Last week Google
I summed up the conversation in a few bullet points yesterday afternoon. But the discussion was so interesting that I wanted to supplement my summary with the full transcript of the conversation.
While there were several reporters participating in the call, almost all of the questions came from me and from Galen Moore, a reporter with Mass High Tech and the Boston Business Journal.
David Krane: Google Ventures, as you know, is Google's venture capital arm. We have a presence on both coasts. We're headquartered in Cambridge with four folks there. Of our 10 portfolio companies that we've announced publicly, three are in greater Boston. Those are SCVNGR, a company that builds scavenger huts for mobile platforms; a data analytics and visualization company called Recorded Future; and in Lexington, MA, English Central, which helps non-English speakers how to speak English using online videos and clever technologies. Also, in New Hampshire, we have Adimab in the life sciences space. I'll hand the call to Bill to start from the beginning and talk about the great progress in the last year.
Bill Maris: I'm originally from Burlington, VT, so I'm glad to talk with you there in Boston. When I joined Google Ventures just over two years ago, it was based on the idea of starting a Google venture fund, and trying to figure out what that would look like and how it would work. Over the last two years, we've made a lot of progress, not only on figuring that out but executing on that. We've detailed on the site who we've added and a number of companies that we've added since we officially announced the fund last March.
The job is to find best-of-breed entrepreneurs and startups and do careful, thoughtful due diligence and execute on the ones we are most excited about, and do everything we can to help those companies succeed once we've made the investment, which includes bringing to bear Google's resources, including human capital and technical resources. That has been a large part of my job, and the value proposition that we bring to startups is an equally straightforward one. We're putting together a team of seasoned entrepreneurs, investors, subject matter experts, and technology experts whose mission is to help those companies succeed. And with that comes Google Ventures' commitment to those entrepreneurial organizations going forward. That is what we have been executing on and it's been a year since we publicly launched and it's great to talk to you all.
Galen Moore, Mass High Tech: Who are the four people you mentioned in the Cambridge office?
BM: Rich Miner, Krishnan Yeshwant, and Scott Davis, who is contributing part-time while he completes his post-doc. So we have three people at a senior level in the Cambridge office. Luis Garcia was formerly at Google and then went to Harvard to complete his MBA. He's finishing that this year and will be joining us full time starting in the summer.
MHT: The size of the Google Ventures fund has been reported as $100 million, but that's never been confirmed. Can you talk about the size of the fund?
BM: Our aspirational goal is to invest at least $100 million a year into startups and new ventures. We don't consider it a failure if we don't get there. But we also have the ability to go beyond that if we see opportunities [that warrant it]. So, when people ask us about the fund size, it's not a $100 million fund. That implies a set sized fund that is then rolled out over four years at say $25 million a year. This would imply a larger fund. In Silicon Valley terms it is probably on the order of Sequoia or other funds in terms of the dollars per year we would invest.
MHT: Does that include money reserved for follow-on investments, or is that everything you're doing?
BM: The fund is only two years old, so we haven't had a chance to struggle with that question yet.
Wade Roush, Xconomy: Can you talk about the basic philosophy behind the fund, and why Google thinks it's important to have a venture wing? According to your website, you're not necessarily looking for startups that have some strategic relevance to Google. And it's not like Google, with its large advertising revenues, needs to earn lots of money on venture investing. So why do this?
BM: Fundamentally, we are looking at financial returns, number one. It is set up like a traditional venture fund in that sense, in terms of the incentive structure. And that's important, because we think you are going to look at 1,000 ventures in a year, and maybe 50 are exciting, and you give a close look to five, and you invest in three. If you create a sieve that says we also need them to be strategically important to Google, that not only implies we know what we will be important to Google five or 10 years from now, which is really difficult, but it also means you might be narrowing the companies down to zero. Google has always had and continues to have a commitment to innovation and entrepreneurs and an optimistic view of the future. I think it is strategic to Google to invest in people doing exciting things. As far as the implication of your question, on moving the needle for Google's revenues: If we were to invest in the next Google or the next YouTube or the next Facebook, that would be material to Google in terms of return, and so that is really our core mission.
