Peter Redford (Band of Angels): Talking to investors is not that easy – you need to be on different levels of abstraction when you talk to them than what you normally operate on.

Peter Redford is Partner at Band of Angels. He is a veteran Silicon Valley tech CEO, Xerox PARC alumnus and IP litigation expert. His patents are licensed by most of the world’s top computer, consumer-electronics and media companies, and are used everyday by billions of consumers worldwide. As the inventor of the 2nd screen concept, now called AirPlay (used in AppleTV), he is often referred to as the “Father of the 2nd screen.” His technology credits also include all of the original patents for AutoPlay (used in all DVD players, Blu-ray players, video game consoles and Microsoft Windows), the personal computer sound card (CreativeLabs), Flash (Adobe), the LeapPad (most popular toy ever sold), and one of the original patents for the graphical user interface (GUI).

How it all started? How did you decide to enter the venture investment business?

Since I was a child, I was always entrepreneurial. When I was, maybe, 5  years old, I would build toys and sell them to my friends. It was in my genes. When I got married, that was 43 years ago, right after graduation from Berkeley, I had a fantastic job straight out of school at Xerox PARC and was making pretty good money and still, all I could afford was beanbags for my apartment and a Rabbit Diesel. I was thinking: What is the secret? I see all these people driving their beautiful cars and living in beautiful houses, while I have a great job, have a degree, but I’m just living in a small apartment and can barely afford furniture. I started to research that and very quickly came to the book Think and Grow Rich by Napoleon Hill. Pretty much everyone, who became an entrepreneur, has read it. It’s amazing but I never heard of it before. That book, as basic as it is, changed my life, put me on the right track: I realized right away that the way to become financially independent and free is to create something and become an entrepreneur. But it didn’t happen overnight. First I had to figure out what I wanted to do. I was recruited to Xerox PARC, and everything was invented there – I was part of that. I worked with Alan Kay and other people on PC Revolution. I had a head full of great ideas because of that experience. I was recruited into Zilog, and the recruiter said, while negotiating my deal, “I get you the salary you wanted (which was double what I was making at PARC) and I got you a million shares (Zilog was a new company at the time) as a stock option.” And I didn’t know what are you talking about, what is “stock option,” what the heck is that? But I was too embarrassed to ask, so just thanked him. Two years later it was acquired by Exxon, and all of a sudden I’ve got all that money, I’ve got a small fortune. I did not expect that – I completely forgot about this stock option and never really could not figure out what that was. I quit Zalog with another engineer, Jim Miller. And we got $100K grant from Stanford with no strings attached because Jim was a graduate from Stanford. And we created a company that developed the technology that eventually became the sound card on the personal computer and was acquired by Yamaha – just two years after we started Yamaha bought us and that became the chipset for making Sound Blaster possible. This was some of my “how to succeed in business without really trying” story. I knew from Think and Grow Rich that that was the way to go, but the way it actually happened was completely unexpected. It was Redford-Miller Productions (RMP Corp.), which, by the way, was going to be a movie studio, not a company that develops hardware, and we needed a digital mixer to deal with sound – we thought it would make it very easier for us to have leverage in the filmmaking industry if we can make sound digitally. After Yamaha bought us, I’ve immediately started a second company –  Trillian Computer Corp. (and the name comes from the book Hitchhiker’s Guide to the Galaxy) and we developed what ended up being Flash. It was an animation system, which was acquired by Macromedia, and Macromedia was later bought by Adobe. Most terminologies to this day came from that product. We called it Action at the time. Once we sold that, we created a company called TVI, and that became sort of a mothership. TVI eventually became a holding company that licensed video on demand, AutoPlay, and second-screen, AirPlay, other technologies, that were used by Microsoft, Intel, Sony, Samsung to name a few. And to this day this keeps on giving. So it was quite a ride. I’m driving my Ferrari now and people ask me all the time, “What would I have to do to be able to drive a Ferrari one day?” I say, “You need to create something. It doesn’t matter. You could be working for somebody else but create something, commercialize it, and you’ll be driving a Ferrari. You’re not going to be driving a Ferrari just working for somebody else.”

What was your dream job when a child?

