Saturday 24 August 2019

The Dubliner who backed $23bn Slack

John O'Farrell has had a front seat for nine years at one of the most successful tech investors in Silicon Valley, writes John Reynolds

John O'Farrell: 'The number-one rule in business is never run out of money.' Photo: Elisabeth Fall
John O'Farrell: 'The number-one rule in business is never run out of money.' Photo: Elisabeth Fall

In his book, The Hard Thing About Hard Things, Andreessen Horowitz's (AH) co-founder Ben Horowitz doubles down on his veneration of John O'Farrell, and then adds some more. He's "the industry's greatest M&A negotiator", and "the greatest big-deal person I've ever known". "If you... faced your maker for your final judgement, as your fate was to be decided for all eternity, [and] you were granted a single person to negotiate on your behalf, who would you choose? If it were me, I'd take that Irish brother, John O'Farrell," he writes.

O'Farrell has worked since 2010 at his office on Sand Hill Road, and was the third partner in the door, after Horowitz and Marc Andreessen. The latter two met at web browser firm Netscape, which Andreessen co-founded. Sand Hill Road itself is a stretch of tarmac in Menlo Park, a wealthy enclave near Stanford University that has also become shorthand in the tech community for venture capital (VC), and is home to at least 50 such firms.

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Outside the front of the office are fountains and other water features, while the reception is lined with shelves full of business and technology books.

O'Farrell, from Stillorgan in Dublin, hasn't completely lost his Irish accent. A Californian one is stronger though, in a voice that's slightly gravelly. The firm is best known for backing Twitter, Skype, Facebook and firms such as Airbnb. When they began investing in 2006, Andreessen and Horowitz gained a reputation as 'super angel investors'.

O'Farrell first worked with the pair as head of business development at software and cloud hosting firm LoudCloud, which he joined in 2001.

It became Opsware, and he helped it pull off a somewhat audacious sale to HP in 2007 for $1.6bn (€1.4bn). He says: "It was a brutally hard business, formed at the height of the dotcom boom, and then suddenly the money ran out, then the customers did, and nobody wanted to go near a tech business.

"We ended up doing a bunch of manoeuvres, divestments, acquisitions and restructurings. We almost went bankrupt a few times.

"Along with Ben, I negotiated and orchestrated the sale process, and it was a big win, and a crazy, but educational, experience."

Today, having stepped back from an investing role at AH, O'Farrell is on the boards of business messaging firm Slack - which listed last month at a valuation of $23bn - IT incident response platform PagerDuty, online task automator IFTTT, business intelligence and data analytics firm GoodData, and location data firm Factual.

Speaking about his role at the firm, he says: "If you're on lots of boards and the firm is a very active investor, it can be very demanding. I talk to all my CEOs at least once a week about hiring, raising money, trying to avoid running out of money, and that kind of thing.

"I'd also look at five potential investments a week, one of which would come to fruition every few months. It may not sound it, but it was a heavy workload, so I cut back on that in 2013 to focus on my current boards."

Stewart Butterfield, Slack's Canadian founder, fits the description of the type of tech founder O'Farrell has looked for when investing.

AH's investment in Slack translated into a 13.2pc stake worth about $2.4bn. The payoff will be substantial. The firm will make somewhere between 10 and 84 times its investment. Precise figures weren't given, and he declined to elaborate.

"Stewart's first gaming firm became Flickr. The second Tiny Speck, which we backed in 2011. But it wasn't going anywhere, and he pivoted to form Slack. I single him out because of his resilience.

"He had real grit, and was miserable during some of his gaming firm years, because they were running out of money. But he navigated through it, and kept his team with him.

"You also need the ability to tell a compelling story, to investors, to employees - and to get prospective ones to join you instead of another firm - and to customers and the media. We also want tech founders. Depth in technology is important."

Irish startup founders "have great ambition", O'Farrell says, but he believes there is nothing like the money available in the US.

"US companies also have such a large market on their doorstep before they go overseas. That's a big advantage. Irish companies have the challenges that come with having to go overseas. But a much bigger challenge is a lack of venture capital, and conservative investors who want to see profitability way too early.

"Silicon Valley took 80 to 100 years to become what it is today. There is no early-stage capital available anywhere else at the scale and the risk tolerance that there is here.

"We are writing $10m to $30m cheques to 22-year-old founders, as long as we think they're the right founder, of a huge, risky, but very audacious and potentially enormously valuable idea.

"It's brutally competitive, and will test your mettle to succeed here, but there's no substitute for being here. China is maybe closest. The combination of factors isn't really present anywhere else, unfortunately. As a European, I'd love to see it in Europe."

Irish startups can look to the success of Stripe and Intercom for inspiration, he adds. "You can retain customer support and engineering in Ireland. They're the model. We kick ourselves that we didn't invest in Stripe," he laughs.

The tech sector has also seen the evolution of disruption, however, some of which has had negative consequences for wider society. Does he share many people's concerns about this?

"Tech is agnostic. It can be used for good or evil. Evil people will use it for evil things. Tech firms can get better at tackling that all the time, and it's a very big challenge to address, even with massive resources. Twitter, or any tech, can be used by bad actors. Our firm was an early investor in Facebook, that's true, but we're not anymore [Marc Andreessen is on the board]. There are other things - I'd personally argue vaping is an example - where it's hard to see that there's any social good in it."