X: Can you talk about the biography of the idea for starting Google Ventures? Where did it come from, who thought it was important?
BM: It's Eric [Schmidt], Larry [Page], and Sergey [Brin] primarily [Google's CEO, president of products, and president of technology, respectively]. There is a fundamental direction from those three toward … the idea of entrepreneurship. Larry and Sergey were venture-funded entrepreneurs. Chad [Hurley] and Steve [Chen] at YouTube [who are both advisors to Google Ventures] were venture-funded entrepreneurs. Eric teaches a venture course at Stanford, and David Drummond [Google's senior vice president of corporate development] championed the idea as something that would not only be useful for Google but productive as well. We serve a lot of functions here. Financial return is our primary objective, but we also function in terms of an early-warning radar. That gets difficult as your company grows to 20,000 or 30,000 people, but its easier when you have a group of people whose job it is to be in touch with folks.
DK: One more comment on that. One thing that every employee at Google today shares in common is a passion and a common enthusiasm for startup companies and entrepreneurship. When we talk about how we're different and the value that we can bring to our portfolio companies that is unique to Google Ventures, it is this backdrop of 20,000 people at Google who are permitted through their "20 percent time" to parachute into a bunch of different initiatives. Google Ventures is one such appealing opportunity for 20 percent work. We are able to leverage the excitement and enthusiasm for startups to our advantage.
BM: Just to put a finer point on that question of the biography of the idea: Eric and Larry and Sergey and David conceived this, and had it in mind for years before we launched it, but there were a lot of other priorities.
MHT: You've made nine or 10 investments, and they seem to be widely dispersed. Some of them are very early-stage companies and some are much later. Talk about your strategy with regard to stage and how that's evolved and where that is going.
BM: We are stage-agnostic, in the sense that we are opportunistic, looking for great opportunities and companies we can add value to. Our commitment is that there are companies that are very early stage, even seed stage, that just need a few hundred thousand dollars that we might be able to help, and there are later stage companies that we can add value to as well.
MHT: Many other venture capital firms have moved away from being stage-agnostic and are, if not focused entirely on one stage, have partitioned the stages out among their partners. What makes you think you'll be able to succeed? Most people think these are very different skill sets.
BM: It's really important as venture investors not to worry too much about what other venture investors are doing. There is a herd mentality that can take over. We have a strategy that is independent. When I say "stage-agnostic" what I mean is that ventures as an asset class is pretty specific. To limit that more specifically, by saying that we are looking for things that are strategic to Google or only early-stage or only growth capital, you immediately limit the subset of companies you can look at. If you do that you may create higher peaks, but also deeper troughs.
Your second question was about who is an early stage investor and who is a late stage investor and are those skill sets complementary. Our definitive answer is yes. We are looking for great teams and we have a team of people who have started, in some cases, their own companies; Joe Kraus started Excite [Kraus is also an individual investor in San Diego-based OpenCandy, one of Google Ventures' portfolio companies--Eds.] and Rich Miner started Android with Andy Rubin. The skills that it takes to execute at the early stage are not that dissimilar from late stage. You need to hire great people and execute on the plan and adjust when the plan isn't working. In my previous life I was a public market investor, and then started a startup and raised venture funding for that company, and didn't find the skill sets that different from doing one to the other. Great people are able to adapt.
DK: By the way, we've been using the nice number 10 for the number of companies in our portfolio. The tenth is one we're announcing today, Corduro, outside Dallas, TX, in the financial payments space. That one will be up on our site shortly.
X: So far, there is only one life sciences company in your portfolio, and that's Adimab. Bill, I believe you have a background in neuroscience. I'm wondering whether you are aggressively courting other biotech startups as potential investments. Is that something we can expect to see more of, and what kinds of companies interest you in that space?
