Former Sequoia Chair Michael Moritz on Assessing Founders: "It's All About the First 15 or 16 Years of Life"

0:00Grit, persistence, tenacity, toughness, steel in the backbone. You need all of those attributes if you're building a company. Most of the founders that I've been involved with, they may have grown up in material comfort, but they've had pretty tough childhoods. Welcome back to Giant Ideas. Today we welcome Sir Michael Moritz, who is arguably the best venture investor of all time. He's backed Google, PayPal, Yahoo, LinkedIn, Klarna, and Stripe. The list is just incredible. And I'm very excited to speak to Michael about his investing, but also his journey building Sequoia into one of the most legendary venture firms.

0:38Michael's also a journalist and a writer. He started life actually writing for Time magazine. He wrote the first definitive history of Apple before becoming an investor. He's originally from Wales, and he has written some brilliant books in his life, including a new one about his family history, which we're going to come to in part two. But here in part one, we're also going to dive into a book that he wrote with Sir Alex Ferguson, the greatest football manager of all time, the manager of Manchester United. And Michael and Alex Ferguson teamed up to write this amazing book, which I really recommend to you, about leading.

1:08Welcome to the podcast, Michael. Thank you. So taking a bit of a walk down memory lane back in 1999. You're assuming I have a memory. You met Larry Page and Sergey Brin and you gave them 25 million as one of the best. Give isn't the word. Okay, invested, invested 25 million. One of the best venture returns of all time. At the time, you made a comment that the product had the real potential to turn millions of internet users into devoted Googlers, which was a very prescient comment in many ways. What did you see in them and the company that others didn't? Because there was a lot of search engines at the time, and you really, you picked the one.

1:47A friend of mine said, never has anyone paid so much for so little when we made the investment. because you're exactly right. There were probably eight or nine different search engines at that point, and Google was perceived as a very late entry into the market. We had an advantage because Sequoia had been an investor in Yahoo from the very beginning of Yahoo. And Yahoo began as a directory service. It cataloged all the sites that were on the internet and then organized them into a compendious directory that grew. And then the need for searching the contents of that directory came along. And so Yahoo licensed search technology from third-party companies.

2:42And they hop from search engine to search engine, because by that time, Yahoo had a very large customer base. And so for a search engine to break through, it was very important they get in front of, quote, the eyeballs. And the eyeballs at that point were controlled by Yahoo and AOL. The reason we became investors in Google was because Jerry Yang, who was one of the founders of Yahoo, asked us to consider investing in Google. No way. Yahoo was a public company, and it couldn't afford to switch search engines if the search engine went up in smoke and was undercapitalized, didn't have management and all the rest of it.

3:34And Yahoo had decided that now by far and away the very best search engine that they could find was Google. And that was what led us to become an investor in Google. That's interesting because that's very much about the business and the commercial constructs around it and not so much about the founders. Was it very much because you genuinely believe they had a structural advantage about the business or was there something about the founders? Yes. Look, it's always a common. People always ask, well, is it the product? Is it the founders? Is it the market? Is it the fact that the sun rose in a different part of the galaxy?

4:18It's always a combination of those sorts of things.

4:24and founders without wit and intelligence don't create great products. So the two tend to go together. And if you have a very distinctive product, it's probably because the people behind, it's almost, it's certainly because the people behind it had a really good idea and were capable of developing and building a great product. So it was about the product. closely associated with the founders. But, you know, when somebody is very young, and, you know, over the years, we've met people who've been very young, 18, 19, 20. You never quite know how they're going to work out as managers of companies or, you know, what they're going to be like 10 years hence.

5:11Do you try and figure that out? Yeah, I try and figure it out, but it's very imperfect and very, very difficult to, I think, predict how somebody is going to mature or not mature. And we've had, you know, I've been involved with companies that have been examples of where people who started the companies at a very tender age far exceeded anybody's expectations. And then others who severely disappointed. What kind of questions did you ask and do you ask to try to get to the truth of whether someone is exceptional? Well, you try to find out. For me... Generally, in everything, it doesn't really matter how old somebody is.

5:56It's all about the 15, 16, the first 15 or 16 or 17 years of life. Really? Yeah. I think those are the most important things to understand. The stuff that, because that's when you develop your character. it's when you're around the environment and people that shape you. It's perhaps where you develop a particular interest or obsession in the case of many founders. And, you know, oftentimes when I've become involved with companies, it isn't as if the founders had started a previous company. It's their first company. And so what else do you have to go on? Yes, the college professor whose program they dropped out of might have said that these people are brilliant.

