There’s a sense in which ‘venture capital’ in general has been uniquely a family business for you. Was there ever anything else you thought you might pursue as a career?
I always wanted to start a business, and when I was coming out of business school I had three big ideas. One was video on demand, one was digital music, and one was submarines. And since I had three, I realized that if I wanted to be an entrepreneur I would have to choose one, and then I would have a one-in-three chance of succeeding -- probably one of those three would have been successful in the twenty years after I graduated from business school. And one might have been successful now – digital music was the only one that really would have worked.
I actually run into a lot of submarine companies, but the reason I didn't want to go after that was, even though submarines maybe might be the ‘final frontier’ -- I didn't want to mess with the fish.
After getting into the venture business one of the first deals I went after was finding out who was the furthest along with digital music. We funded DigiDesign, and now ProTools is a big deal.
The video on demand we weren't ready for until about now, so I was way ahead of the technology and we really didn't have all the building blocks to get there.
But what I started to think about was: “Well I want to be an entrepreneur, and there are a lot of people like me who want to be entrepreneurs. How can I help them?' That's what went through my head. And that's when I thought “Well gee, my dad's a venture capitalist...I wonder if that's the job that's meant for me?” And it was remarkable that it just dawned on me that I could really help a lot of people that were starting businesses as opposed to just going after one of my ideas.
I get the sense that entrepreneurship is really your true passion. Working with so many entrepreneurs starting their own businesses, do you ever wish you could trade places with them and give it a shot yourself for once?
There were only two or three times when I thought I should be breaking from this and going after something else. One was when Yahoo! took the money from Sequoia instead of us, and I thought: “I could easily just start a competitor -- they're not very far along...” That was one. The second was that I thought these Skype guys were really rocking and I thought, “Well maybe I should just join their business...”
The rest of the time I have actually really enjoyed this because it has taken me to places I never thought I would be. I've been to seventy-some countries, it has made a mission of spreading entrepreneurship -- because I know how good it is for the world. Even if the businesses are only reasonably successful, or even if some of them fail, they move technology forward. They employ people. They get things happening. It creates huge values and huge economies. And every once in a while there is this breakout winner that employs tens of thousand people with very little investment dollars.
And it feels so good that it felt like it was a great opportunity for me to spread that around the world. I'm the Johnny Appleseed of Venture Capital.
When you talk about venture capitalism as being ‘good,’ it’s almost as though there’s an ethics involved for you. Is part of your mission to fund companies that are doing ‘good’ for the world?
I think actually, fundamentally, that people are good. Fundamentally, as customers, they buy good things -- so if you focus on good things, the customers will come to your door. There have been short-term successes in things that weren't so good for the world, but I think that you don't build a big, long-term, sustainable company in an area where you know you're doing more bad than good.
I actually think that all venture capital is socially good. Even if you make some investments in some things that aren't good -- those companies ultimately fail. The greatest companies in the world have all been doing good things for society -- the ones that lasted sixty or seventy years: GE, General Motors (though they may have seen their cycle [laughs]), WalMart, HP -- all these companies that have lasted a long, long time are doing really, really good things. So you focus on good things, and I think the market will solve the problems.
Even if we make mistakes, where someone is doing something wrong, the markets will decide not to support that company. So I tend not to make a lot of moral judgments. Because what I've learned is that as I go around the world, it tends to be more points of view than moral judgments. If you impose our morality on someone in another country who's grown up in entirely a different way -- I think you're missing something.
In any case, you seem to care intensely about facilitating change on a global scale. How do your ideas about where you want the world to go in the future influence your investments?
Wow. These are good questions. I have made several investments in areas where I want to lead the world to water, and occasionally, they drink it. I wish I could nail the model in virtual education to replace the bad teachers with great teachers via video, but that seems to be before its time.
I am a big believer in free markets, and it is proven in every country in the world every time that free markets outperform government intervention every time. So, I also try to make sure governments let the invisible hand do its work. I try to make investments that will succeed in a free market, and not one that relies on sucking up to a government entity.
What part of your job do you like the most?
Those one or two days in a month where I meet the truly great entrepreneur. The person who cannot help himself from what they're doing. They are on this mission, there's nothing that can stop them. I meet four a day, and I'd say I get two a month that just really rock my world.
What part of your job do you like the least?
[long pause] I don't like firing CEOs. I don't like that feeling where the entrepreneur sees a runway and they're running out of money, and we're not sure we're going to fund them. That's a difficult thing.
Viral Marketing' is one of those 'big idea' terms that seem to crop up once a decade or so. Where is the next 'big idea' going to come from? How will you know it when you see it?
You maybe. Big ideas come from entrepreneurs sometimes (and in the case of viral marketing, their venture capitalists), and from random occurrences often. One of my big riddles is “What do penicillin, America, Reese’s Peanut Butter Cups, Velcro and electricity have in common?” They were all discovered by mistake. I expect to see a lot of mistakes happen in the future. In fact, I am counting on it. In the meantime, electric cars (Reva and Tesla), solar thermal generators (BrightSource), social networking for the enterprise (SocialText), Iphone GPS apps, new ways of communicating (Meebo), and nano solar panels (Konarka) will have to do.
