Bill Maris on Algorithms, Zenefits, and Increasing GV’s Yearly Fund to $500 Million
On Thursday night, at a StrictlyVC event in San Francisco, I talked with GV CEO Bill Maris about a wide range of issues, including what happened with its Europe fund, why GV didn’t invest in Zenefits, and why Maris alone makes every decision on behalf of the powerful venture unit, which now employs 70 people.
I’m a venture geek and found much of what he had to say interesting. Hopefully, you’ll find the conversation instructive, too. (It’s been edited lightly for length.)
TC: You work for the most valuable company in the world. You run its venture arm. Every decision falls to you and you alone, which not everyone realizes.
BM: It’s getting scary. [Laughs.]
TC: What is the trickle-up process?
BM: So all the investment decisions I make, going into a company or when and how to come out of it, is in collaboration with the partner who brings [the deal] forward. So we talk about all the opportunities as a team and everyone is invited to that discussion – not just the investing partners. And we don’t take a vote. It’s not like a democracy in any way. But everyone knows where people stand and we try and give each other good advice, and at the end of the day, the person who brings it forward and I decide whether to move forward or not.
TC: Why isn’t it more democratic?
BM: I have no idea, because I’ve never worked as a venture capitalist before. I masquerade as one now . . . But basically it started out with just me. The buck stops with me. So if we succeed, credit all goes to the team. If we fail, the blame should fall all on me; that’s how management should work.
TC: Do Larry Page or Sergey Brin ever say, “Bill, why’d you invest in XYZ deal?”
BM: They never say anything. And that’s not a bad thing. We designed it specifically not to be influenced by Google. Larry and Sergey . . . are billionaires. Google has many billions of dollars. If they want to invest in something themselves, they have the opportunity to do that.
Some people are surprised that they don’t or can’t influence [GV], but the idea was that they wouldn’t. So I never talk about ventures with them. The closest we get is an email from Larry with a URL of a company that he came across.
TC: When Google Ventures was formed in 2009, there was a lot of talk about it being data driven. Can you talk a bit about your algorithms and how they impact how things work?
BM: Sure. If you’re in a dark room and you need to find a way out, you can stumble around and hit your shins on a table and look for a doorknob, or if you happen to have a match and you can light it and get some insight into what the room looks like, that would be helpful.
People like to think there’s not a lot of data and it’s unstructured, but that’s what we do . . . When the market is acting this way, what does that mean about valuations [for example]. So we have a lot of machine learning and statistics folks who are experts and Ph.Ds who help us make better decisions and hopefully be that match in the dark room.
TC: Do you isolate companies and then research them or do you —
BM: We put them in a room and tie them to a chair and we get all their information. No, it doesn’t really work that way. It’s more holistic in that we’re looking at the market and at economic indicators and the funding environment and who has gotten funded and it’s just one input into the decision-making process.
[GV partner] David Krane brought in Uber and we pushed all in [financially] when people thought [Uber’s then valuation of $4 billion] was crazy . . . There was no computer that told us that was as good decision; I wouldn’t have 70 people on the team if we had a computer on the team that could do it.
TC: Do you ever invest despite the data? Will you let your intuition override it?
BM: If you’re a founder of a venture-funded company, your first chance of success is about 19 percent. If you succeeded, your chances of success with your second company will be more than 30 percent. If you failed the first time and try again, your odds of success are [still] roughly 19 percent.
So your general instinct as an investor is that, ‘Wow, if you [the founder] have a history of success, then I should bet on you.’ That’s a good instinct. But some instincts aren’t born out by the data. So it’s a mix, and sometimes we get it right and sometimes we get it wrong, and it’s not all intuition-driven. It’s not all computer-driven, either.
TC: At the same time that GV was founded, Andreessen Horowitz came on the scene and they talked about how research by Andy Rachleff, an early investor at Benchmark, showed that 10 to 15 companies are founded each year that create the lion’s share of value for investors and founders and employees. Does your data support that theory?
BM: There’s an old saying: Statistics lie. The reality of the data of the venture business is that the way the business is run now, in order to make money as a venture capitalist, you need to be in one of those 10 to 15 companies a year that are huge wins. But that’s not the way we run our business nor the way the business needs to be run. There are literally hundreds of companies that [produce] greater than 5x per year returns that are not one of those 10 to 15, and if you invest in only those companies, you can be in the top 1 percent of all venture capital firms year over year over year.
The reason the common wisdom is that you need to be in one of those 10 to 15 companies is because venture capitalists make so many bad investments that lose money. [And] the bigger the fund, the bigger the losses, so the more important it is to get into Facebook or Uber or Google, or what have you.
My mantra to my team is always: Don’t lose money. It seems simple, but if you don’t lose money, you’ll be in the 75th percentile of all venture capitalists. So make no investments and you’ll be in the 75th percentile! [Laughs.] That’s how those investments work.
TC: Roughly how many investments does GV make a year?
BM: It depends on the year. We started in 2009, we have 300 investments. We’ve really dialed down the pace of seed investing, so I’d say this year maybe we’ll make 40 to 50, but it depends on what you [founders in the audience] do.
TC: You had $350 million to invest last year.
BM: Wrong. We had $60 million the first year. We upped it to $100 million, then we upped it to $200 million [in 2012], then we upped it to $300 million a year, plus $125 million in Europe. This year, we’ve increased it to $500 million globally.
TC: That Europe fund was going to be managed somewhat separately.
BM: Turns out it’s easier to have one fund than two so we just combined them.
