I recently started watching an internet show called “Foundation” hosted by Kevin Rose on revision3.com. After watching the episode with Chris Sacca as the interviewee, I felt inspired and wanted to learn more about how he overcame his massive debt and became a very successful venture capitalist. I was mesmerized by his life philosophy and wanted to find about his visions on the IT industry. So I took the liberty to transcribe the episode into text. Most of the content is transcribed word for word, except for when it became inaudible. Please keep in mind that some of the people and companies mentioned could not be transcribed correctly.
Here it is.
KR: So let’s start at the beginning. Where did you grow up?
CS: I grew up in Lockport New York, a little town outside of Buffalo. On a glacial scabland, you can actually see Toronto from the house I grew up in. So, I grew up in this weird kind of hybrid between the US and Canada, so half of my music came from across the boarder, half of the food we ate. That kind of stuff. Very small town, small high school. You know, small town living.
KR: Did you go to college out there? Where did you go to school?
CS: I ended up leaving there to go to school in DC. I went to the School of Foreign service in Georgetown. I wanted to be like a diplomat or an ambassador/spy, something like that. I went to school to study for those kind of roles. I’ve lived abroad, I’ve lived in Latin America, I’ve lived Europe. And then when it came time to graduate, I realized that spies don’t make enough money to pay back their student loans and I had to borrow all the money to go to college so I had to go straighten out my act and figure out some kind of real career?
KR: So what was the first big job you got?
CS: Well, I didn’t interview for any traditional jobs. I didn’t even know what investment banking was, I didn’t know any of those traditional roots to go down. I wanted to start a company, I didn’t know any VCs, I didn’t grow up with any money. So I realized the easiest way to get my hands on start up money would be to apply to grad school. In grad school, when give you the student loans, they actually send you the cheque and then it is up to you to cash it or pay the school.
KR: They still don’t do it that way?
CS: (Chuckles) I don’t know but I got these big loan cheques and I cashed them and I used to start what really in hindsight was a really crappy company with a bad idea. But when the registrar said, “hey, where’s our tuition money?” I was like, ” Oh, those cheques must have been lost in the mail. Let me go track those down.”
KR: So what was the company? I’m curious.
CS: I was trying to do two things. The one was… you know all these class action law suits always happen. You get a little thing in the mail. I wanted to aggregate all the class action law suits in one place so that: A. you could come to my site and figure out you’re eligible for all these different class action law suits that have come up. You get coupons and cash payments, but on some of the bigger class action law suits, the lawyers actually get money if they can bring you in. You know the highest value keyword for google forever has been “Mesothelioma”, which is a rare form of asbestos related cancer that there are these multimillion dollar settlements for. If you come forward with Mesothelioma, it’s because you’ve been exposed to asbestos, the lawyer brings in that law suit, he gets like thirty grand that day.
KR: I used to see TV commercials for that all the time. Probably most people were dead now so they were going to run them quick.
CS: Really high value conversion though, some high value ads (chuckles). Anyways, there were lots of those kinds of suits out there. I wanted to create on place and I called it “CashAction” (chuckles) which is yeah just brutal. So I kind of ended up in law school by accident. I didn’t really have aspirations of being a lawyer but I needed access to money to go start something and that was the quickest way to do it.
KR: So how did you pay back those student loans? How did you get the funding if you were spending on your start up?
CS: So I realized my start up was pretty sucky. I also realized I didn’t really have the skills to build this thing, I didn’t have any partners. I was in Washington DC where there wasn’t really a start up community. There wasn’t then. It was the late 90s. Luckily, I pulled the plug before I ran out of all the money, and then I started kind of day trading the money basically. What was amazing was that…
KR: Day trading your college tuition money, haha, amazing (chuckles).
CS: Ha, yeah, I was in the hole, I needed to make it back and pay tuition and stay in law school. What was fun…
KR: Late 90s you said? Well, this was a good time to…
CS: It was exactly the right time to do this. The online trading platform hadn’t really caught up with different ways; they hadn’t baked in all the regulations. There was a leverage regulation called “Reg T”. Reg T says if you have a hundred dollars in your account, you can buy 50 dollars worth of stock. So 50% leverage. Well the online trading platform hadn’t really caught up and built in that limitation, so basically, if you had $100 in your account, you could buy a million dollars worth of stock and you actually own that stock for seven days. What they do is that they issue a margin call, so someone actually calls you and say “hey, are you going to send us the other …” and you’re like “yeah, sure, right on. I just gotta transfer from another account.” You own that stock for seven days.