When you need advice on something, who do you go to first?
When it's fundamental, I go to my father. When it's historical or when I need perspective, I go to one of my father's friends -- a lot of them are venture capitalists or entrepreneurs themselves. When it's something specific to an industry or specific to a problem I go to my network. I've got an extraordinary network -- I've met a lot of people over the years and they have been able to help me in a lot of different ways. And I tend to not hesitate to ask: if you just go ahead and ask then it actually builds the relationship that you might have been a little bit concerned about in the first place. You want to build those relationships. As I find different things that I need, or people around me need, I tap into that network quite a bit, and the more I use it the bigger and more powerful it gets.
You mentioned your father and it’s clear you share a lot of his passions and interests. What were you interested in as a kid?
I grew up in this area and it was a lot of empty acres, so I was able to play a lot. We had after-shool sports, and after that I would go play with my friends and go see what the world was like. We explored the world. We explored the natural world and the people world. And we tested. We spent a lot of our days testing things...
What did you test?
Well…[laughs] we would be running or on our bikes and we would do these things we called ‘shortcuts.’ “Let's take a shortcut through Mrs. So-and-so's backyard! Now, you'd call it trespassing, but back then it was just...a shortcut. And you'd plow over and then "Wow hey look at this!" and it would be a pomegranate tree and then, "What do you do with these?! Can you eat 'em? God I dunno, you try it..." That kind of thing would happen a lot.
So we'd go and try all sorts of things and get into all sorts of situations and sometimes get in trouble for them [laughs]...
When did you get into the most trouble?
I do remember that one of the motivations for my mom to encourage me to go look at prep school was that I came in late one night, and so I was grounded. So I just came in even later the next night. And it was like she couldn't do anything about it.
Growing up in a family like yours, it seems like it would almost be hard not to end up in politics. Do you have political aspirations as well, or is business the place for you?
That's a good question. We grew up with both, in our world. My grandfather on my father's side was both a successful business guy -- he was actually the first VC out here -- and he was Undersecretary of State, Undersecretary of Defense, Undersecretary of War for Eisenhower and Truman. And he led the Marshall Plan after the War. So he had a very broad perspective but he also ran a series of businesses. My dad was in the venture capital business for 22 years and then he went and supported George Bush when he ran against Reagan, and then he became a part of the Reagan administration at Ex-Im Bank. And then under Bush he was the head of the United Nations Development program. Then he came back and he ran a venture fund in India, and then one here, and he's recently done non-profit venture work. So that's a big backdrop.
On my Mom's side, my grandfather who was the guy at Merrill-Lynch who set up all the offices around the world, or at least around the country. So I feel like I've got the dual mission, but the Venture Capital part of the mission is a great way to see what could potentially happen in the future in the way people act, consume, and operate. I also keep good relations with the people in government -- I was actually interested in potentially running for Governor this time in California. But I saw that I could potentially make a bigger impact with the ideas I generated by working with the people who are already there. So that has been my focus. At least for the near-term.
People are much more wary of that intersection between business and politics than they might have been when your father or grandfather was your age – there are people who say that business and politics are, and must be, separate. Is that true?
I look at them separately. I think in terms of how to solve problems -- that's all I do. And entrepreneurs are the ones that really go after problems. Politicians often identify problems, but the entrepreneurs go after those problems and they solve them. Scientists, engineers, entrepreneurs, businesspeople: they go after the problems in ways that allow them to generate a profit and spread their product around the world. I go after politics the same way: I do it like an entrepreneur does it. I say: "Okay. This is messed up." Education in America is messed up -- K-12 education at least. It is run by large, powerful self-interested institutions, and interest in the kids is cursory. The colleges are fabulous and that's because there is a free market for colleges, and people come from all over the world to go to them because they're really the best in the world. But the people who come here for K-12 can't get into our colleges because the education system is just really broken. A lot of it has to do with special interests from the teacher's union, and from the various boards of education, et cetera. So I look at that and I say: "That's a huge problem. What are some of the things I can do to help fix this?"
I am still working on a “fix.” We might have one coming soon. If it doesn’t happen politically, it will happen entrepreneurially.
So you think its sometimes easier to affect change from outside the political realm?
Sure. The other thing that I try to do is to lay out facts for large audiences -- I go and speak a lot. I'll lay out facts to large audiences and they internalize those, and those get passed along to politicians.
One was that shortly after the crash I started to ask "What's going on here?" We don't seem to be growing as fast in this country as we used to. We seem to be living a little high but not producing as much -- even though our productivity index is very high. So I went and I looked at government spending as a percentage of GDP, and what's happened to it since 1900. And since 1900 it's gone from 7% to 37% over that hundred-year period. So the government has just crept into our lives and taken over 37% of our economy -- and now it's going to be boatloads higher than that. It's almost a straight line, with a little bit of a shark-fin at WWII. And it looks, to me, like government is actually going to be taking over the whole economy over some period of time in which we become first socialists, and then slaves. I think people should identify that now, before it happens, so that they can start to curtail it.
