On Tuesday July 15th, 2014, OLC attended Startups Grinds fireside chat with Alfred Lin from Sequoia VC firm. This event was hosted at Pivotal Labs in San Francisco.
Alfred Lin: AL
Derek Anderson: DA
DA: Tell us about how you told your mom you were dropping out of the PhD program to join a startup?
AL: A little background on my family. My parents immigrated here and wanted a better future for my brother and I. They wanted our lives to be better then theirs. We came from Taiwan. They wanted us to be scholars with great careers. The last thing they wanted for us was to be in business in their framework.
I was always good at math and came out here to get a degree in stats. It was interesting but I wasn’t passionate about it. So, it was only a matter of time before I had to move into something I was passionate about.
After leaving college a few years later the startup wasn’t doing to well and this constantly worried my mother. Then eventually we sold LinkExchange to Microsoft for 200 million.
DA: What lessons did you learn while at LinkExchange?
AL: It all comes down to being passionate about the project. The product has to be good and the team has to be passionate as well. You also must be good at what it is you’re trying to build to grow the financial engine.
DA: How do you monetize something you are passionate about? How do you make that leap?
AL: You need to separate passion from hobbies. I’m not here how to tell you how to be a movie star, but if you’re passionate about music, there are plenty of problems with that industry and there’s an opportunity to make money.
Look for a problem and see if you can fix it and make money from it. Sometimes it can be hard to distinguish the hobby from a passion and to make a formidable business around it.
DA: You’ve been a founder, employee and exec, what’s it like being a founder today? Is it worth it being a founder?
AL: Ignore the climate of the startup ecosystem right now. You need to love what you are doing. You tend to find out when the company is doing bad if you don’t really love it. Fast forward and think, what is the worst thing that can happen and how would you handle it.
Lots of people I know when they try and make a company, they don’t think about making a billion dollar company, they wouldn’t mind, but they like the challenge and the passion of starting the company and seeing where it goes and where it takes them.
The best companies survive all the challenges.
DA: Tell us about the vetting process with Sequoia. Where does it begin?
AL: I was on the other side at one point and I know the pain of raising money. A firm like Sequoia doesn’t makes too many investments. We don’t even really see ourselves as investors but business partners with these companies.
We really try and get to know the founders on a personal level and not always so much around the business. We tend to trust people who we have already worked with us or know another business partner or got referred to us.
We ask some usual questions about the business and problem they believe they are solving. We also tend to ask this question, “Do you actually deal with this problem yourself?”
DA: It seems like a lot of the great companies are perused, do you think the best companies are the ones you have to really go after and work to invest in them vs the other way around?
AL: We don’t do a lot of investments, we turn down about 99,999 out of 100,00 and the one we do invest in we are hustling to get them to let us invest in them.
DA: What kind of diligence does Sequoia do about a founder?
AL: It’s very important to us to get to know a founder really well. If things go right, we might be in business with you for 10 -15 years. We think positive about the company and believe this is going to be the best thing since sliced bread.
We’re going to look at the LinkedIn profiles of the people in the organization and how in tune people are with themselves and others.
We just might look into or ask you who would give you the worst recommendation and why. This is a way we like to build trust between the founder and us.
It’s interesting how a lot of money has been invested quickly over the past few years. We sometimes relate this to human relationships with people who get married quickly. There’s nearly a 50% divorce rate. How would it be different with a business relationship?
DA: Where do you draw the line when asking for a bad reference?
AL: Everyone has a balance sheet, things they are not proud of, things of the past. It doesn’t mean it’s going to happen in the future. We’re going to invest in a relationship we need to be able to trust you with major decisions. So, we tend to think positive and look towards the future.
We don’t get mad at people who like to have fun, but if you’re coming into work high, that’s a problem.
DA: How do you define culture?
AL: People talk about values and they are just a plaque on the wall. if you don’t follow the values then it’s not culture. The founder sets the tone for the culture and your personal values end up being the company’s values when you’re the founder. What sets of values do you have that you want to pass on to the company culture.
It helps you think through who you want to have work for your company.
DA: Are there any huge red flags you hear or see that are total deal breakers?
AL: A lot of this is pattern recognition. If the co-founders are stepping over each other and I don’t see it improving it would be a red flag.
DA: Who would be your worst reference?
AL: Oh, good question. It would be my mom. While she would have good things to say, we don’t see eye to eye on things. Such as me not going back to school to finish my PhD.
DA: What do you see that others don’t see, your investment portfolio is great.
AL: The companies I/we invest them are decisions made by a team effort and decision, not just me. I just happen to sit on the board and represent Sequoia. If you’re really good at one area of starting a company, you’ll need people who are also good at other parts of running the business. It’s hardly a one person show.
DA: Solo founders or co-founders, do you take these investments differently?
AL: A lot of stuff can happen with both styles. We basically try and do something that no one else has done before. There is no playbook. We’re not going to tell you how many founders to have. There are no hard or fastballs around these. It all comes down to trust and being complimentary to the founders. They must be able to work properly together.
DA: Thank you Alfred for coming out here and answering all these questions for us.