6:58But then who are they? How are they going to react in circumstance? You try and find out as much as possible, but obviously you get to know somebody much better as the relationship develops and as the years go by. And you've backed the Collinsons at Stripe, Sebastian. See, they were very young when we backed them. I think Patrick and John Collison. So it's a long time ago now. It's 16 years, 17, 16 or 17 years ago. And I think maybe, I may be wrong, but I think Patrick was maybe 21. maybe he was even 20 and John 18 or 19. So they're incredibly young. But it became very clear to me when I sat down with them that they were a pair of rather extraordinary characters.

7:57And that was very, very evident, extremely evident. The intelligence? A two-year-old could have figured that out. How was it obvious? Oh, because I did what I explained earlier, which was trying to understand where they came from. Got it. And they came from, it isn't every day that a pair of brothers from a tiny little hamlet outside Limerick roll up in San Francisco. In that case, it was Palo Alto at the beginning. and so I began to understand who they were how they and again it's not very often that you have a pair of brothers one of whom's dropped out of Harvard because he founded Tiresome and the other dropped out of MIT because he founded Tiresome and it was clear that they had unusual intellects And also they'd had a tiny little company before whose product I forget.

9:08But they're very entrepreneurial characters from the very beginning. And a creative, you know, this is another interesting aspect about founders. They were a creative duo. They were better because they came as a package. Do you look for that often? I think if you go and look at companies that have started, There are obvious examples of a single founder, Elon Musk being the prime example in the last 25 years who occupies a place in the greater terrestrial sphere of things that nobody else occupies, who is a lone wolf, but many others. And I think it spans all forms of creativity, particularly in music.

10:06Yes. You often think of duos, I mean, in contemporary music, it may be Bono and Edge or Jagger and Richards or Lennon and McCartney, where the two individuals combine to create something special and somehow or other make each other better. It's interesting that you mentioned childhood there and the importance of shaping these exceptional people. In the book that you wrote with Alex Ferguson, the greatest football manager of all time, there's a really interesting passage where it's talking about him often signing players who came from very difficult childhoods. Ryan Giggs with his dad or some of the South American players who grew up in favelas and talks about the resilience that it bred in them, basically.

10:58Do you think there's something there about overcoming trauma and difficulty and building resilience? Grit, persistence, tenacity, toughness, steel in the backbone. You need all of those attributes if you're building a company. And there are examples of, obviously, two great examples of people who, if you use that as the sole criteria, you know, the only criteria for success, there goes Bill Gates, there goes Mark Zuckerberg, There go probably a whole bunch of other founders whose names don't spring to mind, but they grew up in comfortable circumstances. But most of the people that I've been involved with, most of the founders that I've been involved with, they've had – they may have grown up in material comfort perhaps, but they've had pretty tough childhoods.

11:55You know, that wasn't true for Bill or for Mark, but many of the others in some form have. Tell us about Bill Gates and specifically tell us about his car radio and what that told you about Obsession. Well, this goes back into ancient history. I began my life or I began earning paychecks as a journalist. and I'd left, I grew up in Wales, but had left Britain and had become a journalist for Time magazine and had got interested, and eventually I'd moved to the West Coast. And I had, this was a very long time ago, it was 1980, 81 and 82. And I got interested in, I didn't know anything about young companies.

12:48Growing up in Cardiff, I had no idea that anybody really could start a company. And if you're going to start a company, you probably had to be 58 years old to start a company. And you're going to start a company. It was probably a carpet distributor. And so I had no idea that 18, 19-year-olds could start companies. And I got interested in it. And so Microsoft was still a private company. It was beginning to emerge because it was making the software for the personal computers. So I went to Seattle to interview Bill for a profile that eventually appeared in the magazine. And we spent some time together.

13:38And like many founders, like all founders who are, they're working 24 hours a day, seven days a week. People who are in their 30s, 40s, 50s and older forget how hard 20, people in their 20s work and can work. Yes. And for a whole variety of different reasons. It's energy, lack of distractions, no family, nothing but what it is they're working on, whether they're writing or whether they're painting or whether they're in some dreary job at an investment bank or working at a startup. So I'd interviewed Bill, and I was flying back to California, And he actually was going down to see Intel. I remember he was going to go and see Andy Grove.

14:38And it was because Microsoft at that point was working quite closely with Intel on the features of the microprocessors that would be very useful for the operating systems that Microsoft was building. And so Bill said, do you want to arrive to the airport? So I said, yes. And he had a Mercedes. Because even at that time, even though the company, I think the company was probably at that point still doing less than a million dollars in sales. Oh, right. It had cash and he'd never taken outside investors. And he owned a huge portion of the company. So he had cash. So he had this Mercedes, but it had a gaping hole in the dashboard.