KR: And at the end, hopefully, you flip that.
CS: Yeah. 98′ 99′ was a really good time to do that. I made ridonculous sums of money. In the spring of 2000, my entire plan crashed and I went from …
KR: As did the market at that time.
CS: Yeah. In basically a 72 hour to a week long period, I went from being about 12 million dollars to the good to 4 million dollars in the hole. Like that (snaps fingers).
KR: If you’re up 12 million, why don’t you just say “you know what, I’m cashing out, I’m gonna freakin’ bongs…
CS: Right. Remember that book, Rich Dad, Poor Dad? Take it away from dad and make it like rich bro, poor bro. I’m surrounded by all these buddies who were like limo drivers, bartenders. All my buddies were like “dude, you are amazing! you pick such amazing stocks! They’re going to the moon, I just bought a boat by following you picks et cetera. I was in this echo chamber of people convincing me that I was a genius and convincing me I was doing it right. When things are going well, you’re always convinced it’s because of you somehow impacted them. When things are going bad, you always want to chalk it up to bad luck. When in reality, we sometimes realize, when things go really well, it’s because “holy sh*t! our number came up, we got really lucky.” When things go badly, we do a post-mortem and realize we screwed it all up. At the time, I have got all these people around me re-enforcing that I am a stock picking genius. Every time I make another bet, I make more money. The market had been like this (gesturing a 45 degree angle incline) for 18 months. By sheer chance, I had invested in the highest performing stock in Nasdaq for 1999.
KR: What was it?
CS: It was called “FirstCom”. It was an Latin American telco. I basically understood tele-com and I spoke spanish. All these things triangulate to me being like “of course, I’m making money in the stock.” When really, it was just a lot of bullsh*t. I was riding that bubble wave like everybody. So it completely explodes.
KR: So how deep were you at that point? You were four million in the hole? This was you as an independent investor. You were not an LLC ? It was all on you?
CS: Four. Yeah.
KR: You were going bankruptcy. I’m out, chapter twelve.
CS: But the problem was, if you go backrupt, you can’t ever be an officer of an public company. It’s hard for you to keep an law license. It’s a big thing if you’re raising venture money.
KR: I didn’t know that. So Trump ever be an officer of ..?
CS: No no, if you go personally bankrupt, this is a big sting on you. Later when you gotta raise money, it’s a big big ding on you… I mean, that’s public record. Also, I was just like “look, I can fight my way out of this.” I went back to some of those banks and I negotiated to 2.08 million. It turned out that they’ve done some shady trading for themselves that day like traded for their own accounts, didn’t give me the best price that kind of stuff. We agreed on 2.08 million and starting in the year 2000, 25 years old without any money to my name and with no network to fall back on. I had to dig myself out of 2.08 million dollars.
KR: So how do you dig out of that?
CS: I ended up getting a law degree. I went only for the exams, but I ended up being a pretty good student. I did really well on the exams and I got this degree. It was bankable. I came out here to Silicon Valley, got a job at Fenwick and West, was working as an attorney during the day and at night, I was freelancing, doing anything I possibly could. I did voice over work, I was writing business plans, helping people sell stuff.
KR: Voice over work for what?
CS: People would put up voice over gigs on Elance. Remember Elance? Yeah. Dude, I was the very first contractors on e-lanced, doing anything I could for 50 bucks here, 200 bucks here, 1000 bucks there. I did anything I could to scrap up some money; I was grabbing equity from start ups; I was advising and writing business plans. I went to every single business networking events in Silicon Valley, every Churchill Club type of thing. I wore the same sport coat and I’d sneak in through the kitchen because I speak Spanish and I couldn’t afford the entry fee up front. I’d sneak in there, press the flash, make eye contacts with everybody and introduce myself, do anything I possibly could to build a network. What was happening at the time though…it was funny because I had a business card that said Chris Sacca on it and everyone would be like “you’re a good kid, something will come up for you.” and then they would walk away. I would be like “sh*t, I don’t need something in a couple of months, I need skits right now. I can barely make rent right now. In fact, I survived at Fenwick, I think for thirteen months before I got laid off with everybody else from my hiring class four days before September 11th. I’m like totally dead broke, I have no employment, September 11th not only directly sucks for all of the people that were affect by that, but it just was… the economy grounded to a halt out here. You couldn’t even get a U-haul out of Silicon Valley back then because they would all have been taken already, and none were coming back again. So you couldn’t even move yourself out if you wanted to move back in with your mom and dad. There was nothing to put your sh*t in.
