Provider. Scott cooper, what does a Venture Capitalist do . Basically what we do we provide money to companies that are trying to grow and hopefully become very Big Companies like a facebook or google or an apple someday and every doing our jobs correctly, were helping them grow the company so we dont obviously work in the businesses but we can provide and navigate new challenges as they go through the business, we like making ourselves as a money provider and a supporter as a business growth. Why can a company such as the one you described go to a bank and go through traditional avenues . A good question, the problem is most of the business we invest are very risky businesses that lose money for a long period of time as they invest in the business and banks unfortunately are not in the business of doing that or taking risk of losing the capital, we are willing to take that risk and about half of what we invested we will ultimately lose all her money and any bank to your promos will not be too excited back in adventure. Weight is the original money come from that you give to these companies. The way it works we go out and raise money from a couple different folks the University Endowments are big source of capitalist if you look at stanford or yield their large endowments and invest those turner return and that money goes to help subsidize the cost of supporting the University Large foundation so nonprofit organizations like a Florida Foundation for example in another example of an investor, what these companies are doing are trying to use venture as a way to drive a very high rate of return in the portfolio, they are looking for us to generate 25 or 30 returns annually for their business and as part of a broad portfolio they will have Venture Capital, stock, bonds and this is definitely high risk but the high reward portion of their portfolio. What is a normal pitch like . It is fun, its usually a few members of the Founding Team a common, often they have a Powerpoint Presentation so they generally havent built upon this time and its really an opportunity for the opportunity or to tell us about the expansive vision for the company, how big can the Market Opportunity become a workaday look like a skill for gets there and why is this team the right team to be able to go after that. Its a very fun intellectual process by which we get to learn all new interesting things and make a decision about whether this is a team for the particular opportunity. Is d. C. Unique to the tech world . It is deafly the case that not all Venture Backed Companies are Tech Companies but its also the case that many of the Companies TakeVenture Capital are in fact Tech Companies, its not unique but it does require a type of financing like venture which is the willingness of somebody to take a chance on something where the odds of success are extremely low and hopefully that works the payoffs are very, very high. In our business, one or two companies in our portfolio will drive probably the line share of returns and we have in the rest of the portfolio probably does not confirm you that meaningfully, you have taught that level of Risk Appetite to be in the business. Your new book is secrets of sandhill road, where is the nletter road and wiser significant . It is in menlo park california which would not otherwise know except for the fact that a mile or two east sandhill road is more famous which is du Stanford University, you can think of sandhill road as a music row in nashville or wall street in new york, its a bit of a mythical place where happens to be a lot of Venture Capitals congregate but if not anything that exciting to write about, its a twostory, buildings but has to be lots of capital and lots of opportunity for entrepreneurs. It looks like a bit of an Old Industrial park, its liam thats been known from the very beginning from Stanford University and there arent any fancy highrises, its a lot of twostory building, i think maybe and partly there may have been zoning restrictions but also its upstage but a more famous neighbor which is Stanford University and the university always had intentions to make sure sandhill road was less than University Campus itself. He of the managing partner of Anderson Horowitz which is . Sorry yes, we are a Venture Capital firm, we do the things we talked about earlier in the interview and we invest in very early stage Startup Companies and hope that over time we can help them grow in a very large business, were about a ten billion dollar business we raised about 10 billion while hundred dollars over history from the limited partners we talked about and again, our job is to be on top of the most interesting things happening in tech and entrepreneurship in particular those businesses that have software as a foundational component to them. Whats a technical or legal explanation of what a limited partners . A limited partner is somebody whos an investor like ours and the Legal Definition means there truly limited in the sense they dont have control over the investments we make, they dont have control of whether we sell the investments, there essentially a passive investor, they give often money and we have an obligation to be a fiduciary of that money and earn a good return for them but the decision about what companies we invested and when we choose to sell, those things are 100 in our perfume. Whats a typical day for you . Usually we will be seeing a couple different pitches on a day and that means we might have hourlong meetings with entrepreneurs and for working on deals, we will often be doing diligence so somebody we met earlier and now are getting closer to think about a deal so will dig into their business in greater detail to understand the product in more detail, maybe the financials in more detail, then we also spent a lot of time building relationships, huge part of the business is being wellconnected into the entrepreneur ecosystem, understanding what professors are doing at different universities and irrelevant for some of our companies and we spent a lot of time on outbound relationship activities. What is your expertise that you bring to this position . I have been intact for 25 years, was a banker in my early days and then i was at a Startup Company for about nine years that got sold to hewlettpackard and now ive been in the business for ten years, i think what i bring is really an appreciation for the Capital Market in the financing side of businesses but also appreciation for what it means to be in a startup building process and i hope what that means, not only does it provide empathy and respect for the october neural process but also allows us to be better investors are more patient and understand and recognize that these things dont