The Hill of Sand

SHYLOCK:	A pound of man’s flesh taken from a man
	Is not so estimable, profitable neither,
	As flesh of muttons, beefs, or goats. I say,
	To buy his favour, I extend this friendship:
	If he will take it, so; if not, adieu;
	And, for my love, I pray you wrong me not.
ANTONIO:	Yes Shylock, I will seal unto this bond.
	—William Shakespeare, The Merchant of Venice

SEPTEMBER 2010

Speaking of Venetians: most everything we know as modern banking originated in the northern Italian city-states of the early and mid-Renaissance. The bankers of the day were Jews; many were Sephardic Jews fleeing the 1492 expulsion order from Spain’s Reyes Católicos. The church disallowed Christians from practicing usury, granting Jews an unexpected windfall in the form of a religiously ordained monopoly on moneylending. They were otherwise persecuted and oppressed, forced to wear distinguishing signs, prohibited from land ownership and most trades, and barred from living inside the city walls. By 1516 the Jews were proving themselves too useful, and Venice’s doges considered the issue of allowing them residence inside the city. They were granted living rights in a dirty, gritty part of the city named the Ghetto Nuovo. (Ghetto means “foundry,” referring to the slag heaps left by the neighborhood’s previous occupants.) Locked behind the ghetto’s walls at night, the Jews plied their moneylending trade during the day, with Christians traveling to the otherwise rancid part of the city to borrow cash.

The modern-day Silicon Valley ghetto, though sadly without the moneymen living behind locked gates as in erstwhile Venice, is Sand Hill Road. A meandering stretch of two-lane blacktop that wends its way from Palo Alto to Menlo Park, this uninspiring piece of suburban scenery is swarmed by aspiring entrepreneurs with a laptop in hand and a sly pitch in mind.

In New York, the old joke is that Wall Street starts in a graveyard and ends in the river. In Silicon Valley, just as symbolically, Sand Hill Road starts in a shopping mall and ends at a particle accelerator. The shopping mall is the Stanford Shopping Center, a suburban monument to upscale consumption built on land formerly occupied by Senator Leland Stanford’s vineyards. After World War II and before the tech boom from which it so richly profited, Stanford University was a mediocre institution with sagging fortunes, which it tried to revive by leasing land to developers. The resulting shopping mall, standing proudly alongside the Valley’s preeminent academic institution, is an excellent reminder of the values underlying Silicon Valley (not to mention Stanford students and staff).

The particle accelerator is the Stanford Linear Accelerator Center, SLAC for short. As venture capitalists and wealthy alums prefer funding Googles to winning Nobel Prizes (of which SLAC has several), the facility is funded by the US Department of Energy. The runway for its accelerated particles travels alongside Sand Hill Road, under Interstate 280, and into the foothills of the Santa Cruz Mountains, which define the western border of Silicon Valley.

Lastly, there’s a high-class brothel: the Rosewood Sand Hill, a posh restaurant and hotel complex wedged in between SLAC and the Sand Hill–Interstate 280 intersection. Thursday nights at Sand Hill are famous for serving as “cougar nights,” where older, lonely women (and younger ones explicitly on the clock) congregate to ensnare Sand Hill’s wealthy denizens.

So you see, there are all sorts of strivers and strumpets on Sand Hill, trying to cadge that next score from the guy in the Audi R8. I was merely one more hustler among the many.

Our first big-money institutional VC meeting was with Sequoia. Founded in 1972 by Don Valentine, himself a part of the first generation of Valley companies like Fairchild Semiconductor, Sequoia was the absolute crème de la crème, the capo di tutti capi of the venture capital world.^*

This meeting had been the result of an initial pitch to Mark Dempster, the marketing partner at Sequoia charged with the Y Combinator relationship. YC had held a “Sequoia Day” in the first few weeks of our batch, reflecting the accelerator’s growing clout with large VC firms. The day before, I had reminded the boys that we were pitching the biggest VC firm in the Valley, and to not fuck up anything in the codebase. True to form, the boys hadn’t quite realized what that meant, and had shifted the codebase such that the local code running on my laptop wouldn’t work anymore (they were hacking away on building AdGrok, after all). I discovered this one minute before my appointment with Sequoia, when I realized that the AdGrok product suddenly wouldn’t load in my browser. An angry, screaming phone call to MRM later, I had an emailed screenshot off his laptop as eye candy.

The pitch, to the extent we can call my desperate salesmanship that, involved lots of clever phrasing and hand waving (for lack of anything else). But sometimes you score the pot off a pair of 2s. Dempster took a shine to our idea, and he scheduled a more formal pitch meeting at Sequoia with his venture partner Bryan Schreier, who had led Dropbox’s first serious funding round the year before.