KR: That’s funny because at that time I was living with my mom and dad and I just got a job for Tech TV for a month after that and then I finally moved back out. But yeah.
CS: It was brutal.
KR: We were both on hard times (chuckles).
CS: Those were really tough times. Here I am, trying to slug it out. I’ve got this business card that says Chris Sacca on it. everyone’s like “oh, it will come together for you kid.” I’m like “I don’t need it long term, I need something now.” So I came up with this idea to build an entity that I called the Salinger Group. It just sounded demonic. I went through a bunch of domains, the way you look at domains, stuff like that. The Salinger Group had a nice ring to it. Kristal, now my fiancee, she drew up a logo, she has been my best friend forever. It was really slick. I had a guy off Elance build a website for me and I just went into businesses as the Salinger Group.
KR: What did you claim to do?
CS: My website said a whole lot of nothing. If somebody goes to the Wayback machine, you might see it. It was really awesome. It says nothing. It says “we advise blah blah blah blah.” I didn’t have any physical address or any phone number because I was living in a piece of sh*t hovel in Foster city that costed me like 800 bucks a month. I set about as the Salinger Group and my name was Chris Sacca, principal, Salinger Group. I went to the same networking events with this card and I’d hand it to people and they were like “oh yeah, the Salinger Group, I know you guys, you guys do good work. We would love to collaborate with you on this project.” It was pure psychology and suddenly I’m getting gigs. I was doing work. It panned out for me. Through that avenue, I ended up really getting involved in start ups and I ended up with a full time gig at a company called Spidara that was competing with Akamai. I was an executive there, I had a bunch of executive roles. Then Google found me there and I ended up at Google.
KR: So tell me about your Google experience. What year did you join? Was that pre-IPO?
CS: It was pre-IPO, but I got there in the Fall of 03′ when they’ve all figured out how valuable the stock options were and stopped giving away free candy to everybody. People got there six months before I did left worth 20 million dollars and I left worth like a million and half to two million. No complaints but…
KR: You paid back your debt.
CS: I did actually. By the way, the full circle on that story is after the Google IPO, after my old company Spidara got sold and after some other equity cashed in, I finally got my net worth back to zero in February of 2005. I had a BYOB party and the very last debt that I paid back was to Sally Mae, the student loan provider. You’ll actually see I overpaid it by accident by $23.82. That cheque from them is still on my fridge at home right now, because I kind of like that Sally Mae owes me money. It came full circle. You’ll never richer than when you make it back to zero dollars. When you’ve been in the hole and suddenly you’re worth zero dollars, you’re like “f*ck yeah! I can chart my own course right now.”
KR: Yeah, I had a period of time, Prager was lending me money, I had a car repossessed. It was bad there for a little while.
CS: When you make it back to zero, you’re like “I can join the Peace Corp. right now, nobody’s gonna track me down. I got choices again.”
KR: Yeah. Before we get into the Google stuff. How important do you think it is for others to network and go to these events? Do you find that was your key driver for becoming who you are today?
CS: I mean I don’t think it’s the key driver for…
KR: Breaking in the industry I should say.
