Gilman Louie is a Partner at Alsop Louie Partners. He is the former CEO of In-Q-Tel, a strategic venture fund created to help enhance national security by connecting the Central Intelligence Agency and U.S. intelligence community with venture-backed entrepreneurial companies. He built a career as a pioneer in the interactive entertainment industry, with accomplishments that include the design and development of the Falcon F-16 flight simulator as well as being the person who licensed Tetris, the world’s most popular computer game, from its developers in the Soviet Union. He has served on a number of boards of directors, including Wizards of the Coast, Netwitness, Ribbit, Zephyr Technologies, the National Venture Capital Association, the CIA Officers Memorial Fund.
How did it all start? How did you decide to enter the venture investment business?
It started because I was an entrepreneur. And as an entrepreneur in Silicon Valley in the 80s, particularly if you did go to Stanford, the concept of being backed by VC was a pretty common concept. I was fortunate to meet Vinod Khosla from Kleiner Perkins and Jim Breyer from Accel when they were just young venture capitalists. They supported my game business and invested in my company at the time Spectrum HoloByte. I watched as a young CEO how they tutored me in becoming an effective executive and building a tech company. I still remember Vinod telling me, “At some point in your life you may make the switch to being a venture capitalist.” I said, “Wow!” I was already a startup CEO backed by Kleiner Perkins. I was one of three kids in the blue-collar family - I was already in a fantasy world and thinking about that was even crazier. They taught me what it means to do venture capital at an operational level, how do you engage with entrepreneurs, how do you battle tough problems, how do you become a true partner - not just in the board meetings but in the actual creation and formation of a company. When I got my opportunity to do it for the US government, to become a venture capitalist, based, quite frankly, on recommendations from Kleiner Perkins, - it was a part of my journey. It was exciting and I learned from the best.
What surprised or impressed you the most when you started working in venture capital?
I was an operator all my life. As an operator, as a CEO, as a founder you have an advantage: if you don’t like something, you can just decide to do something different. You have a board you might have investors, but at the end of the day, you affect change directly. A part of the challenge for operators to become VCs is moving from direct control to one of the indirect influences. Now you're trying to help companies to move forward and you can’t put your hands on the steering wheel because the steering wheel is being controlled by the CEO, and now you can only influence that, cajole them, let them make some mistakes, especially with the young CEOs. I’ve got to tell you, it’s the hardest part of making that transition. You can see the company heading towards the brick wall, you can see the entrepreneur about to make that same bad decision you made 10 years earlier - and just like with children at some point - you can only protect them so much and they have to be able to learn. You get to give them, like a teenager, some level of decision capability, help them, protect them against catastrophic decision-making. But! I need to be able to let them develop, to learn the things that you get to learn only by doing. On the positive side, and that surprised me, in my portfolio, I have many more things I get to play with in terms of ideas to explore with other CEOs and other entrepreneurs, not just the one single task of building my own company. It is a great pleasure in having a portfolio of ideas and expertise and the brains of all those founding teams building their startup ideas into big viable businesses. And also the frustration from moving from direct control to indirect.
What do you wish you knew before becoming a venture capitalist?
There are lots of ways you can become a venture capitalist and lots of different backgrounds you can have. I am biased towards having real operational skills. Because if you don't have that, it is hard to connect with other board members as well as the founders or CEOs, give them recommendations, if you never have had the opportunity to walk a mile in their shoes. You can use case studies, you can recite Howard Business School studies and theories on how to operate a business. But a founder is in a middle of a fight, of intense competition, or struggling building a workforce, or is battling with how to get a delayed product out the door, finding that first lighthouse customer. There is no substitute to having done that. When an entrepreneur knows that you've done it and has the confidence that you’re speaking from experience of things that actually had worked - or had failed, - you can help them on their journey to grow their company.
How did the ecosystem change over time?