Now that the boys realized what we were dealing with, they wanted to ride along to the pitch and see what the great Sequoia was about.

This was a bad idea. In general, either the CEO or the smooth-tongued founder designated for the purpose should be involved in the fund-raising, and that person alone. Fund-raising is an operatic drama on the order of a Latin American telenovela. Avoid the company-wide noise, and contain the pointless din of the begathon to yourself (or someone) at all costs.

Sequoia was ensconced in one of the regulation two-story, poured-concrete-and-wood-trim, open-courtyard structures that dotted the manicured slopes around Sand Hill Road between Stanford and the 280. The impression was that of understated corporate efficiency, with Palo Alto’s supernaturally pleasant climate lending a certain Elysian quality. If you didn’t know the context, you might think it the bland corporate headquarters of some national insurance company, or perhaps the high school classrooms in a moderately affluent LA suburb.

Inside, however, the décor was sleek and California minimalist modern: dark hardwood tables, cream-colored wood floors gleaming with fresh wax, conference room chairs of contrasting exposed steel and light-colored fabric, and recessed halogen lighting everywhere. The intended effect seemed to be that of the bridge on the starship Enterprise in Star Trek: The Next Generation.

The receptionists were jaw-droppingly hot. I’m talking “got lost on the way to New York Fashion Week” hot. They took our names and escorted us into a conference room. Then I saw what was on the walls.

The real showpieces, the absolute pièces de résistance, the artworks for which this was all merely a museum, were the framed prints of corporate logos and funding-round tombstones hanging from every wall.

“Tombstones” are the chintzy engraved Lucite bricks used to commemorate a deal in high-stakes American corporate life. On Wall Street, they mark the syndication of some stock or bond deal (an IPO or a bond issue, for example) and decorate, with varying degrees of derision or seriousness, many an investment banker’s desk. In Silicon Valley, the Land of No Sarcasm, they’re taken seriously, and tile the walls of any über-successful VC firm. Thus did the tombstone commemorating the initial $25 million funding round for Google beam forth its rays of divine benediction, like the image of the Virgin of Guadalupe in Mexico City’s basilica. Every religion requires its miracles and stories of exalted sainthood for mass veneration; capitalism’s miracles simply culminate in NASDAQ ticker symbols rather than saintly relics.

Apple, Atari, Google, Oracle, Yahoo, YouTube, Zappos, PayPal, Kayak, Instagram, Airbnb, Dropbox, LinkedIn—the corporate logos hung in large framed prints, a mini-Louvre of victorious American capitalism, of corporate triumph. It was stirring stuff to be paraded past such a pantheon, presumably to see if we were equal to their legacy.

Hot Receptionist parked us inside a conference room, and the boys and I waited nervously, silent, not knowing what to expect. Bryan made his appearance shortly; beaming, good-looking, and well groomed, he had the entire VC package. Bellarmine Prep (a Jesuit all-boys school, like mine, in San Jose), Princeton, Morgan Stanley, Google, then Sequoia. He oozed patrician ease, tinged with a hint of wolfish entrepreneurial savvy (perhaps faked, perhaps not), which seemed to be the de rigueur air of most high-end VCs. We walked him through what existed of the AdGrok product (a working demo, this time), the vision, and the opportunity. He listened politely, nodding quietly at times, and asking relevant questions. As someone who had worked in what’s termed “online sales and operations” at Google, he grasped the market problem immediately.

Eventually, Sequoia would choose not to invest, purportedly due to a competing investment in Kenshoo, an Israeli company building a somewhat similar search marketing tool. Per Sequoia’s email, it liked keeping “white space” between its companies. That’s one of those truths that are also polite lies. Either way, Sequoia was studiously prompt and polite in communication, and even provided several introductions down the line that were helpful. In VC, as often in life, it’s the incompetent and insecure who are generally the assholes; the masterful and successful—not to mention those universally perceived as the best in their field—are playing the long game. You never know where the next Airbnb is coming from.

Investment bankers have their golf, Wall Street traders have squash, and the new VC/entrepreneur tech elite has kiteboarding. An amalgam of kite flying and surfing, kiteboarding involves getting on a floating snowboard attached to a U-shaped kite the length of a small plane wing, which threatens to whisk you to Never-Never Land. Like most patrician sports, it requires lots of pricey equipment and access to select real estate. In this case, that real estate is often Crissy Field, a waterfront park in SF’s douchiest neighborhood, the Marina District.