As a child, I spend a lot of time in hospital because I had a heart murmur and rheumatic fever.  I went from that one children’s hospital to another. I became an entrepreneur in those hospitals. I went to the nurses’ ward and helped the nurses with taking everybody’s temperature in the morning, everybody’s pulse, so nurses hadn’t done that. If some lab things had to be done, I would do that. And they let me do it! Some of these were pretty complicated. I wasn’t paid for it, but it was like I was in business. I loved it so much! Also, I took bedside charts and redraw them. I mean, people could have died because of me but luckily nobody did. I loved it so much so I decided I wanted to be a doctor. I thought I was going to be a pediatrician all the way until it was time to go to college. Then I changed my mind and decided I want to be an engineer.

What surprised or impressed you the most when you started working in venture capital? 

First I built my own companies and was on the other side of the table. When you’re an engineer, you’re working on a part of a project – it doesn’t scale. Everything depends on you. Scalability was something that I grasped almost immediately. And leverage as well – nothing ever happens in life unless you have it leveraged, especially with your kids. It was simply a survival tactic: if you wanted to become successful, you really need to find ways to leverage everything you do and do everything in a way that is scalable. When you work within a corporate environment, you scale by delegating. When you work as an entrepreneur, the easiest way to do that is to become an investor, so you can have multiple projects at the same time. Basically, you find really good people to implement your ideas with another person. I think it’s great to leverage. It also hedges your bets because if only 1 out of 10 succeeds, you still succeed. 

What do you wish you knew before becoming a venture capitalist?

One thing you find out is how difficult it is to get funding for good ideas. It’s easier to get funding for bad ideas or ideas that are everybody heard of before. If you want to build another Netflix you can probably get it easier than if you come with up a new concept that is much better than Netflix, because there is some kind of herd mentality within investors – they don’t invest in things they don’t really understand. Unfortunately, if you understand something, it’s probably already too late. It’s a big issue not only in the VC world but, for example, in the movie industry. I’ve been in the entertainment industry for many years: the better, the more likely the movie is to succeed, the more difficult it’s going to be to fund it. It’s just the way it is. Most of the really good movies or TV shows get rejected many times over and finally, when they get accepted and produced, they made a lot of money. Those that are accepted very quickly, because people understand what it is, usually fail. Same thing in the VC world: it really takes a lot of trusts to fund a project that is trying to open up a new market, that is novel. That’s why when we invest we put so much faith into the CEO. For me, it’s love at first sight kind of thing. Product is important, but the CEO is the most important thing. I have to be able to come home after the meeting and all I want to think and talk about with my wife has to be this new CEO. It’s kind of real love, you know!

How did the ecosystem change over time? Both in terms of entrepreneurship and VC?

In some ways, it hasn’t, in some ways, it has. It’s always been about love at first sight and trust, and people normally don’t get funded just by walking into somebody’s office. If you make a phone call to a venture capitalist, you may actually have a pretty good meeting, but you’re not going to get funded – it just doesn’t work that way. Today there has to be a trusted entity in between, you need to be introduced by someone, and it’s much much easier to get that deal this way. Years ago, in the 80s, it was a little bit easier: you could just actually make a phone call, set up a meeting, but frankly to have a warm introduction made things much easier even then. What has changed, I think, is that because of the internet, the market became more efficient, today there is a lot more noise, there’s just so many companies that are able to promote themselves to investors, and deal flow is not as hard as it used to be.

I know you answer this question quite often, still, can you tell a little bit about the AutoPlay story?