I’ve started in the 80s, and in the 80s a $100M fund was a HUGE fund. To apply to such a fund, to get funded by it you needed real revenue, real technology, real market traction. Today we're talking about an industry that is amended to be larger than back then; bitesize checks are being written by multi-billion dollar funds. The scale has changed. There is more support from the broader ecosystem today as well. But at the same time, the discipline of the 80s is kind of lost along the way, because there is so much money in the system that you can just throw money at the problem rather than being disciplined on working on issues. I don’t say it was better than in the 80s than today, just different. Today, though, there are markets for big big big ideas and there are tools you didn't have back then - private equity, Angel investors, traditional funds, family offices - so many ways for exciting ideas and really gifted entrepreneurs to get the financing to build his or her dream and make it successful. They have support from law firms, accounting firms, public markets, universities, technology centers. It's different, it's evolving, it will continue to evolve. I suspect venture capital in 10 years from now won't look the way it looks today. But if I was a young entrepreneur just getting started, this is a great time to jump into the market.
What is your strategic vision for the next five years?
The fundamental model of venture capital was based on financial structures - this idea that you raise funds, you have limited partners or financial investors, institutions that you are expected to have levels of return on a particular time horizon. Three to four years to invest, 10 years to incubate to exit. That produces a set of areas of concentration and deployment of capital that allows classes of technologies to grow, and the world has done very well by that. But I think, as we go from 2020 to 2035, in the next 15 years, it needs to be a different version of that capital that is geared to fund some harder, more complex, more disruptive technologies that require longer time scales of investment. I also think there are large amounts of capital, particularly around large family offices, that aren’t just looking for economic return, but for social return as well. Big investments in things like Healthcare, Synthetic Biology, Quantum computing, AI, Next Generation materials require larger investments and may require longer periods of time to incubate. And while they may not have the same ROI, they may actually have higher multiple returns on capital and lead to bigger and bigger impacts. In some ways, this is a competition of great powers - between the Chinese and the US. That makes faster a different kind of race - to try to unlock these mysteries of science and put it to practical application. So, the science part is being solved over the next 10 to 15 years, is making that move very quickly to engineering into actual products that can be consumed. I think that time is going to compress and that race would open many new opportunities for entrepreneurs to go after some harder science bigger areas bringing that to VC playground.
What was the most unusual startup you ever supported?
The most successful startups were the ones that we never thought were going to be successful at the beginning with their crazy ideas. For example, take a look at the company we are very proud of - Twitch. It is owned by Amazon now. We invested in a group of Yale students with a primeval entrepreneur who walked around with a camera on his head. How's that a business? Why would you give money to people who walk around with cameras on their heads? Then a company decided to pivot, to create a game company in which you don’t actually play games - you just watch people play games. They went from a bad idea to a stupid idea. It not only was hugely financially successful for us as a fund - it changed how a generation of gamers interact with each other, creating new social fabrics that weren’t there before. There are rational ideas we invested in, like 3D printing for rocket engines or cyber security companies, the staff you should invest in. And we do a great job of that. But the fun stuff is the crazy ideas, the things that, on the surface, don't seem like deserve any capital at all, when you back an entrepreneur that has a vision, not when you simply look at days economic projections. Vision trumps spreadsheets every day of the week in the venture capital. I always say, “We chase the big idea off the beaten path. If that ideas sticks, you get all the value that idea creates to both the founders and investors.If you chase a good idea that everybody else is already chasing, you’re going to be battling for a slice of the pie.“ Our fund is really going to go after new ideas off the beaten path that can have a major impact on the world.
A question about Tetris. You licensed it from Pajitnov. Can you, please, tell the story behind this deal?
