Tuesday 12 December 2017

Mr Venture Capital on Fergie, Stripe and why only time can reveal overvalued companies

At Sequoia Capital, Michael Moritz invested in Google, PayPay, LinkedIn and Stripe while still in their infancy. Sarah McCabe spoke to the billionaire ex-journalist

Michael Moritz cartoon
Michael Moritz cartoon
Sarah McCabe

Sarah McCabe

Michael Moritz is shockingly unassuming. Soft-spoken and contemplative across the boardroom table at London's Caledonian Club, he is as genial as they come.

"Take as long as you want to get what you need," he tells me when I ask how much time we have. Shocking, because it's hard to overstate just how big a deal this guy is.

As managing partner and then chairman of Sequoia Capital, Moritz spent two decades leading the world's top technology fund. Sequoia's investments read like a who's who of Silicon Valley - Cisco, Yahoo, Google, PayPal, LinkedIn, Airbnb, Dropbox, WhatsApp and more recently, Irish-founded Stripe. All were invested in early in their corporate lives, meaning Sequoia amassed astonishing returns as the businesses grew to global behemoths. Moritz (60) personally took home billions along the way.

The bespectacled Welshman is not just a professional investor. Like all interesting people, Cardiff-born Moritz has done lots of different things. He started his career as a journalist at Time magazine in San Francisco in the 1970s, leaving Britain after graduating from Oxford with a history degree.

He didn't spend long in journalism, moving into venture capital five years later, but continued to indulge his passion for writing by publishing books rather than breaking news. The most recent of these is the biggest biography of the year, Leading. Co-authored with Alex Ferguson, it reflects on the lessons learned over the former Manchester United boss's long career managing elite footballers. Alongside parables of focus and determination, Leading drops delicious nuggets of gossip such as Ferguson's dismay upon discovering star striker Wayne Rooney was getting twice his pay.

It is the culmination of a relationship that began in 2008. "I became very interested in the distinguishing characteristics of companies and organisations which excel over a long period of time," said Moritz. "If you look around for examples of organisations which have flourished, stayed very vibrant, haven't gone stale, performed at the highest standards over the course of four decades, you won't find many examples. There just aren't that many. People just cannot do it.

"I was also interested in finding examples of individuals who had led those organisations for long periods of time. That's what led me to Old Trafford, Manchester United and Sir Alex."

Ferguson is not the only high-profile leader to earn the attention of Moritz's pen. His first book, published in the 1980s, was about Apple and Steve Jobs. The Little Kingdom: The Story of Apple Computer was the very first Apple book. Hundreds would follow.

The Little Kingdom examined Apple's time as a private business. "The part that interested me most was how it evolved, its era as private company.

"By the time it became a public company it was getting a lot of coverage. I was more interested in the stuff that nobody knew about - how did this company come about, who were the principal characters, how they worked together, what did they fight about... all that sort of stuff."

Jobs and Ferguson shared two qualities. "The first was an obsession, even though their obsessions were obviously very different. Steve's was computers and consumer electronics. He was utterly transfixed by the idea of being at the helm of the company that produced the very best products available anywhere.

"Sir Alex was also obsessed, from an early age. In his case the obsession was with the round ball, the football. From his late teens he knew he wanted to manage a football club and he did not allow distractions to get in the way.

"Their second common quality was a sort of restless perpetual quest for perfection. Steve always wanted to produce the most perfect computer, his ideal of the most perfectly constructed computer. The newly introduced product was never good enough for Steve; there was always this assumption that he could do better with the next one.

"For Sir Alex, it was the perpetual quest for the perfect yet unattainable record on the football field. Those dreamy ideas you might have at the beginning of a season where your club is strong enough to win every single competition in which it enters.

"For each of them, the pursuit of the unattainable is what propelled them."

Moritz speaks entirely without "ums" and "ers". Every rich sentence is carefully constructed and ready for print, almost lyrical. His accent is more American than it is Welsh, after three decades living in the US.

Opportunity lured him as a young college graduate. "Britain in the early 1970s was a country that was in the dark, largely because of coal strikes and electricity outages. The opportunities in America seemed much brighter.

"I also wanted to be a journalist, and had not been able to get a job in Britain because of trade union restrictions on Fleet Street.

"They had rules back then that, if you were a college graduate, you had to go and work on a provincial newspaper for years before you could work on a Fleet Street newspaper. I didn't want to conform to that."

Working for TIME in San Francisco meant networking with the chief executives of what would become the world's biggest technology companies, and an introduction to the then-little known business of venture capital.

"I met people in the venture business and thought it was an interesting, absorbing and ultimately also remunerative career and life. And also I knew that I had enjoyed my time as a journalist but didn't want to do it all my life.