When I’d sail by the area in my forty-foot cutter, the temptation to veer into the kiteboarders’ appropriated waters and take out a few VCs was almost irresistible. There they went zigzagging back and forth in front of the biggest natural wind tunnel in North America, ’twixt yacht and container ship. Occasionally one would tire, or get caught in his kite lines, and take refuge on a buoy. A passing boat would then rescue the drenched member of the tech elite from drowning or death by great white shark, which occasionally populated the entrance to the Golden Gate.

Naturally, one of the elite Valley confabs revolved exclusively around kiteboarding. A senior venture capitalist at Charles River Ventures named Bill Tai (along with professional kiteboarder Susi Mai) hosted the punnily named MaiTai kiteboarding camp in Hawaii. Like all things Valley, it mixed a certain hippie, back-to-nature transcendentalism (the organization supports several ocean charities), that American obsession with athletics, and the hard-nosed hustle of the entrepreneur.

Unlike Eastern yacht clubs, where access to the stolid establishment is gated by birth or balance sheet, access to MaiTai is bought via a mix of social capital, personal brand, and/or some ineffable flavor of cool, which often manifests itself as perceived “thought leadership” in an industry. As with so many other things there, as long as you can get someone to accept whatever alternative currency you’re doling out, the Valley will always stand you another round. I knew a couple of attendees, and they were precisely the ever-present Valley players—flitting between giving and receiving venture capital; always founding one startup, advising another, or trading up between them—who were exemplars of their tight-knit world.

The Bill Tai of MaiTai fame was in our fund-raising sights. In mid–Demo Day harangue, I had noticed a dark-haired figure on the extreme right of the front row. Like politicians, who spot the one guy in the crowd who’s entranced and address him specifically, both to hone the message and to focus the delivery, I had locked on him and his furious note-taking as a rhetorical crutch. He turned out to be George Zachary, a partner with Bill Tai at Charles River Ventures. After I approached him in the post–Demo Day mosh pit, he invited AdGrok to come and pitch. The boys, doing their own Demo Day hustling, also managed to wangle an invitation from Bill, his partner.

Into the pitch I went. At this point, it was like pulling the cord on the back of a vintage doll—it just rolled out like the hundredth performance of a well-practiced monologue. After I fielded the usual questions, Bill Tai, who was seated directly across from me, looked me sternly in the eye.

“But what if Microsoft comes in and offers to buy you for fifty million? Are you going to sell?”

The question tore the well-worn script from my mind, leaving me momentarily stunned. At the thought of Microsoft buying three guys and a few thousand lines of Ruby code for five followed by seven zeroes in cash, I could feel an incipient case of the giggles coming on—which, suppressed by my superego, came off as a smirk.

“Well, Bill . . . you know . . . we’re really trying to go after a huge market here . . . ha! . . . and we want to solve this Google last-mile problem . . . so . . .”

The damn smirk wouldn’t go away no matter how hard I tried, and the giggles simmered beneath the surface, like water on the cusp of boiling.

“So, really . . . we’re in this for a much bigger outcome than just fifty million dollars . . . plus, who wants to work at Microsoft? Ha . . .”

Did any of them come from Microsoft? Shit.

I couldn’t think of their CVs while suppressing giggles.

WRONG ANSWER, DICKHEAD.

A chill went through the room. I rambled on incoherently for a while with my uncooperative mug, and eventually gave up.

“Well, we like making decisions here quickly, so expect an email by tonight,” Zachary uttered finally, and they handshook me out the door.

The email arrived that night, as promised, and was short and sweet: no. Tai’s question about selling out, however, would prove prescient.

When I got off the stage at Y Combinator on Demo Day, two investors immediately had come after us. One was the aforementioned Chris Sacca; the other was Ben Narasin. He’d physically shot up from the massed ranks of investors and trotted after me as I ambled off the stage. Standing somewhat awkwardly just outside YC’s door, I gave him an extended version of our pitch, which he consumed with that look of rapt attention, accompanied by staccato bursts of questions, which was the unmistakable sign of sincere investor interest.

Narasin was thin and small-framed, with bright blue eyes behind round wire-frame spectacles, and curly, cropped hair. He had a work uniform: button-down shirt, cotton slacks in white or khaki, a slide belt (like the sort Boy Scouts wear) with little anchors on it, and—absolutely essential—Sperry Top-Siders, blue, no socks. In all our time together over the ensuing months, I would never see him in anything else.