We first came up with a thing today called AutoPlay. This is when you have 2 screens, and your second screen is your iPad or iPhone, and your TV guide on it – you’re scrolling through programs that are being offered by some channel on some cable network. You see something interesting, you touch it, and it plays on the first screen which is your TV. This is what we came up with first. The first product we were developing in the early 90s was basically the video on a CD – lots of short 10-second videos on the CD – with a way to select those videos by using a touchpad. It would be an overlay with pictures of, say, animals and you touch a giraffe and then it will be a quick 10-second video of a giraffe playing on the TV screen. Sort of the visual encyclopedia. We quickly realized that children won’t be able to select those videos because getting them to start was very difficult: when you insert CD into a computer nothing would happen. It wasn’t like the videotapes where you would insert a CD and it would start playing automatically. VCR already had autoplay. So I thought that CDs have to start by themselves, they should be smart enough to somehow figure out what movie to play, what file to play – it took me about 10 minutes to figure it out. I wanted a 3-year old kid to be able to do it. And I thought: it has to be a batch file, and a drive would detect the insert of CD and it would look for a file on that CD with a predetermined name (in this case it was autorun.inf), and this file would tell the drive what program on a CD to start. That’s basically it. And believe it or not, no one has thought of that. We filed several patents, and as soon as our patents were filed we called Microsoft – that was August 1994 and Microsoft was getting ready to launch Windows 95 – we told them about AutoPlay. They told us, this was the most fantastic thing they’ve ever seen. We thought they’re going to call us back and do a deal, and we were about to release this as a product as well, but Microsoft didn’t call back, they stopped returning our phone calls, and in November in a press release in PCWeek there was the article. It said something like “Microsoft is announcing that the most important feature of Windows 95 it’s going to be this thing called AutoPlay.” And we gave it to them under an NDA after we had our patents filed. My team was like. “Oh my god, this is going to be horrible!” And I said. “This is going to be the best thing ever happened to us, we just have to wait,” because until your patent is granted you don’t really have any power. Our patents were granted. The biggest patent firm was representing us – Skjerven Morrill MacPherson Franklin. They said me that if you just call them and say “You are infringing patents,” they immediately sue you – it’s called a declaratory judgment. So this was not a casual thing and it took us an entire year of scratching our heads trying to figure this out. Finally, after a year, Alan MacPherson called me and said, “Call this guy, Ron Schutz, who is the Chairman of Robins, Kaplan, Miller & Ciresi’s Intellectual Property practice, but don’t tell him, that I referred you because we represent opposing sides in a case right now.“ I called the number and said, “Hi, this is Peter Redford, I was referred to you by” – and I mumbled something. I told him what we had, it was like a 5-minute conversation, and he said, “Are you going to be in the office tomorrow?” The guy was in Minneapolis and I was in Silicon Valley. The next day 5 guys showed up – this firm is huge, this is the biggest IP law firm in the country, they have an entire skyscraper in Minneapolis. They said, “Yeah, we love it. We’re going to go after Microsoft for you.” It took us a few months to finally sign a contract, they dedicated $30M to this. It was a long road – we had to file another patent. It was the end of 1998, and only in 2002, 2.5 years later, we were able to file the lawsuits against Microsoft and other PC manufacturers, and then in 2005, we settled with all of them. And then we went after DVD player manufacturers and Blu-ray player manufacturers and over the next few years until 2011 we litigated and settled with all of them as well. 

What was the most unusual or even exotic startup you ever supported? 

My first experience with the venture capital was when we were funding our second company which was the one that developed Flash and we didn’t have a business plan or deck – nothing, just a really nice product that we were already selling. I asked a very nice VC, “Do you need a business plan from us?” He said, “Analysis-paralysis,’ and I never forgot that. That was my first experience with a venture capitalist. When we do investments, I do look at the deck, but I don’t normally look at the deck first. First I want to meet that person and have the person explain to me what they’re talking about. There’s one company that was doing light therapy: that was interesting because they showed me videos of the blood and infrared light was shining at it. We also financed a company that developed what eventually became Netflix – that was pretty exotic at the time. I just love the concept of being able to select movies on demand. I funded a company that developed DNA/RNA tester and we subsequently got $30M from the Department of Homeland Security. It’s a lot of things like that.

How startup teams usually find you? Do you wait for inflow or scout actively? 

The easiest way to find me is through LinkedIn at this point. I am a partner for that 18 years with Band of Angels – it’s a really good resource for me because investing through the Band saves me the trouble of having to do the due diligence all by myself and I can invest in deals that are not necessarily my area of expertise but are nevertheless interesting. At the Band, we have about 170 partners and there is always a special interest group that forms around every investment that knows the area. It really helps with the due diligence. 

How many startup projects do you review per year personally?

Probably a couple a week come to me. I do ask them to send me an executive summary, but then when I meet with the person I don’t want them to sit in front of me and show me the slides, but rather describe it to me. I just want to see how this person is brainstorming the situation. 

At what stage do you prefer to enter? 

I like the Seed stage because it’s more leverage: the price is better and if I know the area, I can contribute a lot. If I don’t, I go through the Band of Angels and again I can participate in that.