"When I was at TIME - and this was the TIME magazine of the Seventies, not the thin magazine of today, so it was still a prosperous, thriving magazine that was still widely read - it felt to me a little like what I imagine being in an army regiment is like. Where, if you were still in the army at the age of 30, you'd still be in it at the age of 60 - not realising your life had gone by in the meantime... I could see what would happen. You'd quietly get seduced by the ease and familiarity and comfort and cocoon of what was, at that point, a benevolent organisation. It seemed like going to sleep, and I didn't want to do that."

He left TIME after four years to start a publishing and conference company, which was bought by Dow Jones several years later.

Then in 1986 he joined Sequoia Capital. It had started life eight years before but was still a small operation, five people in an office in San Francisco's Menlo Park.

Two early investments helped put Sequoia on the map. The first was Atari, the pioneer of the video game industry. The second was Apple in the mid-1970s, when it consisted of three people.

How on earth did Sequoia have an inkling of what these companies would become? What made Apple stand out - or Dropbox or WhatsApp or PayPal, or any of their other breathtakingly successful investments? "It's like how all of these things happen… the gentleman who started Sequoia had been referred to one of the founders of Apple. It's a small industry. Like all industries, like Dublin, you get referred to people.

"And then later on, it really helps to have - whether you are Manchester United with a football club, or Sequoia with investments - it really helps to have a winning heritage. Where you've tasted what success really feels like and you have a standard to emulate."

The hit rate wasn't 100pc; there were "lots that got away". "We haven't been investors in Facebook, Twitter, Uber or Snapchat. We obviously regret those."

Moritz stepped back from the day-to-day management of Sequoia three years ago, announcing that he was ill without giving details. He is still involved in new investments including Stripe, the payments business started by Limerick brothers John and Patrick Collison. Sequoia was its first major investor. Moritz sits on its board. Stripe is what PayPal would have been if it was started three or four years ago, he says.

"Many years ago we had been among the original investors of PayPal, and I was on the board of PayPal until the company was sold to Ebay. And we had a fellow at Sequoia who used to be the chief financial officer at PayPal. So we understood the payments business very well, I think. Then we got introduced to the Collisons.

"We were interested in helping them do what they said they were setting out to do, which was to pick up where PayPal left off. PayPal got started in 1988 or 1989 - and 16 or 17 years is a complete eternity in the technology industry, so much changes.

"PayPal got started before there was really widespread broadband connectivity, before the proliferation of smartphones, before the enormous growth of global mobile-based commerce, and before the emergence of cloud-based computing.

"So all the infrastructure underlying the payments business has changed dramatically… in some ways Stripe today is what PayPal would have been had it been started in 2011 or 2012." He won't hazard a value for Stripe, simply stating "I hope to still be a shareholder 15 years from now".

Dublin is not a bad place to start a technology company, he thinks. "If someone has a great idea for a product, Ireland is a fine place to get started. The trick will be to ensure there is demand for the product - something that is always more difficult if a company's roots are in a small country. However, Skype, Spotify, Klarna and Skyscanner were also started in fairly small countries, so there are some wonderful precedents."

The last time Moritz said something negative about a company or market - a remark that "there are a considerable number of unicorns that will become extinct" - it made headlines around the world.

"I was somewhat misquoted about that," he says with a smile. "The point that I was making was that, if you look back at some of the valuations from many years ago - say 2000 - there are some valuations that look absurdly overvalued, and some that look very cheap through today's lenses.

"The same is true now. There will be a cluster of companies that will fall by the wayside and become irrelevant asterisks to posterity. And there will be others that will become deeply embedded parts of the global corporate landscape.

"You have to pick them one by one, you can't make blanket statements about companies being over or undervalued." But he adds that we are living in an "effervescent" period "where optimism rather than fear" underpins company valuations.

His single biggest worry for the companies he invests in is "the absence of sufficient talent".

"The competition for labour, for talented engineers, is ferocious. It doesn't matter if you're in Beijing or Cupertino or Stockholm or Mumbai… it's just more ferocious than it has ever been.

"If you are running a start-up and looking to build an engineering team, you are not only competing against other start-ups for talented people - who are so rare - you are also competing against big companies who are throwing enormous sums of money at the most talented people."

A cyclist who trusts his own instincts

The most broke I have ever been was...

“I don’t think anybody has ever asked me that before! It was probably as a student, I had no money. I wasn’t starving but I couldn’t afford to come down to London... that kind of thing.”

A piece of advice that I’d give my younger self is...

“Trust your instincts. Write what you feel, draw what you see and follow your instincts. Three incredibly difficult things to do. I mostly followed mine.”

The last good meal I had... “was here at the Caledonia Club with Sir Alex and his wife! You always want to be able to answer that question with your previous meal. It was grouse.”

My hobbies are...

“Cycling and painting. Last year I did a silly thing — I rode from Venice to Geneva over seven days. I really wouldn’t recommend that to any of your readers. Ride your bikes in Ireland - there are not so many mountains.”

My biggest vice is...

“90pc dark chocolate. Taken two times a day, orally.”

Sunday Indo Business

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