CS: Yeah. I mean I grew up tenacious and determined and just unwilling to accept defeat. I mean chalking up losses all on a way, but I’m unwilling to accept defeat. Those are hallmarks of how I was raised to who I was as an athlete, who I was as a young student. I’ve always been a pain in the ass, I’ve always kind of poked people and weaseled my way into situations and try to prove I was helpful. But I think being in those settings, in the beginning it started as networking. When you’re outside of the circle, you’re like, I’m gonna build up my network. I’m gonna build up the largest collection of email addresses and phone numbers I can possibly have. This is kind of pre-Linkedin, there weren’t other weird little social circles back then, Friendster, stuff like that. But I think a lot that became a bit empty. I think what really ended up building a brand for me or a business opportunity for me was just being known as being helpful. I think going to all those events gave me a sense of the challenges people were facing and kind of highlighted to me like “wow, I can solve some of those things. I mean often where you’re most talented doesn’t occur to you until you meet somebody who’s got that problem. They’re like “damn, you’re helpful or bright.” or “that was a great insight.” or “that’s really good feedback.” and you’re like “that kind of came second nature to me.” and you see these other skills of theirs that are really intimidating and yet they don’t even realize they’re awesome about that thing. I think being exposed to people kind of really establishes this idea for me that if I can just be helpful, I’ll get invited into these situations. I mean we’re really lucky in Silicon Valley that nobody asks you other than being in a podcast like this, like “where you went to school?”, nobody asks “what your parents do for a living?” no body asks your credential. Instead, they’re just kind of like “how can you help me right now? I’m in the weeds, I need some help. What’s your feedback on this.” If you’re insightful and helpful, people just grab, and they pull you in. I think that’s how… if I had one thing that’s the secret to the opportunities that have come to me is just being helpful.
KR: Yeah. Absolutely. I think that’s one of the things that I’ve tried to do as well. It’s funny I have a story with Jack Dorsey and Square. I wanted to get into Square really bad because I loved the idea when I first heard about it. But they were well on their way to building a prototype and they had raised a bunch of cash or started to put together that angel syndicate of people doing their first round. There was no room to get in. So Graham and I shot a really awesome HD video demoing the device. Now at the time, they didn’t have any videos online… I showed to Jack, he was like “holy sh*t, that’s awesome.” and I guess I helped him out with some other things. and all of sudden he was like “you know what, I have a little room for you to get in here, because you’ve been really helpful for launching this product.” So yeah, I agree with you 100%.
CS: I think you’re not only helpful… I think another one of my rules when people twit me “how do I get into the game?” I’m like create value before you ask for value back. Your story is the epitome of that. You didn’t ask for any permission. You didn’t have a pre-existing deal with Jack. He wasn’t giving you shares to do that. You’re just like “look, I think this is a cool opportunity. I think it’s a cool product that you believed in already and it was consistent with your brand and what your audience cares about.” So you’re like “I’m gonna put together something here that I think is helpful and I’m not gonna ask anything back in exchange for it.” What it does is that it just opens the door for a much more meaningful relationship and a much more lucrative relationship for you. I mean you ended up getting in on that round. It’s blown up. I think that’s the formula sometimes: it’s when people write to and ask for advice and stuff like that. I mean just go to every event you find. Hobnob anywhere you can find. Not just another loud mouth business devy people like that, but go hang where hackers are hanging and you’ll find they have issues that may come second nature to somebody who’s not actually code writer. Don’t ask them for stock up front, but just start helping, just show up. Do you know whom Ryan Graves is? He is our GM at Uber – an amazing entrepreneur, sheer hustle. Right before Travis and Garret got him to come out and start the day to day operations at Uber where he is now the number two executive, he really wanted a job a FourSquare. He’d applied through the main channels, he didn’t get the attention he wanted. So he went around Chicago and he signed up 20 mayor deals. He didn’t ask FourSquare for permission, he just went to the venues and said, ” can you do something for the mayor?” Then he went to New York and presented those mayor deals to Dennis and Tristan and it was like, “hey, I have been out hustling in Chicago, I’ve just signed you up 20 big venues with mayor deals.” How money is that? If somebody shows up at your office with that kind of deal, that guy is going to get a job interview.
KR: You will super stoked to give him a job or be super creeped out.
CS: (chuckles)Right. But I think sometimes it takes that edge. I mean your inbox looks like my inbox. It’s a mess. It’s hard to sort the wheat from the chaff. But when somebody takes those kind of steps, it really shows up front their value.
KR: I had a guy, a really good designer, redesign Foundation’s website, which I haven’t put live yet. But it’s amazing, way better than what I have today. I didn’t even ask for this person or know whom this person was, but he did it. He sent it to me and said, “what do you think?” That started the dialogue. Cool, so talk about Google.
CS: Google was the opportunity of a life time. I mean I loved it there.
KR: What was your role? What did you get hired in as?