Many books had been written about this story. What happened was that we were approached by a licensing agent from Europe who spotted the game, I think, in Budapest, played on a terminal. And everybody was just mesmerized by this game. He came over to us at Age UK Motor trying to license some game companies. And we look at them and said, “There's nothing in this game - no graphics, nobody dies, no characters running around, no scrolling platform, no story been told… Even worse: women seem to like it, and women don't buy games!” Everybody took a pass. At that time the licensor showed it to us, I started to play, showed it to my programmers - and they all started to play it. And my partner at that time, Phil Adam, also loved the game and just kept playing playing playing. We’d got a lot of people in marketing, trying to figure out how to market, how to position this game. So I went back to Robert Stein, the agent, and said that I need to go meet the programmer because I just want to do some changes to make the game commercially ready, but he said, “No, you can’t meet them, they are not available. The problem is the programmer is in Moscow, the USSR at the time, and there is just no way to get to them. I was, like, “Really? Moscow?” I turned to my partner and said, “Put it in a red box, put the hammer and sickle on it.” I heard a rumor that at that time Reagan and Gorbachev were thinking about having a summit. And I said, “This is the story! This is “East meets West”. This is the marketing angle - we don't need any graphics or storyline.” We hired look-alikes Gorbachev and Reagan and we brought the story in The New York Times right during the summit. Eventually, we brought Alexey to Las Vegas at the CES show, and we got a chance to meet him, we had a great conversation, and then he went back. Because the license mechanism was murky at best, one of my other friends from Japan, Henk Rodgers, ultimately became our great savior of Tetris and Alexey. We’ve got together and figured out that there's a huge licensing problem - the way the licensing was done. He worked with Nintendo to solve the licensing problems. And we kept the PC rights and Henk took all the others. We worked together, and Henk became very close to Alexey, who eventually came to the US to work for Microsoft. He formed The Tetris Company. Up to this point, Alexey didn't get any money for this - all the money was going in one direction. But because Henk was very thoughtful about taking care of Alexey, he created a series of negotiations and contracts that will eventually let Alexey participate in the Tetris Company… That’s the great human story. It also shows that there are brilliant people everywhere, not just in Silicon Valley. It’s just unleashing talents wherever they are: in Russia, in Asia, or anywhere in the world. We just need to figure out ways to unleash that talent, give those people the opportunity to take that idea and turn it into product. It was my first experience of that, working from my far with Tetris. I'm so proud to be a part - a little part! - of that bigger story.
What is the size of your current fund? What percentage of it is reserved for follow-up rounds?
This is our fourth fund, it is $180M. We typically reserve 60% of our capital for follow-up rounds. We do some sort of recycling that allows us to invest early and be a bigger fat in terms of deployment of capital. We think that's really important because we aren’t a big believer in investing early and then letting big venture funds take it over. We feel it is very important to play from beginning to end and also to be that true partner with an entrepreneur in the development of both the company and the entrepreneur themselves in that journey, and it's hard to do with you hand over the baton to somebody else in Series B or C. We do Seed to Series A to start, sometimes we do early-B and play all the way through to the end.
How do startup teams usually find you? Do you wait for inflow or scout actively?
We tell everybody that the best way to find us is to find somebody who knows us - or even try to call us directly, but it usually doesn’t work. We have such a huge network, so have somebody in our network recommend you. One of the patterns that we recognized for success is that successful people know successful people. Having somebody been willing to vouch for you to anybody requires a level of willingness to engage, to risk their social capital because they believe you have a great idea. It’s a great filter for us and we have a great success rate because we had trusted referrals.
How many startup projects do you review per year?
We typically see, between all of us, something close to 100. Of course, we read much more. We end up funding about 8 deals a year, it’s our normal pace.
At what stage do you prefer to enter?
Late Seed and Series A. We like the early formation of taking ideas, building the strategy with the team, developing the team early. The thing about venture capital in early-stage startups is that a large number of companies make the same mistake, and it takes them 3 to 4 years to make this mistake, for which you use your Seed money and a part of your Series B money to figure it out. Sometimes you get lucky and it goes faster, sometimes you’re lucky enough and things die immediately, so you can move on. So our goal as a firm is to take the typical mistakes you would makeover 3-4 years and compress that down into 18 months. You’re still going to make the same mistakes, to get this experience. We want you to move smartly through that and we work really hard to get those mistakes out of the way, so when you get to the B and C rounds, those rounds will be productive and the capital raised is not being used to figure out the business, but to scale it.
How much do you invest in initial checks and over the life of a company?
It depends. It can be as small as a few million dollars, and typically we invest something between $8M up to $20M in a particular company. Of course, we chase the winners and shower investing more money into the company. If companies struggle, we can spoon-feed them up into that skills-up phase.