go up into the right all the time and starting a company is a series of ups and downs and i think we bring a discipline and patience to that investing process. Scott cooper, often there is not a product associated with the pitch, is that correct . Right, there is a product idea usually but its often the case that at the early stages there is no product that has been built, what were trying to understand from the entrepreneur is not necessarily what is the final product but tell us what the ideal means, how did you think of the idea for the product, how do you believe the market needs are, we recognize that companies will pivot and they will change over time as they get products into market and we recognize as part of the process and we want somebody who is capable of the data points of the market and being responsive to what the needs are for the market as they build the product. When it you lost record. It is funny, we dont actually think of it that way, the honest answer is is pretty poor if you looked at it that way, we generally and on about 40 50 of the things we invest, we have a polite way of calling them in. Capital which means we lose all of our money and typically about 20 40 you make a little bit of money and the real difference between success or failure is what happens with the remaining ten or 20 of companies, do they become a facebook or google or something where you might make 25 50 100 times your money and thats the way the business works, the wizard measure recent success is total return but theyre driven by a small number of companies. If youre a 10 billiondollar company and you had successes, what is one you can tell us about. Sure, we had nice successes, ill give you a great example, Public Company to date that people may know about, this is Enterprise Security space, we invested in that company for the first time in 2009 it was our First Investments when we started the business and it was a seed investment, we put about half a Million Dollars and to get the two founders an opportunity to build out their idm product and over the years we invested more money as another Venture Capital but it went public about a year end half ago and if you look today is a 10 12 parking cap company, thats a great example of the success when you have something weve been working from inception and the Founding Team there has done an incredible job in building up what is a sustainable freestanding and valuable business. I apologize if i missed this, what is it that they do or make . , they are a software company, to way to think about what they do, if your business, you might have lots of cloudbased applications which means applications that you are not running on your premises but running in the cloud scene might have gmail for example for email, you might use salesforce. Com for your sales, you might have a software that manages your marketing, although software is, because they run in the cloud, every user has to be able to log into those and have security controls around their ability to access applications. What opted does is provide a single signon into those applications so instead of having to know your password for the applications, you log into optout and it directly manages your access into all those applications. It is a tool that the it department will used to manage security in their top, meaning user and when we hire somebody what applications we can give them access to somebody leaves the firm, how do we remove access its a tool to manage security and User Administration for a variety of applications. For those of us of a certain age, like General Electric and ibm, florida, those are names were familiar with, where did that name come from . Its a very good question, i dont know the origin story, i will look that up for you and drop you a note on it. I wish i had a better answer, unfortunately i think you stumped me. Is Silicon Valley successful because of Venture Capital . No, Silicon Valley is successful because of entrepreneurs who built the businesses and willing to take the risks that it entails, and building something as we talked about might have a ten or 20 chance of success, Venture Capital is an enabler of onto burnell activity, where financing source and hopefully we can add value to these companies but we should not get ourselves at the end of the day, the innovation of the development of these companies comes 99 from the hard work and efforts of the auto burners putting in. One thing that you talk about in the secrets of sandhill road is that products or ideas are often quote ten years ahead of their time, what do you mean by that . It is funny, you see this recurring theme that this is it did not work at some point in time and later it will work, let me give you an example, you might recall a company which was in the 98 99 timeframe and it was basically trying to do grocery delivery and the way they were doing at the time they were building massive warehouses in order to stock all the produce in the materials that they needed and they would use vans, literally as the name implies to deliver the two people and provide delivery, was a Wonderful Service for people but it was a small Market Opportunity because the number of people who thought about the idea of Home Delivery for groceries or willing to use their computers at the time because cell phones did not exist to do the ordering was not that big of a company and the company was not successful. If you fastforward to today, were an investor called insta cart which is doing the same idea but executing in a very different way, there executing it with a workforce that is in many cases part of the gig economy, people are independent contractors on their own doing this, theyre not stopping, the supermarkets himself but partnering to get access to the produce in the things they need and they have the benefit of the iphone revolution which means a lot of things people would not have done at the desktop and theyre willing to do on their mobile phone, its those examples of things were in new technology can create a market and expand the market in a way that cannot exist in a prior timeframe. When it comes to an insta cart or awk to, number one do they go to other Venture Capitalists as well besides yourself . Yeah they do, the way the business works, people raise money in different rounds and rounds correspond to the scale and development of a company, often people will raise our first round of financing and that will last them 18 20 per month on average and they will raise another round of financing and if theyre doing well, the valuation will be higher on the second round of financing, in general for each round of financing, the early stage there tends to be one major investor and if youre lucky