The investor titans of Silicon Valley: be original but don’t hold off

14 Mar 2012

(L to R) Emily Chang, Bloomberg Television; Chris Buddin, Goldman Sachs; John O'Farrell, Andreessen Horowitz; Sean Cunningham, Intel Capital; and Roger McNamee, Elevation Partners, at the ITLG Innovation Summit, Santa Clara. Credit: Views of the World

At a mesmerising and spirited debate at the ITLG Summit in Silicon Valley yesterday, four of Silicon Valley’s top venture capitalists revealed some harsh truths about tech investment in 2012 and pointed out that in the 21st century, the economic goal of any government should be to foster innovation.

More than 800 executives, academics and entrepreneurs, not to mention a government minister or two, listened with rapt attention to an investor panel moderated by Bloomberg Television’s Emily Chang at the ITLG event.

On the panel sat John O’Farrell of Andreessen Horowitz, Roger McNamee of Elevation Partners, Sean Cunningham of Intel Capital and Chris Buddin of Goldman Sachs.

Is this a tech bubble or boom?

The debate initially centred on each of the investors’ modus operandi and the burning question of whether or not we are in a bubble or boom.

Cunningham described Intel Capital as the “eyes and ears” of Intel Corporation, with more than 350 portfolio companies, including 14 investments in Irish companies in the last decade. Hot areas of attention right now for Intel Capital are apps and connected cars.

From Cunningham’s perspective, the tech industry is constantly in a bubble.

McNamee agreed, saying the industry moves from bubble to bubble. He pointed out that regardless of bubble or boom, good entrepreneurs and technologies win through, bad ones fail.

“I know of a start-up recently that took their seed money and spent it on a party – if you feel that achieving seed money is a strategic event then you’ve no business being an entrepreneur.”

What has changed, from McNamee’s perspective, is that while there’s more money around to invest, the number of companies he and other venture capitalists are investing in is going down. “By definition, if people are throwing money around in an insane way, they are just doing the same thing over and over again, expecting a different result.

“Bubbles are good, they lower the cost of capital – you couldn’t possibly do clean tech based on the cost of capital – so it’s good to have a bubble.”

O’Farrell disagrees, saying this is not a bubble but a boom. “Anyone with kids in this room knows that these are people who grew up with the internet from the moment they were born – now there’s a whole generation that haven’t experienced anything else. This is happening on a serious scale, and it’s not just Moore’s Law.”

He cited the example of a cloud computing company hosting mission-critical websites. “A website that cost US$150,000 a year to run 10 years ago now costs US$1,500. They are seeing a 20-fold increase in market and firms are seeing a 20/4 increase in productivity.

“We are only at the beginning of the smartphone cycle. And lastly, software is now capturing entire swathes of industries and that couldn’t have happened years ago. I know of a company that is focused on removing waiters from restaurants and replacing them with panels on every table.

“There are lots of reasons why we are not in a bubble. But it will happen eventually, of course, no one is safe.”

The debate moved to Facebook’s impending IPO and “will it pop” just like LinkedIn, Groupon, Yelp and Zynga had, or will a tragic global event like Israel declaring war on Iran get there first?

McNamee pointed out that in Facebook’s case, the market has never seen an investment that has driven a return for its investors so quickly in such a short period of time.

Buddin said that while this has been a year of prominent tech IPOs, getting the balance right is crucial for companies like Yelp and Facebook.

“You never want to push a company out to IPO before its time. There’s nothing worse than a company going public before the market is willing to accept them. If you do that, then you lose the confidence and focus of the investor. We don’t pressure companies to go public, we like them to mature.

“That’s why in clean tech, we know that the investment’s return comes at a later stage,” Buddin said.

Ireland at the crossroads of technology and investment

On the subject of how Ireland can leverage its diaspora, its significant multinational base, its current start-up energy and its ties with Silicon Valley, O’Farrell said events like the ITLG’s Silicon Valley event are crucial. He said the ITLG event and F.ounders in Dublin are building bridges that go beyond government and investment.

He emphasised to the ministers, policy makers and State agencies present: “Keep investing in talent, keep investing in high-calibre computer science and design talent, as well. The world is shifting back towards beautifully designed products. Take the iPhone, for example, or take a look at Airbnb, which was founded by two guys from the Rhode Island School of Design.

“Companies moving to the Valley can’t get enough of design. The biggest challenge US companies face is they get cloned overseas and Ireland could play a role in providing good design talent.”

Cunningham pointed out it is vital that Irish start-ups can get a presence in Silicon Valley. “It is key to have a presence in Silicon Valley. Israel realised that it needed to get its companies to the US to be successful and it worked.”

He also emphasised the need to think big and think global. “In Ireland, the mindset seems to be on small companies, small scale, small capital raises – that needs to change and you need to think bigger to get ahead in the global environment.”

McNamee emphasised the need for Ireland to invest on equipping more children with vital programming skills.

“If you look around Silicon Valley at the most successful people, not all of them were computer science graduates, but every single one of them learned how to programme at the age of 14.

“Schools should get rid of home ec and shop and instead teach 14-year-olds how to programme,” McNamee said, pointing out that in the US an unfolding tragedy is the amount of boys that are dropping out at eighth grade and whose lives will be low waged.

“Programming could give them a way out – imagine how different a life could be if you were taught how to make a video game at 14, that would change things.”

Buddin said it is the responsibility of governments to foster innovation and said it is vital that universities in Ireland become centres of innovation to promote tomorrow’s technologies. “Any push in the university system in Ireland would be good for the country.”

O’Farrell agreed and pointed out that sending delegations to Silicon Valley to find out how it works there isn’t enough. He suggests bringing the Valley to Ireland. “F.ounders in Dublin last year took a bunch of start-ups and brought them to Dublin. Ninety-five per cent of them knew nothing about Ireland. By the end of it they had a great time, had great conversations and met loads of Irish people and came back with their eyes opened. We need to take this worldwide view. I have full respect for what the IDA and Enterprise Ireland have achieved in forging people-to-people connections, which are powerful catalysts.”

Cunningham pointed out that the key now is to encourage more start-ups from Silicon Valley to want to locate in Ireland. “You need to start focusing on what start-ups need – what assets get me leveraged? Change the model. For example, every start-up at some point starts outsourcing QA. There are lots of smart people in Ireland and there’s an opportunity to start at that level – entrepreneurial ideas as well as a bigger view to what’s happening. Go back to the basics, it’s not always about throwing more dollars that things.”

Words of wisdom from the titans of Silicon Valley

Chang asked the seasoned venture capitalists for a special piece of advice they would give to founders of start-ups and Irish policy makers.

Roger McNamee: “Preparation – that’s the word – I don’t think people prepare enough and for many people entrepreneurship has become a way of life. Ireland has a huge advantage if you can teach programming to people in their early teens. We’re not doing that in the US. The first who prepares wins every time.”

John O’Farrell – “Have a thick skin. Right now, there are so many prima donnas in the start-up world. Be ready to adapt, be able to make really big changes. Being innovative and not just sticking with the same idea is key. Business models change.”

Sean Cunningham: “Just do something worthwhile. You have to be crazy in the first place to start a company – you are going to spend years of your lie focused on something you are passionate about. So focus on the product, make your business sustainable and at the expense of metrics, focus on something that makes a difference to people.”

Roger McNamee – “Don’t hold off. Don’t go at it like it’s just you against the world, use networks, get advice and seek it out because experience matters a lot. You should be navigating the world to get it.”

With thanks to for streaming this special event last night

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years