What Michael Moritz Told David Rubenstein About Venture Capital Investing
The technology-powered world that we know today has been driven in large part by dynamic companies born and bred in Silicon Valley. And Sequoia Capital’s Michael Moritz helped many of them succeed.
From Google to Apple to Zoom to DoorDash and beyond, Sequoia Capital has been an integral part of building the future as we know it today. The firm that Don Valentine founded in 1972 stands out not only by its sheer size and success, but also by its longevity and staying power.
In his book How to Invest - Masters of the Craft, Carlyle Group founder David Rubenstein interviews Michael Moritz to understand the magic of Sequoia and the genius of Moritz himself.
Here are some of the top quotes - plus my commentary - from their exchange.
“The pleasure of the venture business is proving that the impossible is possible.”
Perhaps no line better sums up the ethos of venture capital than this quote from Moritz. After all venture investing is essentially a rarefied form of betting that happens to have the possibility to change the world.
What is interesting is that while one might have expected such an attitude from a founder, the same sentiments are shared equally by those who back them. Venture capitalists do, of course, often hail from the ranks of entrepreneurs themselves and the most successful in their former pursuits very often find great success in their later endeavors.
The business of making the “impossible possible” involves no small amount of faith. That is also why fellow VC Sam Altman asserted that having “almost too much self-belief” was essential to be successful.
“It [venture capital investing] is about listening intently and communicating clearly and distilling everything to its raw essence, which is something that you learn as a journalist.”
Moritz started out his career (after studying at Oxford and Wharton) in journalism at Time Magazine. While there, he wrote an infamous article on Steve Jobs - for which Jobs criticized him harshly - and later an entire book on Apple. The skills that made Moritz a good journalist and writer seemed to have also translated into success in the venture capital business.
While VCs often focus on the numbers, as well they should, the bigger picture of evaluation and later proper story-telling to support the big bets that they make often goes overlooked.
“In journalism, you frequently deal with the unfamiliar. You have to come to grips with murkiness and obscurity. You’ree confronted with imperfect information, and you have to try and arrive at the objective conclusion that you distill into a story. The process of figuring out an investment has a lot of similarities.”
The connection between journalism and venture investing also goes far beyond communication. The ability to ask the right questions, think critically and “dig deep” must surely be one of the must un-quantified and under-described skills in the business. Moritz and his partners and team members at Sequoia have learned to do this well - although he admits that some big opportunities also received a pass from Sequoia, including Netflix.
“In large market areas, we’ve always thought that it’s rarely ever too late.”
Explaining the firm’s early investment into Google, Moritz brings out this gem. Despite the fact that search engines seemed to be plentiful at the time, Sequoia made a wager on Google. And it obviously paid off. Here imagination comes into play. While the market might have seemed saturated at the time that Moritz and his team looked at the company that Larry Paige and Sergey Brin had started, it became clear to them that the possibilities for search lay far beyond what was visible at the time. Thinking big pays off very well.
“We actually look at everything. […] Chances are there won’t be anything in particular that catches our eye. […] But we encourage people from anywhere, if they have an idea they think is of merit, to not stand on ceremony and send it to us.”
Fellow investor Ray Dalio of Bridgewater Associates preaches the value of radical open-mindedness. Michael Moritz and venture capitalists in general must - out of necessity - subscribe to the same philosophy.
Who knows what crazy idea may soon become the future foundation of our society? Who knows what tiny technical innovation may someday make a world of difference? What is important to note about Moritz and the entire business of venture capital is that it isn’t (all) about the money. The more ideas that come across a VC’s desk, the more its partners have a picture of what may, possibly, eventually be possible to create. And even if 99% if the ideas do not receive funding, there is a great chance the the ones who do may benefit from the knowledge and inspiration that have their VC backers have accumulated over the years.
In the end, there are no bad ideas - only uninvestable ones.
“There are all sorts of companies we’ve passed on, and you could build a great portfolio from the investments where our judgement was wrong. We learn from the past but don’t dwell on it. The future is where the business is.”
As already noted, Sequoia famously passed on an investment in Netflix. And before that, Moritz recounts how he and his partners were initially trying to figure out “how to invest in the internet.” Imagine a time when the internet was considered a “new frontier”. But the quote above also reveals a deeper truth about the best capital allocators: they do not dwell on regrets; they learn from them and move on. Period.
“I cannot think of a single investment we have made where things didn’t go wrong before they started to go right.”
Do venture capitalists need patience, tenacity and resilience? Absolutely - just like the founders they invest in. While the big moonshots that made Sequoia famous are easy to praise in hindsight, the ups and downs along the way often go unnoticed. It is encouraging to see that the best investors, operating at the top of their game, still struggle - and yet ultimately come out on top.
“The most important attribute…is hunger.”
What do venture capitalists really look for in a startup? According to Michael Moritz, it all comes down to hunger - a burning deep ambition to attain an unreachable goal, to make the impossible actually possible.