We recently pumped a lot more money back in. Is that dangerous?
People don't read that right. They're not 'pumping money back in,' they're taking money from you guys -- younger people [laughs]. They're borrowing money -- and hopefully people will keep loaning it -- and they're throwing it at the things that they think are the right things to throw it at.
Now, I like the idea of 'vision' -- but I don't think that the money should go into the government's hands before it goes back out. It's the weirdest thing, but when the government comes down on business because something went wrong in business, they're doing it exactly the wrong way. There should be less regulation when things are bad, and there should be more regulation -- well, I hate to ever argue that there should be more regulation -- but there should definitely be less when things are bad. You want businesses to thrive during a tough time, you want them to pull themselves up by their bootstraps. But now, if the government gets all the money -- which is what's going on -- then the businesses, instead of fixing their business, they have to go back to the government and suck up for some of the money.
It creates a culture of need instead of a culture of opportunity. And if you have a culture of need, you've got a big problem. You have India. India before they loosened up. If people are thinking 'need,' the economy falters. If people are thinking 'opportunity,' the economy booms. In China they're thinking 'opportunity' now, even in a down world-economy they’re thinking "where's the opportunity?" And what's interesting is, as soon as we have a culture of need instead of a culture of opportunity, all of a sudden you also have a culture of fear. As soon as people start to think in terms of opportunity instead of need, things start to turn around.
So you think we could have a major economic shift like we’re seeing now without any major change in the fundamental economics? Just changes in sociology or group psychology?
Yeah. A lot of this is group psychology -- most of it is. There is something that has been really bugging me. I can understand the idea that the government might step in and say, "Alright, we've gotta do something for these banks so that people are happy with their banks." But when the government steps in and says "We're going to support the car companies," that doesn't make any sense. We have a bankruptcy law. We have a net for people who lose their jobs. We have welfare, unemployment, we have all of those things. So why are we keeping an industry that is never going to recover, alive? Maybe if it were a stop-gap situation, but this is not a stop-gap situation. There is not enough demand for those cars. They need to go through bankruptcy, reinvent themselves, and come out with something headed the other way. And bankruptcy is a good program -- we can all go out there and take risks because we have a bankruptcy law. You allow these companies to go into bankruptcy and then they are forced to make the really hard decisions -- and once they've made those decisions, they're done. People can go about their lives and be more productive members of society -- instead of being a drag on the economy, they can be productive for the economy.
Now, there will be tragic stories. And the families of those people are going to suffer and that part is very sad. But overall, we're all better off if they actually let the bad companies fail and let new companies spring up in their place.
You make it seem like it’s all about perception – in economic shifts like this, are the numbers real, or is it all about how people think?
It's both. If you have a bad quarter, you have a bad quarter and that's it. You build back up for the next quarter. But if you have a bad quarter and the press thinks that's a really bad thing, they create a domino effect where people are thinking they should keep their money in their mattress. Where people start to think ‘we better not take that trip,’ ‘we better not buy that car’ -- if they go through the 'better nots,' that pulls money out of the economy. Then the company that had a bad quarter, where they may have rebounded, has an even worse quarter the next quarter because more of these people have pulled back and they're not buying. And then the stock market goes down even further because people don't believe this company will do very well the next quarter, and in some cases the company goes out of business after a few quarters. Then the press makes an even bigger deal out of it, and people have to pull back even more, and that's what's going on now. It's a constant cycle. When they did the New Deal, and they said "You have nothing to fear but fear itself," at that point, that was the case. And we are getting to that point now.
But let me tell you something else. It's about "the deal." I was trying to explain this to my daughter Eleanor, and I told her "If you make a deal with somebody, you're both better off." So you can break it all down. Break the entire economy down into deals: number of deals, frequency of deals, better deals, et cetera. But the important thing is you're both better off: if I make a deal with you to buy your camera, you make a decision that it's a good sale for you and I make the decision that it's a good buy for me because I need that camera. We're both better off. If we make a deal on a business -- say I invest in your company, we're both better off: I own some stock in what I thought was a good opportunity, and you sold some and got some cash because you felt that that was the best opportunity for you. And if you take that to the extreme -- Microsoft, Apple -- these companies have each made a lot of deals. [points to my laptop on the desk] That computer was a deal you made with Steve Jobs and Ron Johnson, and all of the Apple employees. And they all benefited from you buying that computer. And you benefited from buying that computer, and the Apple Store benefited, and all the suppliers to Apple benefited. Everybody benefits when a deal gets done. More deals, more benefit -- more benefit, more deals. It's a virtuous cycle.
But if you decide that you're not going to buy that computer, because you're afraid -- because of what the press just wrote -- you're helping to proliferate the problem. If you buy it anyway, and other people do, then you're helping to proliferate a better economy. And it's not just buying decisions -- it's decisions on business deals, on partnerships, on networks, on all those things. All of those deals get tightened up when people start thinking "How long do I have to survive?" And that's what's going on.