How much do you invest in initial checks?

Anywhere between $25K and $100K, but I can go up to millions. I have invested $7M in one company and lost it all. That was a lesson. 

The geography of your interests is limited to the United States, the Silicon Valley?

I have invested in companies in San Diego and other places. It’s too far to travel and meet the people. I prefer Silicon Valley.

What are the verticals or industries are you interested in the most?

I really like Digital Media and Gaming. I have invested in all kinds of areas, but Digital Media and Gaming are what I like the most. One company that we just recently invested, about 1.5 years ago, has to do with Security, with gun detectors. That’s another interesting area, but it’s easy to understand what they’re doing, so I don’t have to worry about that. Digital Media has a soft spot in my heart.

Can you name industries you really like, yet will never invest in?

I would not interest in Movies, in the movie industry because it doesn’t scale. Anything that is hit-oriented – I would stay away from it. When I say “Gaming” it’s more about platform places. I like platform investments, like YouTube, for example, I would love to invest in it because they don’t depend on a hit, they are evergreen, they go forever.

How do you select startups to support, what are your criteria?

I mentioned earlier – I really need to like a CEO. Because it’s like getting married, it’s like an Italian wedding where you can get married but you can’t divorce. Believe me, I’ve made many mistakes. I have been invested in companies where the CEO would disappear. The CEO is really really important. Building a company is very difficult in many ways, so you have to have working relationships. If I can help, I’d like to be able to help. I like to feel that the CEO is creative enough so that the business model can evolve into something that works. It almost always has to evolve – very few companies actually end up introducing the product they originally pitched to the investors. It always changes so much by the time it’s introduced to the market. The CEO has to be able to pivot and be able to sell the team on the pivot. The team doesn’t want to change lots of times. 

How can a startup estimate the sum of money to ask from investors?

I think it’s really like selling a house: every house is unique and prices are based on comparables. This is different than selling a public company or a company that has revenue already. Selling a startup that doesn’t have any traction yet – you just need to look at other companies, how they are evaluated. Also, a fact is how badly you need the money. If you don’t have any money whatsoever and are about to lose your house, you probably take what a big company is worth and divide it by 10 just to close the deal.

What are your red flags?

There are 2 big red flags that I go for. One is arrogance. Being a CEO is a humbling experience. Many times new entrepreneurs can easily become arrogant even before they get the money, but especially after they get the money. For example, a person was a real estate agent then invented something, and now he’s a CEO of a company and just got $10M. He thinks, “I’m smart, smarter than anybody else. I don’t have to take any advice from anybody anymore.” Arrogance is the biggest enemy of a CEO, so I really look for that. And also focus. Focus is very difficult when you get $10M or $100M in the bank, you try to do 100 things instead of just one, trying to go for the biggest possible market. The focus is really critical and it’s very difficult to convince new CEOs that it is important. This lack of focus is the other big red flag for me.

What qualities you are looking for in founding teams? 

Versatility. They need to be able to get things done. If you invest on the level that I, on a ground level, you need people who can get things done themselves. The CFO has to be able to be a controller – you need to be able to write your letters and emails, not have a secretary. The CTO has to be able to sit down and design staff, write programs, do hardware or software, whatever. Being hands-on is critical. You need to be able to talk to investors, not be too cringeworthy. Talking to investors is not that easy: you need to be on different levels of abstraction when you talk to them than what you normally operate on. 

Who you would prefer to work with, Steve Jobs or Steve Wozniak?

Steve Jobs. That’s me personally because of what I do. If I was Steve Jobs, I’d probably like to work with Steve Wozniak. Steve Jobs is a better candidate for a CEO that I’m looking for. He’s a higher-level thinker, he’s able to inspire people more easily. And I know Steve Wozniak pretty well, by the way. I don’t think he is the guy that I’ll be looking for to run a company. 

Investors prefer to work with teams. Have you ever supported a one-person startup?