CS: I got hired in to buy data centers. They needed somebody who is a business guy, a technical guy and a lawyer all in one. They basically gave me and another guy a big budget and said, “go away, don’t tell anyone you work for Google. We want to buy a bunch of data centers because we want all the server capacity and we don’t want Microsoft to know how big this business is getting.
KR: That’s crazy.
CS: It was really crazy and really fun because of the scale of Google’s business.
KR: So you’re like I’m gonna pull out my old business cards with that old LLC graded.
CS: I did do deals on behalf of the Salinger Group. There’s no doubt. So we would pick an area, the guy would work with me on this, this guy Eric Esnapia, who’s really technical and an amazing guy. We would pick a geographic area and then he and I would hit the ground, visit all these different places and look at fiber availability, power, the tax regimes there. Then we would start negotiating with local city officials to give us access to land or let us use that old aluminum smelter, high voltage line in here, where we are going to buy transformers, are they going to come off ebay and stuff like that.
KR: At what did they figure out that you were Google? Did you come in there even saying that? You’re like, “I’m going to wire you these funds, ah.”
CS: Literally at the last moments. We’re talking about commitments are hundreds of millions of dollars.
KR: You could probably negotiate better not being Google right? Acting you’re like some independent deep pockets?
CS: Sometimes. That said, the department of homeland security was called on us once and they visited my partner on this stuff because they are like, “there two guys driving around in rental cars in the state of Oregon asking a lot about high voltage lines and power capacity and fiber optics, we think these guys might be Al Qaeda.” (chuckles) That was just amazing and Google considers that a really core function, our team had unprecedented capital and freedom to operate. I worked for David Drummond who was the head of business and corporate development and general counsel at the time. He was an amazing guy to study under and I kind of dotted line this guy, he wears whole soles, the first engineering lead at Google. We were just pushing the envelope on how much power you could extract out of a data center, like how much computing power. It was fun to be part of the core engineering function there.
KR: That was the super secret thing for a while eh. They didn’t show what types of machines were put in these date centers. It was all your proprietary stuff.
CS: Yeah, it was experimental. Some of the engineers were just off the charts brilliant. So they were experimenting with shipping containers filled with servers. They were like, “what if we fill that data center with helium, what if we water-cooled the severs, literally water-cooled. Sergey had this idea of buying a decommissioned aircraft carrier and loading it with oceans and float it to the middle of the ocean using ocean water to cool it. The environment at Google was such that cast off all the traditional constraints in the product process and what would you build to solve for a solution. Forget about money, bandwidth, and server storage. Forget about all that, and even more importantly, forget about whom it might piss off. Gmail was developed at the time when AOL was Google’s biggest customers, biggest partners. If it were up to AOL, Gmail would have never launched. But it was awesome, it was innovative, it changed the ways we thought about mail. They just had free reign to go push that thing out. I eventually transitioned out of the data center deals to doing… I was called the head of special projects. I did everything from helping people start stuff like Google talk, doing some of the first business deals – I did Google Video, paid business deals. We did a promotion with NBC for the Olympics that made $722 for a big Olympics video. I spent more on the flight there to celebrate the deal we did.
KR: I don’t understand. Was that the net after bonus fees?
CS: It was the worst video deal of all time because it was a highlight reel from NBC that you the user could pay us for. Can you imagine paying money for that?
KR: Was that when Google video was charging or something? You were experimenting with charging for certain videos.
CS: Yeah, yeah. So I did the first and the worst of those deals. We had all these fanfare, “here we are being friend to this big premium partner. We’re doing this great deal, we’re helping them monetize content.”
KR: Right, you thought you were going to make a lot of money off of doing the deal. It’s like 50 people signed up.
CS: (chuckles) Pretty much.
KR: It was free content everywhere else though right? It pretty much on TV.
CS: Right. Video was still establishing itself. I did some stinker deals over there but I also lead stuff like the wireless stuff. I did the free WIFI for Mountain View. I lead the Spectrum group.
KR: When was it about spread out of Mountain View? Because there was this big deal, Google’s doing free WIFI and speculations that that might take place in other cities and it never came to be.
