Silicon Valley 4.0 Sessions

Following is an excerpt from one of the sessions at Garage's Silicon Valley 4.0 conference. To read comments from reader's, please visit Always On. Another session, For VCs, Success Is Staying Awake, is also available.

Why VCs Love Young Blood

Michael Moritz of Sequoia Capital and Eric Schmidt of Google were asked about the relationship between "The Venture Capitalist and the CEO"at the Silicon Valley 4.0 conference by moderator Guy Kawasaki, managing director of Garage Technology Ventures. In this segment they talk about whether there is a perfect age for entrepreneurs, what Sequoia likes, and why VCs are often wrong.

Kawasaki: Mike, could you describe what gets Sequoia's pulse moving about a company?

Moritz: Losing our money.

Kawasaki: On the upside?

Moritz: The stuff that makes the venture business an incredibly invigorating place to be is back to what Eric was saying about why he was attracted to Google. Imagine every day in your life working with 25, 26, 27-year-olds who've got a fabulous idea, who see no boundaries, see no limits, see no obstacle that they can't hurdle-it is the most stimulating environment that you can ever be in.

And you know full well that tomorrow-or next week or a month from now, or a quarter from now, or a year from now-there'll be more exciting, incredibly exciting adventurous people. Like Steve Jobs, age 19, many, many years ago. Jerry Yang and David Filo age 25, 26. A couple of guys we backed recently, where I told somebody 'Boy, we just founded a company that's got three people in it, and the total age of the company is 64 years old.' That's what sort of gets our collective blood gushing. It is just an incredibly stimulating place to be, and the moment you think you've seen it all, or you think you've heard all the good ideas is the moment you begin to go out of business.

Kawasaki: What about these poor entrepreneurs, who, if they have been rejected by VCs have probably heard, 'Come back with a world-class CEO, someone who's run Seagate for 20 years or something, and then I'll fund you-and right now you're saying exactly the opposite.

Moritz: Yes, but then I would say that venture capitalists are wrong a lot of the time. We're wrong about investment decisions we make or don't make; think of all the failures. We're frequently wrong about people who are hired into our companies where we participate in the hiring decision. And then I would say, to take incredible solace in the example set by one of Silicon Valley's great entrepreneurs, Scott Cook.

He was rejected by everybody on Sand Hill Road, who said, 'Why do you need to balance your checkbook on your computer.' And over the last 20 years he has built a fabulous enduring company, having been stymied by venture capitalists for the first several years of his company, and then taking some venture partners far later on when he didn't really need them.

Kawasaki: And Quicken is one of the few companies that has defeated Microsoft.

Moritz: There are others.

Kawasaki: Let's talk about the reasonable expectations and value-add that entrepreneurs should expect from a venture capitalist. What do you really get besides the money?

Schmidt: In the first place, the reason you're dealing with venture capitalists is because you need the money. That's important. Larry and Sergey needed the cash to build out the data centers before they were able to come up with ways to monetize the business. Mike told me later that Google was on its fourth or fifth business model by the time I showed up. So these little companies move and they work with their board. Certainly the early years with the venture capitalists seem to be in search of profitability, in search of growth.

Most entrepreneurs-and there are some exceptions-don't want to really run the company when it's bigger. They want to be the founder of the company and they want somebody else to run it. So the venture capitalist can also be a bridge to that management structure. I can tell you that I don't know of a single high-performing entrepreneur who really wants to study the rules of the audit committees instead of his [passion]. Maybe there's some, but I've not met many. There are so many requirements of running larger companies that are probably not of great interest to young entrepreneurs. A venture capitalist can be a good bridge for that.

Having had board members, both venture boards and public boards, I would tell you that the venture boards are much more involved. They're much more aggressive with respect to being part of the decisions. They have more at stake than the traditional [public] board member, and I think in general that's why the industry works so well.

Kawasaki: Mike, you have mentioned the numbers 25-to-27 years old several times. Are you making a statement that great entrepreneurs are sub-30, and once they're over 30, it's game over and they should become a VC?

Moritz: Or lower.

Kawasaki: Is there something magical there?

Moritz: There is something magical there. Clearly there are examples that disprove the rule, and I won't be brash or brazen enough to repeat the typical line about what happens to people over the age of 30. And it always amuses me when at Sequoia-and at other venture firms I'm sure-we're always worried about a founder who's in his or her mid-20s or late 20s and is running a company. But then you think back to these people who built incredible companies, who started their companies in their 20s or in their teens: Bill Gates, Larry Ellison, the original Intel founders in their company before Intel, Michael Dell.

Schmidt: He is still under 40.

Moritz: Who is still under 40, as Eric rightly points out. But think about it, Michael Dell started a company in 1987-just at the time that everybody said 'All the personal computer companies that will ever be formed have been formed.' I think there's some real analogies between the timing of the Dell formation and the timing of the Google formation ten years later. I am just an incredibly enthusiastic fan of very talented 20-somethings starting companies. They have great passion. They don't have distractions like families and children and other things that get in the way of business.

Schmidt: Let me help you, Mike. It's much easier to solve this problem by paying really low salaries. All the right things occur. And part of the reason that venture capital and these startups work so well is that the startups are incredibly cheap. So if you see a startup that's busy hiring all these experienced senior [people], not in the age group that Mike's talking about, you've got to worry about that. What you want is the people who are very low paid, working themselves to death, and all the right things happen.

Moritz: Do you think it should be roughly $1,000 per year or 2,000 per year of age?

Schmidt: Don't dig yourself a deeper hole....

Moritz: No, no, no. I just want to point out that we were fortunate enough to play a part in hiring Terry Semel, who runs Yahoo today. He's 60 years old but has the metabolism of somebody in his 20s. You can have some old 20-somethings and some young 60-year-olds, but the passion is the enduring theme.

Schmidt: About motivating people, you say that people want to make a difference. During the bubble, everybody thought they wanted to become executives or rich people or whatever. But if you actually think about human nature, people really want to matter.

So if you can come up with something that really matters, you can build a great company around it. You just have to explain it that way. You have to literally believe, in your own heart, and convince the other people that you can change the world. There are numerous such opportunities here in the Valley. And those companies will be built based on that passion. And all these other details somehow get sorted out.

Also read For VCs, Success Is Staying Awake