Harbus: Given the proliferation of VC firms over the past decade, what differentiates Sequoia Capital from other venture capital firms?
Michael Moritz: The fact that we are still in business! If you look at the venture landscape of a few years ago, there were a lot of entities and people who wanted to be in the venture capital business. They barreled into the venture business and hung out their respective shingles. I don't know how many of those entities were, but it wouldn't surprise me if there were 200. All the new breed of venture firms who wanted to be in the business: the very well-heeled European and Asian billionaires, the angel investors, the corporate venture people, and the incubators. They have all gone away.
People misunderstood how difficult the VC business is so you have a huge winnowing of the list of companies competing. There are not very many firms around that have two attributes which are very difficult to attain and maintain. One is that they have more than a plausible record. And second is that they remain incredibly competitive. Sometimes it's very difficult to do the latter if you have a plausible track record because people get complacent and get lazy. They rest on their laurels and forget how to compete. We have always operated under the premise that our next investment is our most important investment.
Harbus: In your opinion, what makes a good venture capitalist?
MM: I don't think there is any perfect recipe for picking somebody from the Harvard Business School or else where who wants to join venture partnership. It's very difficult to figure out from somebody's background whether they will be successful in the venture capital business. I can think of numerous examples of people with glittering resumes and burnished credentials who you would have thought would thrive in the venture business, and they flame out. I can think of people with very unlikely backgrounds who have flourished in the venture business. We've given up on trying to predict who will and won't do well in the venture business.
Obviously, when we bring somebody into our partnership we're looking for a particular set of attributes.
We want people who are clear thinkers, very driven, and very enthusiastic about being in the business.
Harbus: We believe that people learn from their mistakes, could you elaborate on a lesson learned from a mistake you've made in the business.
MM: Well, our history is littered with carcasses of investments that have not worked. We try to adopt the lessons of the successes that we've gotten from the companies that have flourished and not to forget the lessons of yesteryear. Probably, the biggest of the lessons is that capital intensive businesses are not suited for venture capital investing. So we had an investment in a calamitous fiasco called Webvan which was an enormous, capital intensive undertaking. Those sorts of infrastructure investments are best left to others. The best venture returns are those that come from investing very small amounts of money.