CS: So my goal was never to make that an ubiquitous service. What happened was at the time we realized we need better internet access to our homes and offices. Net Neutrality is a real problem. If you’ve only got one internet access provider and they can start monkeying with the apps you can visit, that’s a real problem. When there are choices, it keeps them honest. At the time I started that group, 60% of Americans had access to one or zero broad brand provider. So if they don’t have choice, prices are too high, service levels are low and Net Neutrality is looming. There were these communities that were starting to pursue municipal broadband, put up WIFI for people in their communities. They were getting sued by SPC and Verizon. I am like, “this is such bullshit. Here are these communities that are trying to provide bandwidth as a right, not a privileged, and they are actually getting sued by the Telcos”…because they were saying it was anti- competitive, municipality competing with a private company. They were putting out this FUD around the product, “it doesn’t work, you can’t provide WIFI on a big scale.” I went Larry and Sergey and said, “this is bullshit. We can actually with a demonstration project, we can cut through all this stuff. I dare Verizon and SPC to sue us for doing this right now. It would be the greatest thing that ever happened to Google. We can provide free ubiquitous WIFI and show the technology works. So we built this network in Mountain View. Mountain View is a town of 70,000 people. It still works today. I think they get between 15 to 20 thousand users a day on that network. I haven’t kept in touch with that, I left Google in 2007. But it was cool, it also gave Google some cred so that when it did go into discussions with the operators about Net Neutrality, it’s like, “look, we actually know what it’s like when people abuse a network, we’ve got people running torrent on this thing all day, we know what it’s like to have people pegging it. We’ve been dealing with that. We’re E911 compliant…it was pretty cool. From there I went to run the group that bid 4.7 billion dollars in the FCC auction for the spectrum licenses. The bid went in just after I left Google.
KR: But it didn’t go through or it did?
CS: It was a big poker hand. Google doesn’t necessarily want to own a bunch of spectrum. We are willing to because it would allow us to do some cool things, but Google is not a in the business of building big spectrum networks. At the same time, the carries who own all the spectrum were acting like assholes and trying to get in between you and the apps you wanted. I mean you will remember, it wasn’t that of a while ago that certain carriers wouldn’t allow you to download Google Maps for mobile. You’re like, “wait, this is clearly the best app, why am I forced using your sh*tty thing?” etc. The app ecosystem didn’t exist the way it existed today. We got in and we were like, “maybe we could force our hands.” We proposed these openness rules that should be attached to the spectrum being auctioned and the FCC was willing to go along with it. The Verizon and AT&T guys were like, “that’s bullshit, you can’t just let some posers from out in the Silicon Valley dictate the rules for this. One of the guys in my group at Google, Rich Witt, came up with this idea. He was like, “what if just pony up the reserve price…” We were like, “holy sh*t, that’s ballsy and brilliant.” So we put together a plan, Larry and Sergey were like, “this is so so crazy, let’s do it.” So we wrote to the FCC, we were like, if you adopt these rules, we guarantee we will bid at least 4.7 billion dollars in the auction for the spectrum. So the auction starts, we bid, then Verizon bids, then we bid. It was high stakes. There was a whole war room set up for this. But ultimately, the game theory was to make Verizon eat the spectrum subject to these rules. That has the greatest benefit to the greatest number of people. It was fun. It was an example of what it was like to work at Google.
KR: So why did you leave?
CS: I asked myself that a lot when I left. One, I’ve vested. Two, as a company gets bigger, people really wanted you to specialize. I’m kind of like you, I’m a generalist. I like doing more than one thing at a time. I like learning about multiple spaces. In the beginning that was possible, I would kind of get to flow. I would do data centers and go check in with these other products. I do an M&A deal and I do a speech on behalf of the company, I was constant learning. At Google, you could invite yourself to meetings in those early days. If you saw a meeting that was interesting on the calender you just show up and learn about something. As it got bigger, I would show up Youtube meeting, they would be like, “what are you doing here? You are the Wireless guy.” I’m like, “yeah, but I”m one of the video guy too and I kinda like do Hollywood sh*t.” People, as the company gets bigger, starts to define themselves by categories not by the overall mission. That’s frustrating. Politics creep in and I didn’t get to float as much.
KR: So what did you jump into straight after that? Was it into your currently gig?
CS: I jumped straight into “holy sh*t! Did I really just quit my job at Google? Oh my God, what did i do?” I started writing a few angel cheques which when you’re worth a million and half dollars, you’re pretty immaterial writing $25000 dollar cheques. So I was only writing to the companies that I thought I could really make an impact. I’ve done a little angel investment before that, Photobucket was my first deal and Twitter was my second deal. So that worked out pretty well but the next few deals I did after I left Google were pretty sh*tty.
