A job. [00:44:00] S0: What did he teach you? [00:44:01] S2: Don didn't believe in teaching. He had a survivalist instinct. So he just believed in tossing people into the deep end and see if they drowned. But I learned a lot by observation and listening, good things and bad things. There was another gentleman at Sequoia named Pierre Lamond who played a huge role in the rise of the semiconductor industry. And he too was something of an influence, but it was being in the middle of that meteor watching good things happen and bad things happen, gradually trying to form my own opinions about things. [00:44:41] S0: What do you think it teaches us about early stage investing that a journalist with no technical ability and no work experience can be one of the best investors of that type ever?
00:44:52 · Michael Moritz
[00:44:52] S2: The venture business that I got into way back when is very different from the venture business today. There aren't many parallels. I don't know that I would flourish in today's venture business. It's for a whole variety of reasons. Why not? I think it's become much more difficult. We had a variety of benefits back in the 80s and 90s, I think that began to dissipate maybe fifteen, sixteen years ago, that don't exist today. One of them being imperfect information. The pre internet, unless you were very close to things, you didn't know what was happening. Today, because the internet and some of the stuff that we're talking about earlier, everybody around the world knows exactly what's happening. Everybody's got access to the same information, or you know, more or less the same information. So that's number one. Number two, there are just so many more entities of all stripes, individuals, two or three people banding together in a small firm at the other end of it, huge mutual funds pouring money into it, that the very early stage private market is very, very different. Forty years ago, thirty years ago, it was possible if you were an individual to form a relationship, a real relationship, close relationship with the people that you were getting into business with. That doesn't exist today, particularly for a venture firm. There are just too many intermediaries in between. I'm not sure that the luck that I had back then, and I was also catapulted right into the middle of the one place in the world where all of this stuff was happening. So that's a huge competitive advantage too. I'm not sure that any of that translates today. Think moderately intelligent 14, 16 year old who had his or her wits about him would have been able to succeed in the venture business in the mid eighties.
00:46:44 · Patrick O'Shaughnessy, Michael Moritz
[00:46:44] S0: Do you think the ecosystem is healthy today? [00:46:46] S2: I think it is if you're a founder. [00:46:50] S0: Pretty good. I like the quote that you've [00:46:52] S2: said often that your favorite investment was Sequoia. What was going through your head as you took it over? Not to screw it up. The Sequoia that was around in 1995 was very different from the one that was around when I sort of stepped down in twenty twelve, twenty thirteen. Number one was not to screw it up. Number two was to ensure that everybody who worked there felt that we were only as good as our next investment and that we couldn't rest on the laurels of the past. And then number three, take advantage of the new market opportunities that began to occur, whether it was eventually going overseas as Silicon Valley's share of startup activity, though still obviously the best place to be, became smaller. So first of all, we went to Israel, then we went to, most notably to China, Started another business called Sequoia Heritage, which is a very different business. [00:47:54] S0: I know Kevin Welly has some incredible talent.
00:47:54 · Patrick O'Shaughnessy, Michael Moritz
[00:47:54] S0: I know Kevin Welly has some incredible talent. [00:47:56] S2: Yes. And Keith and our small and mighty heroic investment team there. I don't want to sound like Joan of Arc here. I felt doing right by our investors was really important. Most of our investors were not for profits. I think making sure that we perform well for them. I didn't want to be in that business where if we didn't perform well, we still got paid very handsomely. I think that's part of the problem with a lot of the aspects of the financial service providers of all sorts of different forms. And it has been for a long time, which is the firm that provided us well, but their clients may not may have done as well just investing in an index fund. [00:48:44] S0: I did this with Doug, he told me the story of that one fund that you fought so hard to get back to par over ten years or something like this. Right, [00:48:52] S2: we could have said to investors, well, look, you've had a lot of good times with us and you just got to accept the fact that you've got a fund here that isn't gonna make any money. I certainly wasn't wive like that, it was a matter of pride. [00:49:08] S0: What did you learn about working with someone like Doug that was so different than you, but you had such a fruitful partnership? Tolerance and more.
00:49:08 · Patrick O'Shaughnessy, Michael Moritz
[00:49:08] S0: What did you learn about working with someone like Doug that was so different than you, but you had such a fruitful partnership? Tolerance and more. [00:49:17] S2: I think you have to adjust. When you're trying to work in a team, you have to try to understand what the other people around you need, what's important to them, and feed that need with people who are wired, as you said, very, very differently. I think that's the most important thing I've learned about building a team or leading a team. I think today I'd be much better at it than I was twenty five years ago, thirty years ago. And I learned a lot of that actually from the way that I did this book maybe ten, eleven years ago with a famous soccer manager. [00:49:52] S0: Was just gonna ask about [00:49:53] S2: Alex Ferguson. Think one of his great skills was the ability to understand what motivated each of his individual players. [00:50:04] S0: How did you see him do that? I know he was famous for preferring players with tough upbringings.