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Yesterday I attended a Rajeev Circle event at Stanford University. Professor Rajeev Motwani was an extraordinary connector between Stanford University and the entrepreneurial world in the Silicon Valley and beyond. The Rajeev Circle meets regularly to further his legacy in the areas of science, mentorship, investment and philanthropy. In yesterday's meeting we had the honor of getting advise from Eric Schmidt, executive chairman of Google, Ron Conway, super angel of the Silicon Valley, and others.
I recorded the fireside chat between Ron Conway and Manish Chandra on the topic of starting and growing a startup. Below is the transcript.
Rajeev was an exceptional mentor to entrepreneurs.
Young entrepreneurs Larry Page, Sergey Brin and now Mark Zuckerberg eagerly learn how to run a company, "anything you can do to help me learn how to start a company I am all ears".
Ron as a super angel is first investing in the entrepreneurs, then in ideas.
Good connections with influential people is key to start a business. Manish of early Google, "I sent one e-mail to Ron, and Ron sent a bunch of e-mails, and pretty soon within a week we had almost every single media company that was relevant to our space."
Great entrepreneurs set clear goals and metrics. Mark Zuckerberg said to angel investor Ron with 100% competency that he "will reach 300 million users". Facebook has 800 million and counting.
Mark Zuckerberg's "rate of maturity is on a logarithmic scale." Ron sees Mark every 6 month, and "every time I see him I say, you are a different person. Your outlook on the business, and your business acumen is completely different."
Defining entrepreneurs change how we live and interact, "a defining entrepreneur is an entrepreneur that has the mindset of the consumer burned into their brain."
Transcript of fireside chat between Ron Conway and Manish Chandra
Manish: Ron, thanks for taking the time to join us, I know it's incredibly busy time in Silicon Valley and certain for you. We have just been talking before, and the first time I met Ron was with Professor Rajeev Motwani. and I just wanted to find out how you met Rajeev.
Ron: Sure. Here is Asha [Jadeja Motwani]. I first met Asha and Rajeev in the very early days of Google when Rajeev was giving Larry [Page] and Sergey [Brin] what I would call algorithm advise. What was the name of the paper?
Asha: Page rank?
No, no, it was something cuter than that. [...] "The web in your pocket" was the paper that Rajeev wrote with Larry and Sergey. If I am getting this wrong, correct me, but I think that is right. I was an early investor in Google. I invested when KP [Kleiner Perkins] and Sequoia invested. At that time I met Asha and Rajeev. Rajeev had an immediate significant impact on me because I have invested in 600 companies and in investing in 600 companies you meet a couple thousand people that are running these companies. On the Google team was this Professor from Standford, Rajeev, who you could tell that he got a lot of brain power. But what I like even better is what a nice person he was. And I couldn't believe how humble he was. Humble is understated, but believe me, when he said something, if you did not internalize and listen to it I think you were stupid. And I consider myself stupid. So, anytime I had with Rajeev I cherished.
And this was in 1998, it wasn't long before Rajeev and Asha said, hey, we have this idea, that because of all our connections with the computer science departments at the top 5 [universities] in the United States, why don't we harvest the companies that are being started out of these computer science companies and start a little angel fund around that. I already was running Angel Investment LLP, but Rajeev and Asha wanted to start a much smaller fund, just to take advantage of their connections at these top 5 universities. And I had the honor of naming them as many of you have heard of it, Dot Edu Ventures. The name is obvious, but I thought it is a cute name and was delighted that Rajeev and Asha adapted that name. And then we co-invested together and the shared deal flow between our two funds. And that is what formed our lasting relationship.
But if Rajeev spoke, you really were stupid not to listen, because, never say something unless something needed to be said. He was a very very wise person. We would would meet with entrepreneurs all the time, and Rajeev would say, and here is what I think ,and here is what I think. And he always would be right. With the entrepreneur he would always say, did you think of doing this, did you think of meeting this person, did you think of this channel. It was not just about engineering, Rajeev knew the whole landscape. So I wouldn't let many entrepreneur meet with Asha and Rajeev, because that was a privilege. And when they met, they got the best advise, ever. And that is, what we want to continue with Rajeev Circle, is giving entrepreneurs great advise like Rajeev did.
Manish: That is great too. Rajeev's words were amazing. Every word you had to hold on to it, and really internalize it. The other thing Rajeev was really good at was, not only did he supply the words, he also supplied a couple very interesting intros that could change your live. And what, you are a little bit of that way yourself, is, an e-mail from Ron really can have a massive impact on the entrepreneur's life.
How do you engage with an entrepreneurs, I know you have a different philosophy than may be a lot of investors.
