I was standing on hallowed ground. But I was determined not to wither in awe. I glanced quickly around the high-ceilinged lobby of Sequoia Capital, at the flat screen TVs and the framed logos of the once obscure companies that the venture capital fund has helped grow into giants: Apple, Cisco, Google, LinkedIn, Oracle, PayPal, WhatsApp, Yahoo, and—small by comparison but growing ever-faster—Airbnb. Those logos reminded me that Sequoia Capital is more than just Silicon Valley history, that its companies have shaped civilization as we know it. Every CEO in the world wants to meet with Sequoia Capital. I had an hour and I needed to give the pitch of my life.
I was dressed in a casual shirt and smart jeans. This was the Valley not Wall Street after all, a place where billionaires can wear t-shirts to work. Which is not to say I would recommend turning up late to pitch Sequoia Capital in pajamas. A young Mark Zuckerberg tried that. Instead of presenting on Facebook, he presented a spoof presentation about “Wirehog,” one of his side projects. His PowerPoint presentation was called “The Top Ten Reasons You Should Not Invest.” One of the reasons was, “We turned up late for your meeting.”The prank was revenge on behalf of Facebook’s then President Sean Parker, who had been ousted from his previous startup by Sequoia’s powerful partner Michael Moritz, himself worth over $2 billion. The Sequoia partners sat in silence and took a pass on Zuckerberg. When you are Sequoia Capital, you can afford to miss a few extra billion.
Beside me was Mark Platshon, an advisor to one of our early investors, BMW. Mark is a big man with a kind smile whose words come out slow and deep, Solomon-like on discussion points in board meetings. I call him Big Wise Bear. He had picked me up from the Caltrain station in his vintage Porsche and driven me to the Sequoia offices on Sand Hill Road, a wide, nondescript highway running down one side of Stanford University’s sprawling campus. But Sand Hill Road is no ordinary road. It has the greatest concentration of venture capital on the planet. Nowhere else even comes close. The firms headquartered behind the trees on this one road in Menlo Park, Silicon Valley manage over $100 billion of venture capital.
If Sand Hill Road is the center of venture capital, then one address is the center of the center: 3000 Sand Hill Road. Down an avenue fringed with immaculate shrubbery is a complex of understated low-rise buildings that looks more like a posh high school than the office of some of the world’s most successful capitalists. No one here wants to be the center of attention. The firms and their partners are listed in discreet letters on noticeboards by the entrance to each building. The only show was in the parking lot: glistening Teslas lined up beneath maple trees turning red. And if 3000 Sand Hill Road is the center of the center, then the office of the legendary Sequoia Capital is the center of the center of the center.
“Good morning,” said the receptionist.
“Morning,” I said. “I’m here to see Alfred.”
I had a 9:30 appointment with Alfred Lin, one of the most respected venture capitalists in the Valley. Before turning to what entrepreneurs jokingly call “the dark side” of venture capital, Lin was Chief Operating Officer of shoe e-tailer Zappos, which was acquired by Amazon for $1.2 billion. Lin is personally an angel investor in Uber, San Francisco’s sexiest consumer startup. He sits on the Board of its second sexiest: Airbnb. The night before, I had lay on my bed in Cara’s Airbnb, Googling him and watching YouTube videos. TechCrunch, the racy Financial Times of the tech world, noted that Lin’s smallest personal success has been a $265 million exit. It seemed like everyone in tech wanted a bit of Alfred Lin. I fought back the nerves. Perhaps Lin would want a bit of JustPark.
“Will you be projecting?” asked the receptionist.
My stomach was doing somersaults; I couldn’t rule it out.
“Yes,” I said. “Do you have an adapter for a MacBook Air?”
“I believe so,” replied the receptionist without a trace of irony as she slid open a drawer containing around 20 Apple adapters stacked in neat rows.
She led us down a corridor past countless rows of tombstones, not of entrepreneurs humiliated to death in past pitches, but the framed front pages of the prospectuses of Sequoia’s big initial public offerings (IPOs). My eyes skated over the names of the investment banks underwriting them—JP Morgan, Goldman Sachs, Merrill Lynch—and dollar amounts with so many zeros that they stretched across half the page. We followed the receptionist into an enormous boardroom and she connected my laptop to the projector. The image covered an entire wall. I had paid to watch smaller screens in movie theatres.