Normally, I would not. I am a big fan of bigger teams. I’d rather have a team that is more complete than less complete. There are 2 schools. Some VCs prefer smaller teams at the beginning, so they don’t think that a starting company doesn’t need, say, a CFO. I would argue that in some cases you do need the CFO. Raising money is all-consuming. I put myself into the shoes of a CEO: I like to feel like there’s nothing for me to do – I just need to make sure I have a very good team. Of course, that’s not true and there is plenty of things to do, including issues within the team. But ideally, there’s nothing to do because you’ve got a CFO, who will be raising money for you, you’ve got CMO, who is going to prepare your deck making sure everything is perfect, you’ve got CRO, who is making sure that your revenue model and strategic partnerships are all set up, and you’ve got a CTO, who is going to make sure that the technology is developed properly. I’m a big fan of a complete team. I think everyone has a function. Maybe some companies can get away without having a good team, but, I think, if you’re raising money, you’ll probably need a whole team.

What is your process of working with startups, once you invested in a company? 

It doesn’t always happen but in most cases, you end up becoming best friends. It is a relationship game. The really good people you meet along the way become like a family. You can also become enemies. Love is like that: the more you love somebody, the bigger the hate sometimes becomes you’ve fallen out. I like to maintain relationships for life with any good people that I fund or work with. 

What are the most common mistakes startups make?

One obvious mistake is when they try to raise too little money, without considering that for the type of business they’re trying to create raising $100K doesn’t even make them solvent. It takes the same amount of effort to raise $100K and a million. So my advice is – always to do your cash flow projections. You’ll be surprised how many entrepreneurs don’t appreciate the value of that. You need to know how much money is going to be needed in order to be able to take your company to where you want it to be, and the only way you can tell is by cash flow projections. They don’t do it somehow! Many entrepreneurs even argue with me. 

How much runway should a startup have to feel safe?

Enough money you need spends before you launch the product. You get your $20M, you already have a prototype that has to be turned into an actual product, and you set everything up, your team helps you – that can take 9 months before you actually launch the product because you don’t launch a prototype. 

Your target multiplications on exit?

It really depends. I don’t really have any hard criteria for that other than the CEO that pitching me can you show several billion-dollar revenues in 3 years. That’s more interesting than $20M or $2M in 3 years. 

What percentage of ownership of a company does your fund take for investment?

Again that depends on comparables. I have this rule of thumb: if the company is just starting and needs to raise $2M, I would say that this company is worth $4M, and for $2M you’ll end up with 32% of this company.

Have you ever rejected a startup and then regret it? 

Oh yes! This is coming back to all the best movies that don’t get funded or are difficult to fund. It’s next to impossible to be a good judge of deals – 99% of the time you’re going to be wrong. I had Power Rangers come to me, Power Rangers toys. I knew the people in Israel, they came to me and they showed me those toys and I thought they were crazy, they were kidding me. They became huge! I would have made a lot of money. But my biggest miss recently, just a few years ago, was Tesla! Two founders of Tesla came to me. My fund was flushed with cash, I could easily have invested a few million bucks. When they came to me, they wanted just a $100K! We had breakfast with Martin Eberhard, he let me drive the prototype – it was tZero converted into an electric car and it was 0 to 60 m/h in 2 sec. Totally quiet. It was crazy. And I rejected. I told I didn’t think electric cars are going to make it. A year later they got $50M from Elon Musk. Those $100K, and I could put $1M or more, they would have been billions of dollars now. That’s my biggest regret.

Can you name the three most breakthrough startups in history?

Well, Google, of course. Netflix, of course. Facebook. There are quite a few, but I don’t think anybody will dispute these three. Facebook is an area that interests me a lot. About 30 years ago I read an article in Fortune about who is going to become the richest man or person in the world. And the article was explaining it was going to be the person who solved the problem with loneliness. It’s kind of what Facebook did – they made it easier to connect with people, not dating, but just your friends. You have a million friends on Facebook – who are lonely? With Facebook around nobody has to be lonely anymore. Loneliness is the biggest problem in the world. This is something that I wish I had worked on a little bit harder. I also read the business plan for the Mosaic browser years ago, presented it to VCs. It was rejected and I gave up on it. That was in the 80s, before the internet. I was from the PARC, I was familiar with ARPA – I had internet and email and everything in the 70s. I was way ahead of regular people who didn’t have that experience. And VCs rejected me. It was going to be the first browser on ARPAnet. 

The greatest startup failure?