Other excesses in the sector have captured headlines too, he admits, but the culture of the best companies has remained pretty grounded in humility, sensible spending, teamwork and customer focus.

"In startups, women are under-represented because that's true in areas like computer science and engineering, but that's improving. At AH, we are now about half male and half female general partners." Silicon Valley has also faced criticism for loss-making companies using their financial weight to out-compete rivals that may have better tech or services, and also for some of the sources of investment, such as Saudi Arabia, in light of the murder of journalist Jamal Khashoggi.

"In later-stage investments, the cheque sizes are bigger now because the opportunity is gigantic: three billion people.

"Slack's market opportunity is at least multiple tens of billions. For it to cut back spending to turn a profit would be absolutely insane. That goes back to what I said about conservative investors, as well.

"Slack should keep building out and capturing every customer it can. That's not saying spend money stupidly. Firms can mistakenly raise too much money. Domo raised money up to a $2.3bn valuation, but is worth less than that after its IPO.

"Capital is an advantage if the business is working. If it's not, it's a risk. The number-one rule in business, I'd say, is never run out of money. Particularly in startups, where every board meeting is about how much cash runway we have left.

"We don't have any control of where our investors take their money from. Companies in our portfolio have taken money from Softbank, which is backed by the Saudis. Personally, I'm very troubled by the war in Yemen, as well as the Khashoggi affair, and its civil rights.

"As a firm, however, it's not our job to have a policy on Saudi. We try to avoid investing in things that are bad for the planet. Startups make their own decisions about who they take money from.

"We have some influence, though we're minority investors with no veto rights, and we try to use it for good."

'Doing good' is also something O'Farrell and his wife, who he met while doing his MBA at Stanford, are involved in. One of the social enterprises they support is Paul O'Hara's ChangeX. O'Farrell says: "He's a very compelling founder. I'm honoured to back the platform and see the progress it's made.

"Silicon Valley has its problems that need solving this way. The startups here attract more startups and more people. It's a virtuous circle and a vicious cycle. A lot is being done, but a lot more could be done."

With about a dozen previous roles on his long CV, including stints in management consulting, broadband and other internet-related businesses, one at Telecom Éireann, establishing Phonewatch, and another at what was then the European Community in Luxembourg, when added to earnings from AH, he has most likely amassed a small fortune at least, but declines to be drawn on the matter. In 2012, AH's partners pledged to give half their profits to charity. He says: "I'd like to see a more equal distribution of wealth in the US and around the world. Nobody should be dependent on charity. In the meantime, we do what we can."

O'Farrell is also on the board of the US fund of Unicef, a role which will involve travelling to its projects, as well as helping with fundraising and more strategic decision-making.

His social conscience may come from his mother (his father, who had been a CFO at CIÉ, died when he was 14). A junior civil servant and mother of six, having been widowed, she sued the Irish Government in a case seeking equal pay. Representing her was Mary Robinson, and they won.

"She became known as a political fighter, and also founded a women's political situation, so myself and my brother and four sisters had a keen interest in current affairs and community, growing up," he recalls.

More comically, he recalls a summer job in Germany, where he also spent his early career, and one of several he did in factories, as a student.

"I supervised a mayonnaise-making machine, which I had to make sure kept running and filling jars. Unfortunately, it kept breaking down, smashing jars on the ground and sending mayonnaise flying everywhere, to the distress of the two women at each end of the machine who were paid by the jar produced.

"It was the most stressful job I've ever had. I also picked potatoes in Skerries one summer. It convinced me I never wanted to do manual labour for a living, and was good motivation to get a more comfortable job," he concludes with a laugh.

Curriculum Vitae

Name

John O'Farrell

Age

60

Position

General partner, Andreessen Horowitz; national board member, Unicef USA

Lives

Near Stanford University

Education

BA electrical engineering, UCD; MBA, Stanford

Previous experience

Various, including: online market development manager, European Community, Luxembourg; senior associate, developing strategy at Booz Allen and Hamilton, California; head of new enterprises, Telecom Éireann, Dublin

Family

Married, with two sons and a daughter

Pastimes

Reading, Netflix (e.g. The Crown), skiing. He is a "current affairs and politics junkie"

Recent holidays

Visits Brazil, where his wife is from, every year; Portugal and Ireland

Podcasts

The Andreessen Horowitz one; Pod Save the World

Recent book

These Truths by Jill Lepore

Business Lessons

What do you look for in a founder of a tech startup?

They need to be a technical founder, resilient, and able to tell a compelling story, with raw product talent, leadership skills, and an ability to keep driving towards success, even when the obstacles seem overwhelming.

What are the biggest mistakes startups can make?

Firstly, never run out of money. Then, it’s about not aiming for profitability too early. That’s caused by a lack of startup capital, and is very common with Irish and European startups.

Is there any area of tech that’s undervalued right now?

No, because the market is so large. There has been a lot of talk about tech valuations being unrealistically high, but it’s nonsense. We go through a cycle every 15 years or so.

What areas of tech currently hold the most potential?

AH now has biotech, blockchain and cryptocurrency investments. These are not overhyped areas. We’re just at the beginning with them, like the early days of the internet in some ways.

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