Ron: Yes, at SV Angels when we invest in a company, we invest with the premise that we are investing in the entrepreneur. Which means, we already think this is a great entrepreneur, so we do not need to look over their shoulder. So, the relationship we have with the entrepreneurs is, when they need our help, they ask for it. But we don't look over their shoulder or check on them, because we assume that they are competent. So we start by saying we have a lot of respect for the entrepreneur, and we would just help the entrepreneur when they need it. We are service firm. But because of our Rolodex we built up over the years, when an entrepreneur comes to us with a problem, and we define that as an inflection point, when you have an inflection point, come to us and we help you out. An inflection point is things like your next financing; or the product is taking off, lets get distribution; introduce us to Yahoo, Google, Facebook and Twitter; and help us get distribution for our product. And because we've invested in so many of those companies, we're well connected to the management teams, so we can really help you out.
On the back-end, most of the companies' liquidity event today is M&A, it's not IPO. We help merge many of our companies into larger companies. Skype just acquires GroupMe, and I was with the CEO of Skype last night. And I said, isn't it funny, in our meeting we introduced you to GroupMe, and we mentor both sides of the equation. We were the banker. We mentored both sides of that sales transaction. No fee whatsoever, and got that company sold. That is an inflection point and the entrepreneurs asked us to help. That's an example.
Manish: I can share my story at Google when we were at that inflection point. I sent one e-mail to Ron, and Ron sent a bunch of e-mails, and pretty soon within a week we had almost every single media company that was relevant to our space.
Going back, tell us a little bit how you met the founders, and how you make the decisions to invest in the team.
Ron: How we met Google was kind of interesting. But before meeting Google I was an angel investor in Ask Jeeves, which was a search company that preceded Google by, say, 4 years. And Ask Jeeves has already gone public the summer before Google was founded. And so I knew just enough about search to be dangerous. I spent 4 years with the Ask Jeeves founders and understood the space. I was at a holiday party at the back of eBay's home in Atherton and met with David Cheriton. David Cheriton was at this party. This party was black tie only, and I hate wearing black tie, but not as much as David Cheriton did. And David Cheriton had on a black tie. So I go over to him, and say, is this amazing, the two of us are in black tie at this party. And by the way, I have not seen any deal from the Stanford computer science department from you lately. Then he said, oh, there is one really interesting one called BackRub. And that was the codename for Google in those days. You want to meet them? I said, what do they do? Well they search. I go, oh good, I know a lot about search. What about it, do we need another search engine? And he said two magic words: Search by relevance, and page rank. I said, explain what page rank is. And it did not take him long to say, if a lot of people go there it must be something interesting on their website. Just track that and then link other websites to it. I said, wow, that is brilliant, I gotta meet these guys. that is in December, I did not meet Larry and Sergey until the following May because they were not ready. They already got their early angel funding from Ram Shriram, [Jeffrey] Bezos, Andy Bechtolsheim, David Cheriton, those are the 4 real angel at Google. But in May he said they are getting ready to the next round of financing. Do you want to meet them?
We had lunch at the Empire Tap Room in Palo Alto, and by then I was so sold in page ranks and relevance. I still have the receipt from that lunch. At that lunch I wrote down, "first lunch on the way to invest in Google". I wrote it before I left that table. And we met Larry and Sergey two days later, and it was everything we thought would be. And we helped with the KP/Sequoia round. in the first meeting with Larry and Sergey it was so clear to me, but some people in the valley were saying these guys are arrogant, and after the first meeting I said these guys are not arrogant, and I say it to this day. They are very confident and determined, and know what they want. They know how to set a goal, and how to meet that goal.
The beautiful thing about Larry and Sergey in the early days [is], we would have all of our portfolio companies meet once a month on some common topic. And for the first two years at Google, Larry and Sergey would be the first one to arrive at the meeting and the last ones to leave. They were the most curious about, what is this thing about starting a company. And because they were so curious they became very successful, because they kept learning more than the other entrepreneurs in our portfolio.
Manish: coming back a little bit to the darling of the valley right now, Facebook. Can you tell a little bit how you first meet with him?
Ron: Facebook goes all the way back to Napster, there is a connection. John Bonanza is here, who is a graduate of Napster. I met Sean Parker and Shawn Fanning, the co-founders of Napster when they were 18 years old, a couple month after they moved from the East Coast to San Mateo in the Union Bank Building. So we met Fanning and Parker, and Napster went out of business. Massive number of mistakes made at that company. I think, a Napster alumni can say if they agree, I think because of the people's out of control egos, that it did not had to happen [to fail]. But I invested in every company that Fanning and Parker have started since Napster. Shawn Fanning is on his 5th company, Sean Parker is on number 4. I was the first investor in Plaxo with Sean Parker. And then he met Mark Zuckerberg. He called me up and said, hey, you gotta come look at this one, I am going to be the president of this company. I met Sean and Zuck a couple month after Zuck had moved out [to the silicon valley]. It is funny how you meet people a few month after they move here, because I met Zuck a couple month after he moved here, shorts and flip flops. And, once again characteristics of a great, great entrepreneur. Zuck is a great listener, he was just like Larry and Sergey, anything you can do to help me learn how to start a company I am all ears. Sean Parker was on his third startup with Facebook. He would always be half listening to me. But I would always notice that Zuck was listening intently and absorbing. Hey, here is what you ought to do now, in all the advise. That is the characteristic of a defining entrepreneur.