Webvan, for example. Webvan is interesting because it was kind of what Amazon is doing. Eventually, Amazon is delivering groceries, but look how many years it took to get there. Another really good one is a company called HQ trivia. Everybody heard of that company, they’ve made TV shows, an app – everything was so good, more than 3 million people played each game. And they failed, they run out of money. 

How do you see your role changing in the next 5 years?

I think over the next 5 years there will be something like Facebook, a big portal for entrepreneurs and VCs. The biggest problem here is that the market is very inefficient. It’s more efficient than it used to be, but it’s still very inefficient, the best companies still don’t get funded, it’s still too much on who you are now, how lucky you are, timing, things like that. The same solution will be applied probably to movies and things like that. People like me or people in the movie industry, producers – we are the worst people to judge what is good and what is not good. The market has to be the judge. How do you create something where the market is able to judge it before it launches, before the funding comes in. But I think that if you put the collective intelligence of, say, a million VCs together and the general people, you will be able to create sort of America’s Got Talent, only for ideas. Do you know that most of the talent these days on television has been discovered through shows like X-Factor or America’s Got Talent? That industry sort of solved the problem, but it’s easier to audition a singer than a company. There are shows, but they are boring and can’t scale. And I do think that there will be a platform implemented, something like Facebook that will help investors find good scalable companies and CEOs. 

LinkedIn doesn’t work for that?

It solves a different problem and it is actually very good. I use it a lot for hiring people. But this new platform has to be more of a crowdsourcing type of thing.

Venture capital is a long-term game. What keeps you going on? 

It’s extremely satisfying. When you enjoy doing something, you do it. I don’t really think of retiring anytime soon. Because of this epidemic in just one year, we all realized that telecommuting is ok. Most of my meetings these days are online now. I don’t really have to fly to New York for meetings. So the next step for me is that I don’t even need to be in Silicon Valley – I can actually be on the beach somewhere.

What qualities, you think, are important for a good VC? 

I’m not necessarily describing my qualities, because there are people who are much better than I am. Ideal VC, I think, needs to be humble just like the CEO. Because there is so much money under their management, VCs confuse money with brains and become arrogant and impatient. Some people travel to the outside of the country for a meeting and it takes 5 minutes – it’s not nice. I think VCs can be nicer than they are, more friendly, a little bit more approachable, less arrogant and they will end up with some good deals that they wouldn’t get otherwise. It’s easy to dismiss a deal that you don’t understand because you don’t give yourself enough time to understand it, to listen to the person who tries to explain it to you.

Where do you get your daily information from?

I do read a lot. I used to read profile magazines, but these days I read a lot of books, mostly on Audible. As I go through the day, I just search Google. I probably do a thousand searches a day. 

What books you would recommend to startup founders?

Definitely, Think and Grow Rich by Napoleon Hill. Another book, also from years ago, is Zen and the Art of Motorcycle Maintenance by Robert M. Pirsig. It’s not about motorcycles, it’s about quality and peace of mind. It really helps an entrepreneur to understand what brings peace of mind and that’s what that book is about. I also read novels, history, and politics. I love biographies of very successful people like Steve Jobs and others – you learn so much from that. 

Is VC business chess, checkers, backgammon, go, card games?

Two games come to my mind. Chess, of course. Everything is a game of strategy. Building a company, winning in the marketplace is a total chess game. But it’s like a hybrid of chess and poker. In real business, everything is a negotiation to some extent. If you have a weak hand for whatever reason like you run out of money, you can’t act weak, you need to be turning the table. You can’t raise money successfully if you don’t know how to turn the table. Investors, of course, try to do the same thing. None of us can look desperate in this game. 

What are the biggest shifts that you see in technology which will define our nearest future?

The whole Telecommuting thing is a big deal. It is going to create a huge shift, the biggest shift. Other things are more incremental. 

Your three pieces of advice to founders

It’s a difficult concept. At one point you never want to give up because it’s about being there. Just because you run into a wall and 20 VCs told you it would never work, you’ll never succeed or technology won’t work – don’t give up. It doesn’t mean “Don’t change things.” You’ll probably want to make a few adjustments after every conversation to improve things as you learn. But never give up. At the same time, keep checking reality, because sometimes you do want to give up. Balance these two things – never giving up with giving up when it becomes necessary to give up. And be able to determine that point.