TC: But when you reportedly closed it down in December –
BM: We didn’t close it down. The Financial Times, there’s some deep insecurity there, I’m not sure what it is. We’ve been investing at a pace since we started in Europe that outstrips the pace of when we started investing in the U.S. And we still have partners there. I think we have eight investments – six announced and more in the works . . . So instead of having two teams, I just mashed them altogether and said, ‘You’re all on the same team now.’
TC: The complaint was that you hadn’t spent any time in Europe, that you’d visited just three times, and that there was a bottleneck issue.
BM: I’m the partner in the cloud, so I can’t be in Boston, New York, London, San Francisco, Mountain View, Seattle, San Diego – all the places we invest. And if I need to be, then I’m doing something terrible wrong.
I’ve been to London more frequently and more recently than I’ve been to Boston for sure. And we have incredibly capable people in London who are entrepreneurial and entrepreneurs, and so they are running that business.
Despite the show I’m putting on for you, I’m incredibly introverted. I’m not the person who’s out meeting with entrepreneurs. I meet with my team, including by video, a lot, because they are out in the world getting germs and all the things that I don’t want to do. [Laughs.] Then they come and we talk and we meet all of us once a week on Monday, and I’d say at least half of those people are on video because they’re in all the cities I just named.
There’s some insecurity in Europe that I don’t understand, about: We’re not good enough. That’s not the reality. There are great companies and entrepreneurs there and I’m happy with what’s happening.
TC: You would never run this experiment in Asia, it sounds like.
That’s difficult because we’re spread thin as it is. Frankly, I don’t want a bigger organization. We have 70 people, $2.5 billion [under management], hundreds of millions of dollars a year [to invest] and there’s a certain point where it becomes less fun. And when it becomes less fun for people, they will become less engaged.
Also, you introduce political risk, currency risk, I don’t speak the language, and so those are very particular geographies. I’d say it’s not impossible. There’s nothing stopping us from investing in a company in Asia. One could come along in China or India that’s interesting—
TC: You haven’t invested in a single company in India or China? That’s pretty remarkable.
BM: We haven’t. As [VC] Heidi [Roizen] said earlier [during a separate discussion], roughly 80 percent of the venture returns are in the U.S., and 80 percent of that is in Silicon Valley. Add in Boston, and you’ve got a lot of it covered. I think we’re lucky in that, from this perch, we can see a lot of what’s happening in the world.
TC: Let’s talk about Uber before you go. You led its $258 million Series C in 2013. Is that still your biggest investment?
TC: What’s your second biggest, just out of curiosity?
BM: Flatiron Health, we put in close to $130 million. It’s a health oncology company based in New York. It’s a great company [run by] former Googlers who are on an absolute tear and you never hear about them really.
TC: We were in Aspen together at a conference; I was in the audience. And you said of companies going public that founders know best, that you don’t think it’s investors’ job to tell them when they should go out. At the same time, everybody is wondering when Uber going to go public already.
BM: What do any of us like less than unasked-for advice, especially from one of your investors, in public. That’s not what I do. If I thought they should do XYZ, then I’d send Travis an email and say, “You should go public,” and he’d either ignore me or say, “No thanks.”
TC: You don’t have to advise him, but are you getting frustrated on a personal level?
BM: I’m completely biased because we are very large shareholders. But I think when the time is right the company will go public. Who am I to second-guess? They’ve done such a good job so far; they’ve so far surpassed our expectations when we first invested that it would be incredibly ungrateful and I think obnoxious and arrogant to say, “Now you should go public,” because I don’t work there.
TC: You don’t wonder what’s up?
BM: No, it’s completely rational. If you were the CEO of a company that was worth $50 billion and you could raise another $2 billion in two weeks or less on the private market with minimal meetings, disclose no financial information, and be done, rather than file an S1 and go through the pain of the medical exam that follows, would you do that? It’s a completely rational course that it’s following.
TC: But Uber’s employees aren’t allowed to sell on the secondary market.
BM: They don’t let us sell either.
TC: Isn’t it better for its employees for the company to go public given liquidation preferences and all that business?
BM: Oh, I don’t know if it goes away when you’re public. You just have all new problems. They’ll have those problems eventually. But I think Travis recently said that two years ago, the company had 400 employees. Now it has 6,700. So a lot of those employees are new. I don’t think they’re pounding the table saying, “We need to go public because we need our money.” People I know who work there are super excited that they’re on this incredible ride.
It’s good to be impatient, but not in public. It’s really distasteful, I think.
TC: You made headlines recently, speaking about Theranos and saying something didn’t seem right to you when you met with the company–
BM: I didn’t meet with Theranos. Someone on our team went and had the blood test done, and we were super unimpressed with the results in lots of ways that I won’t get into.
I believe that if you don’t have something nice to say about something, don’t say anything at all. I answered [the Theranos question] pretty directly because we’re not talking an app for sharing secrets; we’re talking about a company that’s trying to interact with a population of vulnerable patients, and I think you have to take the integrity of that marketplace very seriously.
TC: I’m drawing a long line to Zenefits here, another company that’s been operating in highly regulated market and, it turns out, was enabling its employees to circumvent licensing requirements. You met with the company but passed. Did your team sense something awry in this case, too?
BM: I’d like to take credit for all the good decisions we make. We met with Zenefits. It just wasn’t a fit for us. We didn’t have any particular insights about the kinds of problems they’re having. We just didn’t go that deep. And they’re in, for me, part of the market that I don’t find super interesting. But it wasn’t like we had some genius insight that caused us not to invest.
There are lots of companies that I wish we did invest in, including Airbnb and Palantir and Snapchat, so that’s a long list [too].
TC: Do you consider regulatory risks?
BM: People all weigh things differently on the team. Me personally, I do not weigh regulatory risks. I weigh the risk that the CEO won’t take the regulatory risk seriously.
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