Are you interested only in startups in the United States?
We do have overseas investments. We have investments in Jordan, we have investments in companies that originated in Russia, in the Czech Republic. We do prefer to invest in the US. And even when we invest in companies from overseas, they have a strong presence in the US.
What are verticals and Industries do you find interesting?
Clearly, Game and Entertainment is the area that we do really really well. Anything that has to do with Security or Cybersecurity - we do investments there and do a really good job working with companies that sell to governments. And we do some High Tech: it has multiple spaces and investments in Next Generation Engines, Advanced Manufacturing. We would love to be able to play in Synthetic Biology, will love to play in Semiconductors, but that's a different size check.
Can you name industries you really like, yet will never invest in?
I’ll name industries I really like and I probably would not invest in, OK? Clearly, Synthetic Biology, Quantum Computing. Industries that have to deal with long-term issues around Aging or Cancer Drug Therapeutics - these are areas we are highly interested in but we haven't currently possessed the expertise to be able to make good judgments or you have a high level of expertise but it these require a different scale of capital that beyond the reach of our current sized fund.
What a startup should have to propose to catch your attention?
It has to have a few things. One is why is your idea going to change the world? This is a piece of advice Vinod Khosla gave me when I was an entrepreneur. We were talking at Kleiner Perkins, and I asked, “What’s your definition of failure?” (I should ask “What's your definition of success?”!) And he said, “My definition of failure is: I give you a lot of money, you build this company, you make a lot of money - but nobody really cares. You have no impact on the world. Yes, you make for a bunch of people lots of money, but failure is spending all that time, all that opportunity, all energy, and all that human talent to create something that has zero impact on the world. Life's too short for that! There are many other places you can make money and actually be more needed by the world. It’s much better to try something very hard you might fail in but with a big idea that is worth chasing.
How do a startup estimate a sum of money they need?
Many people look at things like dilution or valuation and all those economic things. I'm not saying that economics isn't a factor, but it shouldn’t be the only factor. My parents taught me, how to ask for money. I grew up in a blue-collar family in the US and sometimes I would ask my parents something like, “Can I have $10 for this or that?” And they always told me, “Always ask enough money to get you to the next step. If you ask too much, it will make you slappy and reckless. But if you ask too little, it won't let you achieve your goal and make it to the next step, so you will need to ask for more.” So you should think this way. Pick a time frame, say, 12 or 18 months, and decide what can you prove in the next 12-18 months that reduce risk (either product, marketing, or people), that demonstrates that you're on the right track - and ask only for the number of resources necessary for that. Because scarcity leads to better decision-making. You have to make tougher decisions if you have just enough money that gets you to the next level than if you have too much money. That’s why early stories about successful companies are like people working in garages and warehouses and crappy offices and not so many about stylish offices with free lunches and fancy conference rooms - it does not necessarily yield better ideas or faster development.
When a company presents itself to you, do you prefer boring figures or a show?
Depends on an entrepreneur. Every entrepreneur has to find within themselves the way to tell their story. What we expect is a clear articulation of the story of both how you got here, which is all the things that made you get to this moment in time, and what is the next part of your journey, the story of where you want to go. If you create a PowerPoint presentation that's how you tell a story or doing demos that that's how you tell the story, if you tell your story as a group - tell me the story! Because if you can't tell me your story, how are you going to explain to your other fellow entrepreneurs or to new employees why they should give their time to you to build something that you can even articulate?
What qualities you are looking for in founding teams?
