Cisco, Apple, Sequoia discussed on Acquired



Invest in three com in nineteen eighty two folks might remember three. COM which was made networking gear and eventually bought palm and the palm pilot three didn't realize came directly out of Xerox Parc so that's the other thing that sequoia kind of on the back of apple starts doing is they start reading Xerox Park and IBM's West Coast Division and all of these old school east coast companies that had been training these these technologists in developing advanced technology and they just commercializing them left right and center ninety-three they invest in Oracle and also Cypress I for semiconductor both of which become massive successes and then in nineteen eighty one one point. I WANNA make on Oracle before breezy because we of course we need to do an AH episode on Oracle Larry at some point but there's a crazy thing here that oracle went six years before raising money from from sequoia and I think they had bootstrap off of two thousand dollars and if you think about it like Oracle is really one of the first true software companies they were wildly capitol efficient fishing and Larry was very outspoken against you know pushing back against this rising venture capital industry and speaking all kinds of ill tongues of of the venture capitalist fearless and what they do and come in and try and control companies Ray than all these things and of course partnering with Sequoia Six years in but a very different start than a lot of these other companies. He's which required much more capital to get going yeah and the reason I didn't want to dive deep into it is that I might be speaking a bit out of school not having done the deep dive on Oracle and their history but to jump in and speculate a little bit. I think part of the museum that's it. I'm GONNA speculate wildly. I think part of the reason why Larry was so anti was was anti software anti-israeli. This was like didn't understand. Dan didn't understand software. You use a semiconductor guy all of these companies. We're talking about with the exception option of EA our hardware applications companies and so. I don't think Oracle could raise venture capital when they got started. They were the first real surreal software company. It's the highest gross margin of them. All you know I know fits that thesis so well but it wasn't you know the the venture world had woken up to that just yet they would they would go with to of course but but so much of the DNA comes from this hardware world the last kinda greet and it's certainly the greatest hardware investment that they make is in one thousand nine hundred seven. Don Invest two and a half million dollars in a little company called Cisco for thirty percent of the company started on the campus actually at the DSP at at Stanford started on the campus of Stanford Sandy and land where AH I can't remember which one of them was the it administrator for GSP one. I think was elsewhere on on the campus and networking was just becoming a thing and they were married. They're sending messages to one another and this is this amazing romantic story that they had had jerry rig the network to be able to send messages to each other and he's runs into Cisco and that turns into Cisco. I mean it just goes to show you these companies start and don having learned the lesson from apple of like you know hey will finance gingas. Kahn he he doesn't care like most would look at this team and be like we're not gonNA finance this team but he cares about the market and the application at the time there were no routers so networks like local networking it was just becoming a thing but networking networks was impossible and so- sandy and len developed the first router and to steal central square still uses this example well today of like the very very best most elegant expression simple expression of what company does it's three words for. CISCO WE WE NETWORK NETWORKS THAT turns out to be not just an enormous enormous market but really the enabling technology eighty four the Internet Cisco stock was the tracker for the Internet hype in the in the DOT COM era. I mean it was like if you wanted something that was emblematic of people's Apple's excitement about this new technology it was Cisco and so now we're in nineteen eighty seven where twelve years after the independent constitution of sequoia capital capital Donnas learned all these lessons. He's not letting this go so not only does he fully finance the company upfront with two and a half million dollars gets thirty percent of the company the company that goes public shortly thereafter I believe there is hundred sixty some odd million in the IPO downstairs on the board. Don doesn't distribute the shares. He remains chairman of the board. I think until the mid nineties and they ride Cisco up and make enormous enormous returns on this company and that is that really becomes the playbook for for quake apple going forward amazing run also just such a great example of like Sandy. Len were thinking about the Internet. Nobody was thinking about the Internet when they I started Cisco but things just kept the market kept evolving and kept getting bigger and expanding and don again being so focused on the market. They knew that like even though this company was public there were still enormous returns to be had because the market was nowhere near penetrated so alongside ride all these investments that they're making the funds kind of steadily grow in size from that first of three to five million it stabilizes at around one hundred and fifty million per fund in the nineteen ninety s that sequoias raising every three years or so and and having that be their investment period along the way of course to do that. You have to not only build these these companies but you have to build sequoia. You have to build the firm you can't do you can invest in all these companies and give them the time and attention that you need to do early. Stage Company Company building alone so Dan starts adding partners to sequoia and he talks about the process of doing this again. Remember back when they start lake the the number one requirement for being an investor quote unquote was going to Harvard Business School. not Fairchild semi-conductor business school to be clear investor in this sense was generally a public market investor or perhaps some other alternative investment but not investing in startups. I mean the Solomon Brothers folks probably looked at this more like gambling. Like what you're doing is an investing year not a person that looks like an investor. So what are we even talking about here. Irony of it all is. It's the exact opposite of gambling. It's building. BSO Sultanas as Greg Cody says adding new talent was and remains a continuous process. Conventional Conventional Education was never a high priority. You know plenty of folks have gone to Harvard Business School. You know who worked at an and work at sequoia but that's not what they look for. We look for people with functional experience in a startup I design and application engineering product marketing sales aspects of outsourcing manufacturing our investment decision making process requires very self confident people able to be challenged publicly. I look for people that are as far different as possible old than I am because we do things here on the basis of consent among the partners and I don't like having a modernized set of opinions. Don Wants people to be he says I want as much confrontation tation in different thinking as possible and he wants people that are going to be confident and comfortable enough to put their thoughts out there and debate as part of the group. One of these lessons that Don's learned is that sometimes times the most amazing companies like Apple Cisco. They look crazy and so you need somebody that's willing to see the potential behind the craziness and stand adopt them oftentimes..

Coming up next