15:27And where the radio goes. And I said, Bill, you know, what happened? Where did your radio get ripped off? He said, I didn't get it ripped off. It didn't get ripped off. I had it removed. Why do you have it removed? Well, I found that when I drove from my home to the office or vice versa or came down here to the airport, I have the radio on. And it was a distraction. And I wasn't thinking about Microsoft. So I had it taken out. And he disabled it. I remember, you know, he disabled his television tuner at the same time. So I think back then that was still the era of videocassettes. So you could watch videocassettes and absorb knowledge, not be distracted by whatever silly stuff was on television.

16:15But he was married lock stock and two smoking barrels to his company. Amazing. Obsession. Michael you very kindly are working with Chad Edwards the founder of Cusp helping him out a bit and we've seeded his business and invested five times in it Cusp AI is doing great another Welsh founder we've backed with Andrew Hopkins who previously did Excientia which was the largest ever European biotech IPO he's now doing a new business called Zyme it seems to be two examples there of brilliant brilliant Welsh founders amidst a sea of what feels like to us a real inflection point in in European technology particularly actually here in the UK with AI.

16:55In the past, you've been a bit critical of Europe's ability to produce truly iconic and truly big technology companies. Have you updated your view in the last year or so?

17:08I'm not really current with the data. And obviously, you know, there are some companies now in Europe with very significant market caps. And obviously things are so much better generally in this part of the world for technology than they were many, many years ago.

17:33But it's still a long way behind Silicon Valley. Yeah. And it's still a long way behind some of the Chinese companies and a tremendously long way behind some of the Chinese companies. So far, far better, clearly. But you also have to keep it in perspective and not get carried away. You know, one of the, one thing I wanted to ask you is about decision-making, because in many ways, life is a series of decisions. And I think we probably don't talk about it enough because if you make good decisions in your life, you'll probably have a pretty good life. You've made some great decisions from an investment perspective.

18:10What have you learned? We made a lot of bad decisions as well. We made bad ones too, yes. What have you learned about decision-making, I guess, from your journey in the Sequoia Partnership? And what are some reasons that people decide to invest for good reasons or for reasons they regret?

18:31Well, you could write a book on mistakes, I suppose. I have a hat that I've kept and wear every now and again. And you know how every company seems to produce a T-shirt or a hat or something. So the hat I wear, it's the only company hat I wear. Forget about all the successful ones. There's a company called Webvan where Sequoia lost the greatest amount of money in its history. We lost$44 million in that investment. This is a long time ago. It was 25, 26 years ago. And that particular investment was a colossal mistake. And I suppose, you know, it's commonplace to say if you've made a mistake, you know, the secret is not to repeat it.

19:24But people tend to repeat mistakes. They get too optimistic. They get sloppy. They overlook something pretty obvious. they pay an absurd valuation they don't do their homework properly and wind up making making a bad decision I think some bad decisions are also made and this is probably the more important point by one of two things first Just trying to ensure that you have perfect data and find it very difficult to make a decision based on imperfect data. And then the second thing is, and therefore miss an opportunity, second thing is to overcomplicate things. there aren't that many questions you need answered to figure out whether or not to make an investment.

20:37And particularly in a very early stage venture business where if there is a business plan and if there are projections, you certainly know that one thing is really true about the projections. They'll be missed. so they're not worth the spreadsheet in which they're etched. And so I have very – and it's a little different later on when a company is more mature and there's a lot of data and you can analyze the data and try to discern trends and project the future from the trends because you suddenly now have a lot of data. But at the beginning, I think those are the mistakes. People tend to get paralyzed because they don't feel they have enough information at their fingertips, or they drown themselves in the data.

21:30On the webband point, though, you led that investment, I believe, but then 20 years later, you also came back to the Sequoia Partnership and suggested an investment in Instacart, which is essentially the same idea. Right. 20 years later, how was that discussion? Well, Patrick Collison at Stripe had asked me to go and meet the founder of Instacart, who had asked for an introduction or something. And I thought, I said to Patrick, look, I'm happy to go and do it, but there is no way that we're ever going to talk about shipping carrots to anybody ever again because of this. I'd just about come out of rehab after a web van.

22:11You've just been forgiven. And out of the doldrums. and I thought that there's absolutely no chance. And so I talked to the founder at considerable length and he was very, you know, when I talked to him on the telephone before I went to see him, I said, I don't want to set false expectations here because I think it's extremely unlikely we're going to invest. And so I went to talk to him and he explained why Instacart was very different and the business model at Instacart and the underpinnings of the technology at Instacart were very different from what existed when we financed or became investors in Webvan.