Some VCs are looking for the teams that love each other, where they all have the same mindset with single purpose. If you lucky to get such a team, that’s excellent. Most team aren’t like that. Most teams have a variety of different personalities and different circumstances of how they arrived at that place and time. So what we’re looking for is passion, talent, for a process of how a team goes through the potential opportunities and make tough choices. Some teams fight all the time. It’s like families: some families always fight over dinner and others are like a TV show, where everybody is happy. Each of those models work as long as we all come to dinner. If you don't like each other, but do your job, solve problems and make good decisions, that’s OK too. In some cases the most successful companies are those with natural tension, because everybody has good ideas and you’re trying to sort through what's the best idea to pursue of all these good ideas and people are passionate; sometimes that creates tension. Unfortunately, we’ve seen more teams fail because everybody buys to each other’s fiction and doesn’t try to put it to a test, they're afraid to offend somebody, so they don't say anything, people make bad choices and everything goes down the wrong path. The other exchange is toxic relationships, that's not good either. We’re looking for process, chemistry, and agility. we look at a team thinking, “Can I take any of these teams and change the roles of each of the individuals, and will that team be equally effective?” If the answer is “No,” then you may have a problem because startup teams need to evolve very quickly, they need to have the agility to deal with the uncertainties of the market, make tough decisions, have to be able to have the flexibility to flex into the necessary role to get the job done. If people are too rigid, particularly in the early stages of a company’s development, they never going to get out on the other side of that.
Who you would prefer to work with, Steve Jobs or Steve Wozniak?
Jobs wouldn’t be Jobs without Woz, and Woz wouldn’t be Woz without Jobs. In eastern philosophy, I would say, they would be yin and yang, and you need both. Think of this as making a stew or casserole: you need the right ingredients to make a perfect stew or a perfect casserole. And if you don't have the right ingredients, even if you start with really good ingredients, it's not going to come out. The issue is: when you put the teams together there is a role of leadership, a role of technical expertise, the role of understanding market opportunities, the role of being able to tell their story in to sell that story - and you have to have the right groups of people to fill those roles. Sometimes you're lucky and there is an individual who can do 2 or 3 of those roles. Generally, that’s not the case. And frankly, there aren’t so many Jobses and there aren't that many Wozes in the world.
Investors prefer to work with teams. Have you ever supported a one-person startup?
Many times. I remember when Aerospike got started, they came to us and the founder said, “I’m at $25M valuation.” I said, “Great. Show me your team.” - “There is no team.” - “Show me your protocol.” - “There is no protocols. It’s just me. But everything I've done in the past was successful, I've always done what I said I was going to do, and I always over accomplish against the promises I gave.” And sometimes you just get that individual and there is enough trust, and you make that single bet. Other times you can say, “Yes, you’re really really good but it can be challenging for you in those 5 other areas, you just have no experience to put an expert team together and we want to see more. So we'll give you a little bit of money, just Seed financing. Put the rest of your team together, flash out your tech, get it ready - and then we’ll do Series A.” And we do that a lot of times: a great idea and a partial team, so we give a partial sum of money to build the rest of the team.
What is your process of working with startups, once you invested in a company?
Again, it depends on the maturity of the entrepreneur and on the maturity of the company but generally it’s high-level engagement, typically anywhere from daily phone calls to minimum meetings at least once a week to track. Because with startups your number one challenge is not money or even talent, but time. You can always hire people, you can always fill more money at the problem, you can always buy a solution set, but you can never buy more time. We always tell our founders to put schedule together to the minimum viable product and define that minimum viable product. It can be changed over time, but pick a certain date and don’t move it. If you come back for more money to make it to that day, we will more than happy to give it to you - if you can articulate why you need more money. But don't move the day, because the moment you move the day you change the basis of competition: your competitors will have more time to beat you, your market will be more sophisticated. Our theories and basis of competition are going to change, and technology will change. A perfect product for 2022 may not be a perfect product for 2023. The time is the killer here. Optimize your time.
What are the most common mistakes startups make?
The biggest problem for most startups is staffing. Either with the founding team, when you find along the way that some people are not growing as fast as the company's growing; but you don't want to hurt their feelings and they do a pretty good job, so you wait too long. The second problem is hiring the wrong people. When you have a lot of money after Series A, for example, you hire the best available and you get a B player. Of course, everyone wants an A player, but I’d rather have a С player because they can’t make any harm. You put them immediately in places where they can do no harm and where they can be productive. Or you get somebody young who's the C player and overtime and your investment into their growth they are moving to B and even A level. The problem with people who have been lifelong B players is that they’re doing an adequate job so you never fire them, they don't improve, and they are not competitive and they can’t give you a competitive advantage in the marketplace against your competitors. When you hire lots of these B players, they can do 80% of the job - a pretty good job, - but you need somebody else to do the next 20%, so your staff keeps growing. Also, B players love bureaucracy, they love hiring more people - and they are not executing for you. And I tell people, “Don't hire B players. Better have nobody and do this job yourself until you find somebody who is motivated to do that job and get it done well. But till that time you’re more motivated to get this job done than any B player. Don't hire just adequate, because adequate today will be inadequate 12 months from now.”