My favorite story is at this first meeting - I took copious notes, I always take copious notes - and I said at the end of the meeting, because Zuck was, again just like Larry and Sergey, very precise about where his company was going, and what the product would look like. Very confident, not cocky, but confident that he was going to conquer the world. So I said, how big does this thing get, how many users does this get up to? And with 100% competency he said 300 million users. And guess what, he was dead wrong, he has 800 million and counting. But he had a number in his head, and he was going to meet that number. And great entrepreneurs exceed the number, and he exceeded the numbers. His rate of maturity is on a logarithmic scale. I only see Zuck every 6 month, and every time I see him I say, you are a different person. Your outlook on the business, and your business acumen is completely different. Here is somebody who is growing like a weed, and he is 30 or 31. Facebook has a long way to go. He is a defining entrepreneur. A defining entrepreneur is an entrepreneur that has the mindset of the consumer burned into their brain. And everything they think about, they are representing the mind of the consumer. Napster was great because Shawn Fanning had the mind of his user engrained in his head. Zuckerberg the same thing, he really understands the mind of what is now the Facebook generation. The same thing with Jack Dorsey of Twitter. He understands the mind of the Twitter user. That creates a great a product visionary, is a great entrepreneur.
Manish: Tell us a little bit about, what makes companies fail?
Ron: As I said with Napster, egos. In this case not the egos of anyone in the company, but the egos of the music industry and the investors that were surrounding the company. But with most startups that I watched fail, where it is frustrating is, because the entrepreneur did not admit that they where not meeting the metrics, they were not meeting their goals. And the company was doomed to failure, but the founders never realized that, and they never pivoted the company. We love it when we invest in a company, and a year later the entrepreneur comes saying, I think I screwed it up. But here is what I am going to do to fix it. And forget about that product we told you about a year ago, we are going this direction. That is the entrepreneur we say, no, you are actually the good entrepreneur, because you are not doubting yourself. And so the companies that morph and admit hey we are not meeting the targets that we set, we know what failure is, we are not going that route, those at the companies that...
Manish: What are some examples that transformed themselves?
Ron: There are just so many. There are probably 50 companies in that category.
Manish: When you look at the new set of conventions where the industries are evolving, what are some areas that you are personally watching out for and are interested in?
Ron: Three years ago we adopted a theme of real time data. Massive amounts of data is being contributed by the consumer to the internet. So the consumers are building the product. If you look at Twitter and Facebook, all that content is contributed by the user. How exotic and wonderful is that! But there is examples of real time data everywhere, you know with crowd-sourcing and collective wisdom where the consumers are contributing to the success of the internet. Two of the latest sectors in real time data that are of interest to us are big data and collaborative consumption. And the poster child for that is probably a company called Airbnb, where you can share rooms in your home and get revenue. This company started in 2008, and there is probably a couple hundred thousand people in New York who were able to pay their rent in the mortgage crisis in 2008 because they got augmented income from Airbnb. So collaborative consumption is where the community is providing the product, and there is community around the users, and the owners of the Airbnb spaces. It's a whole community and social experience, you could say it is a social network.
But I think the Facebook generation impedimizes what we call a "no fix cost society". The Facebook generation isn't interested in owning things. I want to own my own car, I want to own my own house. The Facebook generation thinks why do you need to own all that stuff? It is wasteful, it is not good for the environment. Why don't we share the car? Hence all the shared car services that are exploding today. And then even share rooms in our home or our apartments, hence the Airbnb model. So, collaborative consumption is another just huge space, early, early days. These are all multi-billion dollar opportunities of hundreds of companies in these spaces. That's why innovation has never been better.
Manish: I'd like to open it up for questions from the audience.
Asha: what is your current favorite company?
Ron: A company that we all can walk to right now, it is a company called Pinterest. And Pinterest is right here on High Street in Palo Alto. It is a virtual pin-board. It is mostly woman at this point, which does not panic us as investors. And guess what, Facebook was mostly woman in the early days. It is a virtual pin board, so if you are planning a wedding, you go around the web and collect content all about weddings and you put it on your pin-board. The beauty of this is that everybody is sharing their pin-boards and is giving each other advise. So things like wedding planning, remodels of your home, redecorating, this is where you can share and collaborate information on other things you've collected on the web that are of interest to other people. And they are building a whole community around this. And just like Google, Facebook, Twitter, and Pinterest, never argue with the numbers. This is growing like that [holding arm 80 degrees up]. It's growing at the pace of Facebook 5 years ago. So right now this is the most interesting company, just like Facebook, Google, Twitter came out of nowhere. And here it is right in our backyard.
[two questions skipped]
Manish: Thank you Ron, this was a pleasure!