BM: You're correct, my background is in neuroscience, and Krishna and Scott also have life sciences backgrounds. In terms of what we are looking for, the answer is yes, we are actively and aggressively looking at other life sciences companies. You should expect to see future investments in that area. We are not looking for incremental sorts of startups. We are looking for companies that have transformative technologies or are tackling new problems in new ways, things from regenerative medicine to bioinformatics. It's less likely we would invest in a company that's moving one therapy from Phase 2 to Phase 3 clinical trials. We are looking to make more transformative investments. That is a primary part of what I spend my time on.
X: You are unlike most venture funds in that you have, in essence, a single giant limited partner instead of lots of smaller ones. I'm wondering how that affects the way the managing partners work?
BM: It is Google Ventures, so while we do operate independently and make our own investment decisions, we do look at the world through Google-colored lenses. The areas that we are interested in, you all know about -- cloud computing, et cetera. Google is, for us, sort of like the sun and we are one of these planets orbiting around it. Gravity does have an effect on the deal flow that comes in and what kinds of entrepreneurs might be interested and it influences the kinds of companies we -invest in. We are looking for companies for whom access to Google resources and engineering support is beneficial. We don't require there be some kind of fit there. But when you have a single LP structure, that LP has a lot of influence. In this case, it's a hugely beneficial influence. The fund wouldn't exist without that. And the access to 20,000 Googlers who are all experts is something that is an incredible resource for us. It has an incredible impact on us, and our operations. If you look at the list of colleagues on the fund's team, we all have backgrounds at Google or are associated with Google.
X: I guess what I was really asking is, when you have just a single limited partner, doesn't it set up a different set of expectations? Wouldn't it be easier to fail or to produce unexpectedly low returns, in a sense, if you only had to report that failure to one partner rather than to dozens?
BM: In this structure we have one LP and I feel a huge sense of responsibility to deliver results and financial returns to that LP. I work in a building that the LP owns and I am surrounded by colleagues who are counting on us to deliver a return on the investment. If you have a hundred LPs, maybe your burden is actually lighter because it's spread across a larger number. I don't really know. But at the end of the day, Eric and Larry and Sergey are looking to us to deliver a positive return on the fund, and I feel a huge sense of responsibility for that. I think if you have a lot of LPs you have different challenges that are probably just as great. I'm just more intimately familiar with the challenges here.
MHT: To turn the previous question around, don't you guys actually have more LPs than any private venture firm, in the sense that every shareholder is in a sense your LP? Related to that, Google's share prices have not impressed over the past quarter. What would you say to an entrepreneur who was concerned that if Google's share price took a hit, there might be a re-evaluation of whether Google Ventures is really important to the company?
MB: March of last year was one of the darkest times in the economic downturn, but we had a plan and we launched anyway, not because we don't pay attention to the economy but because we believe in what we are doing here. There is a serious commitment from Google to create this fund and fund it. As it relates to the stock price, I'm not going to comment on that. I don't have any control or influence over that. What I am involved in is Google Ventures. I think that we do think of shareholders as sort of the LPs in the fund, in a sense. That's why it's important to invest the dollars that we are investing in ventures that we are excited about. Hopefully we will deliver disproportionate returns, but it's going to take three to five years or more to learn exactly what those returns will be.
MHT: That's the thing I'm talking about -- the question of the time period. In the public markets, results are measured quarter to quarter or year to year, whereas for a venture fund, results should be measured over five years or longer. If people get antsy -- if the board or shareholders are antsy because of what the share price is doing -- is there not a possibility that a long-view thing like this, that somebody might look and say "is this really core to our business?"
BM: If I thought that was a realistic possibility I wouldn't be investing my time. And I don't think any of the folks listed on the website would be doing this. You probably know as well as I do that Eric, Larry, and Sergey don't manage Google for share price. They manage for success. And this is an important part of Google, and something we are all committed to. It's not going to go away in a year or two. Its significance doesn't ride on the share price. It's a strategy that has to do with making Google successful.
DK: If you want to go to another layer on that, I suggest you talk to our portfolio companies. You'll find a pretty unanimous answer.