23:00And eventually we became an investor in Instacart. And so why, you might ask? Well, one, Webvan was very capital-intensive business. It built its own warehouses. It had its own distribution fleet. And, you know, obviously that sucked up a huge amount of capital. Second thing was this was in the era, believe it or not, before mobile telephony. so you couldn't organize a distributed workforce because you had a short of beepers or you had no way of organizing anybody or scheduling routes or doing things on the fly. And the third thing was the overall technology foundation that had been built up in the interceding 15 years or something, which allowed for rapid loading of image-intensive pages extremely quickly just because of the development of underlying computing infrastructure.

24:15So all of that stuff was different. And then Instacart, unlike Webvan, was partnering with retailers, supermarkets, not trying to establish a separate distribution center. So it was a radically different. We were right about one thing with Webvan. We were wrong about absolutely everything else. The one thing we were right about was that consumers will eventually want to buy groceries online. That's the only thing we were right about. But that became Instacart in a different way. It became DoorDash. We were investors in both companies. Michael, we want to talk about building institutions with you a little bit.

25:01We'll come back to Sequoia, but I can't resist asking at least one more question about Manchester United. You've done this work with Alex Ferguson. What does it tell you about the great decline, immediate decline of Manchester United as soon as the great man left, Alex Ferguson left? What does that tell you about enduring institutions? And then secondly, if you could buy Manchester United right now and take over, what would you do differently? Well, the second is very easy. It's so much cheaper to buy a ticket. So I'd never ever consider buying a football club, especially in Britain because a sporting franchise in America is a very different business proposition from a Premier League football club or a championship club.

25:48I think it tells you about the importance of the individual and the quality of a particular individual to lead. It tells you about the importance of planning for succession and the vital importance of getting that right. particularly if you're going to hire from outside your organization, really, really difficult thing to do. I think those are the two things. Is there anything now that you would advise the new ownership, what they should do? No, because I'll only put my foot in my mouth and I'll get into trouble. And I'm just hoping as a fan that the successes of the last four or five months are going to continue when play resumes in August.

26:57Amen. Amen. What about Sequoia? Tell us about Sequoia. What has made Sequoia, in your opinion, such an enduring institution? I don't know. I, you know, I haven't run Sequoia for quite a long time. So I'm, whenever anybody mentioned the word institution to me, I always shivered. Why? Well, I always felt we were never a day away from going out of business. You know, for a time in the era when one had business cards, I had on the back of business cards, we had this motto that I put on there called, we're only as good as our next investment. I think that one stuck, by the way. Yeah, well, a few things stuck.

27:51You just can't rest on your lungs. No. That's the lesson of Man United as well. After all those victories that Sir Alex racked up, he took a moment to celebrate, but the next morning he was working and worrying and trying to figure out next season and who to sign.

28:15He was obsessed. What? He was obsessed. He was obsessed. And he set the culture. Exactly. So if you have an individual, and I think most companies are built by brilliant individuals. Once that individual is moving on or less involved as well as Alex Ferguson, how did you try and manage the succession at Sequoia to make sure that you didn't lose the momentum and lose the culture? How do you do that? Well, it was a little different with me. I left for health reasons. and we had somebody inside who I'd worked with closely for a long time, very different sort of wiring and personality. But he'd been there and Doug Leonie had been there for a long time.

29:05So really, he was the only person who was there who had the background, the experience, the length of time there to do it. So there weren't choices.

29:22But big advantage over United, we didn't have to go to the outside. Right. You think it's better to choose the next generation leader from within? I think it's very difficult if you've got an existing business that's really working. I mean, there are examples of people being brought in from the outside. The new Kleiner Perkins? What? The new Kleiner Perkins? Yeah, I don't really know enough about it to comment. But think about Microsoft. So after Bill stepped down, Steve Ballmer ran the company for a long time. They then did a big search when the business began running into headwinds. They finally picked somebody from inside the business.

30:16Satcher having talked to and I know some of the people that they talked to a bunch of people on the outside and I remember talking to one of the finalists who said they were always going to pick somebody from the inside and that was the right thing to do and because certainly for a business at that scale you're going to spend you're going to spend a very long time learning how to run Yeah. And especially in the fast-moving technology business, you can't spend a year going on a listening tour. You've got to get to work. And obviously Satya has been a brilliant steward of Microsoft and a technologist, someone interested more in the product and the sales and distribution and marketing, which is what Steve's forte was.