enough to have the opportunity will be the major investor but when they raise subsidence rounds of financing if the case that additional will be part of the company. We have an interesting relationship with our Venture Capital firms in the industry, we are partly competitors and that there are deals and rounds that we will directly compete against but many times reporting with other Venture Capital firms because were investing alongside an earlier round or later round with the same company. Do you have a cease on how the business operates during the first round of financing . Yeah, the way our business works, we have a set of governance rights that are attached to the financial interest that we invest in the company, often we will sit on the board of the company and will have the right to duties that a board member might have to obviously make decisions about whether the ceo is appropriate for the business or strategies the company may be doing and we also tend to have a stock that allows us to vote for things like will the company raise more money or is a Company Going to sell themselves, those types of things we have a say in that we dont govern them completely, obviously the founder of the company and the shareholders have votes of his well but theres a balance of power that comes from the governance structure. Do you have a say so in a company like auctor or insta cart today now that their freestanding company . Or have they pay back their money and youre gone . Yeah, they dont pay back their money, the way they work, we own equity in stock in the company, in the case of auctor when they go public, we have the option if we choose to sell the stock and thats how we would make a return on our investment. And knocked his case, we have one member of the board, our founder is on the board and are typical and low that we will stay on the board for some period of time after these companies go public but over time look to exit the boards of these companies and become more mature, today are only say, one of many Board Members and we own stock like any other stockholder we can vote through proxy for other Corporate Activities that require a type of vote. Mr. Cooper, then horowitz and mark injuries and are legends in Silicon Valley, arent they, who are they . Mark andreasen, people might remember was originally made his fame as a founder of netscape back in 1983 which was the First Company to commercialize the web browser and it went public in august of 1995, heralded what many people had the tech moderate the start in the early 90s. He has gone on to be involved with other very important companies, hes actually on the board of facebook, years on the board of ebay in hewlettpackard, were lucky to have them as a partner. Then horowitz actually got to know mark because he worked at netscape, ran a number of the products on behalf of mark when he was at netscape and they became Close Friends and colleagues through that and they started the company together in 1999 called loud cloud which many people probably have not heard of but we were trying to build something of what amazon does today, think about it as a computer on demand. Scott thousand of interest can was not for the opportunity further hundred. Numerous who are seeking to build the business. This netscape existed. Scott was sold 1998. In the browser which was obviously the main product, kind of the main browser of course the people using today, Google Chrome or the apple safari browser. That most of them on the kind of print prodigy. One of the criticis criticist enter vent inventors will come in with a product that they are hoping will be sold to a Larger Company or a Large Company will buy that product. So there is less competition. Scott i will tell you that a star experience and certainly how we think about investing is we are actually not interested in companies where their goal is to try to sell the company the reality is that does happen many times in fact about 80 percent of the excess in our business when company is exiting, happen through acquisitions. On the somebody start, we want to believe it least that they are going after an opportunity that is big enough and the product is expensive enough they can support a Standalone Company and could go public. Acquisitions to happen. I dont kinda think about those generally as anticompetitive in a sense that we have never or we continue to seek new innovation constantly happening in this business. And certainly the case is sometimes Larger Companies will acquire these other businesses but often there is an of the company right behind them whos going after another segment of the market right and another that has actually had any impact on the way to a new Company Formation rated and we continue to be a privilege to see all kinds of new things still happening. Is the work culture something there that you have to get used to predict. Scott i think so print is a hard culture no doubt rated people are working very hard. People have high dreams and aspirations for what they are trying to build. It does mean certainly appeal probably spend more hours at the office and maybe people would otherwise like to read but is also very i would say, very Competitive Labor market. In a positive way. All kinds of different opportunities and job mobility is extremely high in Silicon Valley. Also real premium on culture within a company which is, and the ceos the Management Team does not do a good job in setting the right culture and helping people achieve a normal Work Life Balance do so, there are so many opportunities of mobility it really does keep the market in check. Its too much conviction i did to Venture Capitalist if you live in indiana or louisville kentucky. Scott thats a great question. One of the things weve seen in the u. S. Is that the venture businesses still very geographically concentrated. New york and california and boston make up Something Like 7e capital dollars invested in every year. So the answer certainly is that you can and we are very interested in talking to those entrepreneurs. Often what happens in those local markets, the very early Stage Capital we call seed capital typically will come from those local markets and then if they dont have larger firms beyond that you will often see this company come out to either new york or boston relate in the places where there is more of the concentration of larger find is that they can do the next rounds for those businesses rated. In your book you talk about the fact that microsoft and facebook were dc funded companies in the different in return for those two companies. Scott this is a real interesting phenomenon which is the average time prevailing to public, has doubled. He is to be six years now its roughly ten to 12 years. It the example given the book is microsoft. 