BM: Talk is cheap; I could say all day that we are committed and are going to be here. But at the end of the day we had to convince some very seasoned entrepreneurs that this is the case. They all asked the same question you are, and some tougher ones.
MHT: You guys have been pretty stealthy up to now, not having a site and delaying news of investments for some months. Can we expect this to change? Is this a new period of glasnost for Google Ventures?
BM: I would make a distinction between stealthy and humble. We just didn't have a lot to say. We started out with two people. Talk is cheap. It was better to delay talking until we had actually done something, and now we have actually done something -- we have built out the team and have some investments. Going forward, you should expect to see regular updates to our investments. Now that the plane is a couple of feet off the runway, those things are more reasonable. So the answer is yes.
X: You have a center of gravity in Mountain View and a presence in Cambridge. Can you imagine going into any other locations?
BM: Yes, Interesting ventures are not limited to Silicon Valley and Cambridge. We believe in being where innovation is. So yes, I do imagine that, and stay tuned because that is very possible.
X: Given Google's visibility around the world, I'd guess that you are even more inundated with business plans and proposals than the average venture fund. How do you manage it all?
BM: We do get a lot of deal flow. So we have to apply certain filters to it to understand where we should spend our time. The deals referred to us by trusted co-investors or Googlers naturally rise to the top of the queue. We all have networks we leverage, and other networks we have worked with in the past. It's not that dissimilar from other funds in that in order to differentiate the signal from the noise you have to apply some kind of filter. We get a lot of stuff over the transom and honestly it's more than we can look at. We can't look at everything and spend as much time on every idea as we would like. The ones referred to us, or recommended to us, are the ones we spend the most time on. But it is an unfortunate reality that there isn't really a scalable way to spend as much time on every idea as you want. Whether we get more or less than other funds, it's hard to say, but I know there's a lot, and it's overwhelming. We can't get through it all.
MHT: In Cambridge, Microsoft has been sponsoring programs with startups in a very public way, and on the other side people have been asking why Google is not doing the same. You don't see as much Google involvement in public events in the startup ecosystem in the Boston and Cambridge area. Why is that, and do you guys expect that will change?
BM: I think so. Rich has held office hours alongside a group of other funds. We have sponsored a number of other events. Don Dodge [formerly of Microsoft] recently joined Google and has deep ties into the entrepreneurial community, especially on the East Coast. Now that the fund is fully operational, you should expect to see more outreach and more engagement and more of all that that. It's part of being part of the community.
An important question that came up earlier was about the commitment from Google and the permanence of Google Ventures. There is no question internally about that. It's difficult to communicate the concept of that permanence externally. But I would direct you the entrepreneurs and the co-investors we have been dealing with over the last year to get their perspective on the answer to that question. Obviously we wouldn't be doing this if there were a risk that it was going to go away in a year. That's not something we are worried about. But I can understand why an entrepreneur who hasn't dealt with us would have that concern.
MHT: Did you meet that $100 million investing target in your first year?
BM: That's not something we're going to comment on.
MHT: Is there an average deal size or deal number targeted?
BM: No. We've made some investments that were hundreds of thousands, and others that were tens of millions. N equals 10 in this case. We could come up with an average but it would be meaningless. When there are 30 or 40 companies we will have a better feel for that, but right now it's too early to say. I will say that the deals that we've done have been a little bit bifurcated -- some are the angel-type investments and others are much larger investments. The mid-stage, Series C types of deals we haven't found to be as good a value proposition. So we're at the two ends of that spectrum. It's just the way things have been working out. It's not so much an approach.
DK: We are just a couple of feet off the runway. We'll keep you posted as things evolve. You can expect Google Ventures to be more communicative and more open now that the staff is secured and we've got some opportunities and some resources to tell the story.
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Wade Roush is Xconomy's chief correspondent. He does not own shares of any companies mentioned. You can e-mail him at [email protected] or follow him on Twitter at twitter.com/wroush.
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