Your target multiplications on exit?
Of course, the bigger the number the better. We invest in the portfolio. There is a group of companies that we're going to have it at 0, that's not going to work out. We’d like this to happen faster, so we won’t feed them with a lot of money. There's another group of companies that are decent companies. You know, you’re going into an investment with this idea that you can get there 10x, but during this journey, you find out you can't get it for whatever reason. You need to make a decision “Do I keep it or do I sell it?” What you don't do is you don’t hope tomorrow will be better than yesterday by doing the same thing you did yesterday. Sometimes, selling a company, putting that team in a place where they can be better settled, like in a big organization than individually, and making 2-3x return is better because it gives you money to reinvest at 10x-companies. The goal is to create a portfolio of 2 or 3 companies that can give you 10x return or more and 15 to 20 shorts to get there.
At what point do you feel it is a time to exit?
Again, we put fixed points of time. For example, we decide that we're in this country for 3 years. When this time approaches, we look at it and consider where is it relative to our expectations or is there something that we have discovered that wasn't a part of the original thesis and that made that pivot that we can now pass that elbow to that hockey stick, as we did with Twitch. It was a great team, the great technology but was kind of middle-market self broadcasting business, generic streaming business. They came to us and said that they shouldn’t be a generic streaming business, but a focused streaming business, we should be the gaming streaming business. When the management team made the right decision to make that pivot and accelerate the company, it changed everything. We do time check-ins and decide what should we do with the company - should we put more money in or should we go get additional capital in, should we pivot, should we sell or should we merge it with one of our existing portfolios companies to get it to scale?
Have you ever rejected a startup and then regret it?
Oh, yes! We have a shame list. Here are 2 examples of when we had an opportunity and made the wrong call at that time while making the best decision we could. One was Cruise by the former Twitch co-founder. My partner wanted to make a deal, but we said that there are lots of self-driving cars and other companies that have better technologies. What we didn't calculate is you don’t need the best technology because companies need to compete against will be the next best technology. And the second one was TapTap. I had great personal relationships with the entrepreneur, but our investment team couldn’t see how do they make money if they’re totally anonymous and don't sell ads. TatTap is infinitely successful now. Those two, perhaps, are examples of too much analysis, and if we bet on the personalities, we, probably, would invest in both cases.
Can you name the three most breakthrough startups in history?
That’s a really big question. Clearly, Intel. If you think about that Intel opened up an ecosystem, it was a breakthrough because it changed the way we thought about semiconductors - from something exotic to everyday thing. It had huge impact on the world. IBM, because it took computing that was done at the governmental level and brought it to enterprise and then eventually introduced the personal computer in a way that was different than Apple and the other players at that time. And they reinvented themselves multiple times, being at the cutting edge of information and computing for many more years than most companies have been in business. The other area that's made a huge impact is Google. I grew up in the 60s, as a kid, my favorite show was Star Trek. I always say that all good ideas start with Star Trek - the cell phone with the communicators, smartphones with the tricorder, Elon Musk might be inspired to be going to space by Star Trek. There's one scene where the computer takes on a female personality and starts hitting on Captain Kirk. That idea that you can just talk to a computer and a computer will give you any answer you want - that's what Google did. They built a platform through which all that information became available to the World so it is no longer your ability to do search to prove your intelligence, but rather the ability to assemble information in a way that is useful - that what Google did. There are many great startups in other areas, like GeneTech or BioTech, that have changed society or have long-term impact on society, but those 3 companies are the foundation of modern computing and had a major role in our society. If any one of there companies do not exist, we’d be living a very different world today.