350 milliondollar evaluation today is our trillion dollar evaluation. Then and all that growth happened in the Public Market. And therefore print the benefit of all of the Public Market investors. The mental exercise that attack about in the book is if it were to grow at the same level facebook, over 20 or 30 year grant, it would be worth more than the entire global so its likely that we wont see 3000 times. To the obviously those are examples. But it very important thing thats happening in the industry which is a lot of money that used to be happening and a lot of growth that was happening in Public Markets, are now shifting to the private markets. Personally, i think thats a problem. I think that means that less markets means that normal investors who invest in their retail accounts are the from 401k, are missing out. I would like to see more of that growth happening or evenly between private or Public Markets pretty. What you think theyre saying private longer. Scott left dc kinda many years ago if you look at the data about 20 years ago started to introduce a lot of in efficiency mechanisms into the market. And to do exactly that. Make them more efficient. They did a great job. This was not at all kind of a problem. If you look at for example, the amount of money that stocks and expenses that retail bears. Theyre all going into the exactly the right direction the last 20 years. The challenges it works very well with liquid stocks. But when you have smaller cap stocks that are as liquid, the market has become much more challenging. So if you are sub billiondollar market Capitalization Company today in the Public Markets, you probably dont have to research were covering your company. You probably dont have sales and trading is that banks who are talking to the investing Institutional Community about buying your stock as a result, and really doesnt trade very well. It is not very liquid. Thats a pretty unattractive place to be. And so therefore, companies are saying private longer in order to get to a larger scale the larger market cap what is happened over the last 15 years as the money has followed that prince of the Public Market investors have recognized that pretty syc sometime like a fidelity, actually investing in private companies because they recognize the growth and they now have to go to the private markets because of this elongation of the cycle for them to get into the Public Markets. In your world, are you still the wild west in the sense that youre outside a lot of the regulations that the banks, etc. To face. Scott and depends on the type of venturecapital us. We are actually the registered Investment Advisors pretty were unregulated in the same way that a hedge fund would be regulated during other private equity firms. That means, we are subject to the fdc incoming visiting us and subject to a variety of compliant polls. Number of mental capitalist firms have less regulatory scrutiny. The types of investments that we are doing, we need to kind of subscribers to a higher rate literary standard. It is true that they are not regulated that way for some and they still on so mentally obviously are responsible to the fcc if theyre doing things like fraud or other bad behavior. But youre right, they have much less regulatory scrutiny than with a bank or other Financial Services or institutions separated. The kind of products are catching right today. When are you looking for. Scott we have lots of ideas we think the most exciting things will be over the next five ten 15 years. One bright area what was spending a lot of area is at the intersection of Computer Science and life sciences. There is a whole new set of companies that are trying to generate new drugs, or create new diagnostic tests were disease where they are using abundance of Computer Science to help improve that process. A super tickly things like machine learning. That kind of improve the learning ability of kind of computers to detect cancer cells in a blood sample for example. That is intriguing. And the other though, part of our business as we need to be open to meeting with all kinds of different entrepreneurs in understanding the ideas that they have. We certainly believe that were smart enough to understand all of the greatest trends over the next ten 20 years. Other businesses getting in front of really smart individuals who are doing really cutting edge work and software. And to do that diligence to determine if the business has a chance to ultimately grow into very large and selfsustaining company. Will the Lessons Learned about the 90s. Scott the lessons of 1990, i think mostly less of what i would call market and the ability of businesses to sustain themselves. And it we always like to use, we talk about netscape earlier. When he sold itself aol in 1998, the entire size of the internet publishing globally was less than 150 million people. As human call, people using this horrible screeching dollop motives to get internet access. If you think about that a company like a pet. Com which is in the news because weve had a recent i io call to. Com. Thats hard, no matter how great of an idea of was to have done food online, could never be big enough to acquire new customers and ultimately sustain the kind of individual economics and business and ultimately of course of business failed. But i think the big lesson of the 90s as the size of the market really matters because it drives how profit it is to acquire customers and how many you can get to and how much profit you can drive from those companies. And to me as a different example which we often live in a world where you need to willfully suspend disbelief in order to go along for the green that entrepreneurs have to do. Theres a difference in my mind between what appears to be convulsing course as the ftc doesnt work, difference between fraud and actually misleading people versus having big dreams and ultimately failing to be able to accomplish those dreams. I think the big lesson for us is to make sure we invest those names appropriately may understand the differences between ambitious plan that actually might be feasible and kind of one that might have actually bad behavior associated with it. Scott is the managing partner and is the author of this book secrets of sandhill road. Venturecapital and how to get it. Thank you for being our guest on the communicators. All communicators are available at podcast. Cspan has unfiltered coverage of congress, the white house, the Supreme Court and Public Policy events pretty from the president ial primaries, to the impeachment process. And now the federal response to the coronavirus. 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