His intensity and fast-talking clip made you guess at New York roots, but he was actually a Southerner from Atlanta who had moved to Boston for college, and ended up in New York only later due to an interest in fashion. In the late nineties, at the beginning of the first Internet boom, he was the founder and primary shareholder of fashionmall.com, a company that produced Web storefronts for high-end clothing retailers, back when the notion of selling stuff online was an innovative breakthrough on the order of general relativity. He had taken the company public at precisely the right time before the crash and pocketed a huge sum, which meant that afterward he had embarked on that quasi-retirement of the moneyed and tasteful bon vivant: food and wine writer.

Somewhere in there he came out West and started investing in companies. His current gig was at a venture capital firm named TriplePoint Capital, where he headed its new but growing seed-stage “practice.” TriplePoint was a minor oddity in the VC firmament in that it provided debt financing (money you actually had to repay!) to technology companies with real capital-expenditure needs (like a fleet of trucks). It was just getting into the equity investing game, but hey, all the cool kids were doing it and we’ve got a balance sheet for it, so why not? It had hired Narasin to head up its seed practice and find it deals, and so after our entrepreneur-VC impromptu first date following Demo Day, he had asked me to come in to present to his investment associate.

A word on VC titles and hierarchy.

There are various flowery titles that the VC set adorn themselves with: “associate,” “principal,” “analyst,” “partner,” “operating partner,” “managing partner,” “general partner,” and so forth. The main distinction is whether one earns what’s called “carry” or not. Simply put, carry is a piece of the financial upside in the fund whose money the firm invests.

From the point of view of the entrepreneur, this is all noise. What matters to you is whether the smiling face in front of you, wearing a crisp white collared shirt under a wool half-zip sweater, has the ability to present and defend a deal at the Monday partner meeting, and corral the other decision-making partners into agreeing to a deal. Everyone else at the VC firm is as much an accessory as the hot receptionists.

One quick way to cut through the shit: ask your pretender-to-influence, “Do you have decision-making power?” If he or she even remotely hesitates or hedges, you’re speaking to a lackey (whether he or she acts like one or not). His or her only utility is to get you to the person who does have that power; everything else is so much pig swill. So route around such people if a real investment check is your goal. Arguably (and this is the canonical YC advice) don’t even accept a meeting from someone who can’t answer yes honestly to the above question. You’re wasting your time.

Back to the drama.

I was in repeat performances of the Sand Hill VC Show when I drove up with my much-abused BMW convertible to yet another cluster of generic two-story office buildings, and parked among the Priuses, Porsches, and Teslas.

Once inside, my eyes had to adjust to the cool darkness. The receptionists were absolutely not model-esque Sequoia caliber, resembling more what you’d find in a dentist’s office. I didn’t know enough about the VC world to interpret that as a good or bad sign. The décor was dark by Sand Hill standards: lots of black marble tile, a gray rug, and black desks of indeterminate construction. I was left alone in a large conference room, probably where the Monday-morning partner meeting happened, to wait for Narasin’s associate. The general air of the place was quiet, bordering on absolutely silent. Nary a hum from a computer fan or ventilation. That’s one of the most striking things about VC offices: even in the middle of the day, they are absolutely still, like an empty museum or library.

Narasin’s associate made an appearance: Indian, MBA from some American school, your standard-issue entry-level VC. Evidently we had a couple of professional relations in common, who had put in a good word. This stresses the importance of cultivating a network in Silicon Valley. Unlike on Wall Street, where a professional network is conceived more or less when you are, popping out of an affluent uterus in Rye, New York, and setting you on a track of Andover, Yale, Goldman for life (or not), in the Valley things are more fluid and impromptu. Any hustler who can make superficial friends of the California variety and publish a few blog thought pieces, while collecting the echo of confirmatory social media approval, is as much part of the elite as any member of a Harvard Final Club. Of course, you can lose your place just as easily, something an East Coast elite need never fear. But such is the greased pole of Silicon Valley fame and power; anyone can try to ascend, but nothing will arrest your fall.

Following this almost cosmetic associate pitch, plus more due diligence, Narasin agreed to float us to his Monday partner meeting. This was big. The Monday partner meeting is the cadence to which the entire venture-backed technology world dances. At that meeting, which typically lasts a good four to five hours, starting early and running to midafternoon with a break for lunch, the business of the venture partnership is done. Updates on existing portfolio companies are given by the relevant partners (who as often as not will have a board seat), invited entrepreneurs pitch at what’s likely the most important hour of their life, and new potential deals are floated. Since this was a small seed deal, chump change really, I didn’t need to come in and pitch to the assembled high and mighty (fortunately).

With VCs the yesses are usually immediate, while the nos are typically slow to arrive, if they arrive at all. If the partners reacted warmly at Monday’s meeting, we’d get a call or email that very evening. If they didn’t . . . well, he’d get to writing us an email at some point during the week, and all we could do was wait.