By the way, what is your favourite character in Star Trek?
I'm always partial to Captain Kirk. He is a lonely guy at the top, he was self-absorbed and greatly flawed in many ways, and at the end of the day, he had to make the tough call.
Venture capital is a long-term game. What keeps you going on?
This world is a wonderful place. It's filled with uncertainty and many problems that need to get solved, and it brings an endless supply of optimism. The most powerful thing about venture capital is that it is filled with optimistic people: entrepreneurs are optimistic, investors are optimistic, VCs - we are all trying to create a better world, a better piece of technology, something that's more useful, something that helps to move the ball forward. What makes venture capital so exciting is as we’re going trough all the pain, all the blow-ups, and all the missed opportunities. There is always a better deal around the corner, there's always that next entrepreneur that you need to meet, there is always the next big idea that you get to have a piece of that changes the world. How can I not be in love with venture capital? For the handful of us who are lucky to have this job (it's just very small group of people on a global scale) it isn’t about economic, financial, structuring, tech, market opportunities, et. - all those things are measurements of doing a great job. There are so many companies, like private equity funds, that spend time on optimization and finance. Early-stage venture capital is really about embarking on a journey with a group of entrepreneurs in undiscovered country, where you have limited visibility but great hope and great optimism to change the world.
What qualities, you think, are important for a good VC?
You can't be rigid. Rigid VCs miss the opportunity because they’re trying to shape the world view into their personal view, and because of that you don't use lateral vision, you’re not looking to the sides. Most of the brilliant transformational ideas happen on peripheral vision, not at things that you’re staring at. You got be willing to open up your aperture. VCs really need to have an ability to teach. Again, early stage will be different than later stage. In early-stage venture capital it's really about building relationships, is it's very much like the parent-child relationships – you have to be good at nurturing people. Some VCs are very successful while being assholes, this is just not my style. Sometimes you’ve got to tell people that they can’t be CEO anymore - and that’s OK, because we’re not investing in your company because you’re a great CEO and you are still an owner and you can always hire a CEO that might be better then you. As a founder-owner, you're not replaceable as long as you keep that flame alive and you're always pursuing excellence. VCs help entrepreneurs in their journey and their development, and allow them to continue to be successful even when they're no longer, in some cases, CEOs of the company.
Is VC business chess, checkers, backgammon, go, card games?
It’s a little bit of chess and a little bit of go. There is risk, and some people compare it to poker on the people side. Let me be very specific: it's a little bit like computer chess and computer go. Human chess is pattern recognition, it’s instinctive - you build your own style of playing; VC has some of that as well, of course. Think about computer chess as an old architecture where you have a limited horizon of decisions you get to make, because you can only generate so much on your decision tree. How you prune that tree, how you teach people to think about those decision trees, how you navigate those decision trees, how you score those decision trees - those are the same approaches that you as a venture capitalist or as an entrepreneur are going to have to deal with that. New AI-generated systems, like the DeepMind, are also based on the principle of being able to rapidly train the system by simulating it over and over, using reinforcement learning - just like VC. We are simulating it over and over, using reinforcement learning, finding non-traditional moves. It is very much like go: you can stick with the opening block and just play out of the opening block, but if you can find and play a move that nobody else expects and you can exploit that - you can win the game.
Your three pieces of advice to founders?
The first: Be thick skin, understand that most of your decisions will be wrong and that's OK, it’s not catastrophic as long as you’re agile enough and honest enough to spot that mistake and to correct it quickly, learn from it and move on. The second: Really really understand that it’s not just about you building teams - it’s about inspiring teams. That's not just people who work for you, this is also about your investors, the people who consume your product. You have to inspire people, you have to create a vision, articulate that vision, and you got to be able to sell that vision when everybody else in the world doesn't believe in it. The last: Success breeds success. Surround yourself with people that have had patterns of success.
What was your dream job when a child?
I always wanted to be a scientist and an inventor. I became the chairman of the Federation of American scientists not being a great scientist myself, and I get to work and hang around with Nobel laureates and great scientists - that is as close as I’m ever going to get to that childhood dream.