“May I fetch you a drink?” she said.
I asked for a green tea. Big Wise Bear asked for a Coke. God bless America. I had already checked with him that I would be speaking American. Not “car park.” Parking lot. Not “pavement.” Sidewalk. Not “vicar.” Priest.
Lin walked quickly into the room, a compact man of Taiwanese origin, his hair cropped to a military shortness. In a few seconds, he had shaken our hands and was seated opposite us, his hands hovering over his iPad, waiting for me to speak. I didn’t want to waste his time by thanking him for it.
“Shall I dive straight into the deck?” I said.
I pressed the space bar and brought up the first slide: a picture of a smiling man in a black suit and dog collar, giant-sized on the wall. “This is Ted,” I said. “Ted is a priest in London and JustPark lets anyone with a parking space—a home, a business, a parking lot owner, or even a church—make money from it. So how much has Ted made by renting out his parking on JustPark?” I paused for effect and looked across at Lin. His expressionless face suggested that he wouldn’t be impressed by theatrics. “By renting out five spaces on JustPark, Ted has made over a quarter of a million dollars.”
We went through the slides and Lin grilled me on our metrics: what’s your LTV (lifetime value of a user)? What are your CPAs (cost per acquisition, that is to say how much we spend acquiring a new driver or property owner)? ARPU (average revenue per user)? When companies are at an early stage, many venture capitalists will take a punt of several hundred thousand dollars on an interesting idea and a strong founding team. But when you walk into Sequoia Capital asking for $7 million dollars as I just did, your numbers don’t need to work: they need to fly. A venture capitalist needs to have confidence that if you execute on your game plan, they will get back their investment at least 5-fold or “5×”— and often far more. They pursue huge wins. Doubling their money? That’s a distraction.
Smart money — and lots of it
Of all the CEOs of all the companies in all the world, why was I able to get in front of Sequoia Capital? For investors like Lin, the sharing economy is hot for a number of reasons, including the creation of trustworthy online identities through social media and ever-rising smartphone adoption. The sharing economy is as sexy as consumer web gets, as fashionable a category as big data but more PR-friendly. It is no surprise then that sharing economy businesses are lavishly financed. According to research by Altimeter Group in 2013, more than $2 billion of funding has been invested in the top 200 sharing economy businesses.1 By the time you read this, that figure will be north of $4 billion. On top of BlaBlaCar’s $100 million, Quirky, an e-tailer of crowd-sourced inventions, has raised $175 million. Taxi platforms Lyft and Uber have raised $333 million and $1.5 billion respectively: so much cash that in markets where they compete head on, they can afford to give passengers months of free taxis. Airbnb has raised $776 million. Its last round was a mammoth $500 million from private equity group TPG. Without adjusting for inflation, Airbnb’s round is over 16 times the sums raised by Yahoo or AOL in their IPOs.
This is it not just quantity of capital: it is quality too. The sharing economy has attracted a roll call of Tier 1 venture capital firms. They often invest alongside each other in this incestuous world. Accel Partners is in BlaBlaCar and Etsy. Index Ventures is in Funding Circle, JustPark, and also in BlaBlaCar and Etsy. Union Square Ventures is in Kickstarter and also in Funding Circle and again Etsy. Andreessen Horowitz is in Lyft and Quirky. Kleiner Perkins is also in Quirky, Rent the Runway, and Lending Club—alongside Union Square Ventures yet again. Taking “smart money” from the elite funds helps companies to raise “follow-on capital,” keeping any unprofitable noses above water for years to come. Having funded Amazon, the king of e-commerce, Kleiner Perkins is open to the possibilities of “recommerce” by monetizing the goods already in existence and sold on sites like Chegg and Tradesy. Having cleared more than $10 billion from Facebook’s IPO, Accel is trying to cash out again by investing in companies like BlaBlaCar that are built on top of the social network. It is the job of venture capital firms to ride the biggest waves. They seem to agree that the sharing economy is one of them.
This article was taken from the book "The Business of Sharing".
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