KR: So you started doing angel stuff, when did you decide to actually raise a fund?
CS: Yeah, I mean you’ve had this experience as an angel investor where you want to put in 25K, but the terms of the deal are already set. Or you discover something really cool. I know you find stuff all the time and you’re like, “this is really rad.” But if you’re going to put in 25K, you can, but it’s not enough to get it done and get company back to work. Instead, what I found was I would find something really rad. So in one case – Fan Bridge. I discovered this company that connects bands and their fans by email and text messages. When I met these guys, I literally sent out a twit…late on a Friday night, I was busting my ass late on a Friday night and I was like, I’m working on a Friday night, anyone else got a bootstrap profit product who’s also working late on Friday night. These guys were like, “we do.” I’m like, “com’on.” Turns out they are in New York, I fly to see them in New York. Two guys, they had day jobs, and he had a tech lead in Argentina whom they had never met in real life. When I met them, they had 28 million users, 28 million who were opted in to the site, who they were delivering email to on a weekly basis. I was like, “holy sh*t! They’ve never even met their tech lead.” Fast forward to today, they have got to about 150 million opted ins, they are adding quarter million a day. I think they have a team of ten or twelve. So I meet these guys, it’s the deal of a life time. I want nothing than being able to give them the money to quit their day jobs and focus exclusively on this thing. Yet I can’t wrote more than a 50 thousand dollar cheque without being incredibly irresponsible. Instead I had to go into fundraising mode and I had to convince everybody else to go into the deal. I was hearing excuses from everybody.
KR: This is what I do all day. I send emails to like 10 or 15 people and like, “com’on, you guys gotta get on this.”
CS: You sent me one today. I don’t feel special anymore.
KR: Yeah I did send you one today.
CS: But no you end up doing this and instead of being helpful on the product, front page, on conversion, you end being on fundraising mode. In this particular case, everybody I talk to already had something on their portfolio, they thought it was a conflict or they couldn’t get over. Or it was in New York, “I don’t invest New York.” That one was a buddy of mine at the company Spidara who has a big fund, he was like, “dude, let me give you few million dollars.” I was like, “I don’t know how to manage other people’s money, I don’t have the back office.” He was like, “you can muse my back office and the administrative component.” … use our infrastructure, we’ll give you some money, go raise the rest. I put together a fund and in a few weeks blew it out. It’s been really fun. We’re up multiples on that fund. Since then, I’ve built other funds. Some funds for special purposes and some of them are abroad.
KR: I want to ask you about some stuff you may or may not be able to talk about.
CS: You’re asking about rumors.
KR: There’s speculation that you own somewhere around 10% of twitter – a big number. You do that out of a fund, right? I presume that’s primarily out of your fund?
CS: Hold on, if I answer that… that’s like, “when did you stop beating your wife?” So if I answer the question to that question, if I say yes I do it out of my fund…
KR: You admit to beating your wife…
KR: But you own some of Tiwtter, that’s public knowledge.
CS: Yeah, I was one of the early investors in Twitter. Ev brought me in as an angel. By the way, a really funny store about that. I didn’t really have a lot of money at the time. Twitter didn’t immediately click for me. I thought it was fun. I didn’t realize it was going to change the world…I was still working at Google at the time and Google very much frowned upon me doing angel investing. Ev calls me up and says, “hey dude, I got you down for 25, 25K okay?” I was on the phone, like, “er…that a lot of money.” I kind of got peer pressured into doing it. It’s now like the greatest investment ever, but I can’t really take credit for having this vision that it was going to change the world. Ev totally hooked me up on that. Evin and Jack have always been two steps ahead than everyone else in realizing what Twitter is doing. Dick Coslow and I were like the early advisors and investors. We’re always trying to play catch up to those guys a little bit and we’re always half a step ahead of the general populous who’s like, “I don’t get it, how is it ever going to make money?” I started to get the religion pretty soon and I not only follow on other rounds but I started buying it from employees and investors before the secondary markets really popped up.
KR: You’re buying this stuff up along the way, I mean you have to believe quite a bit in Twitter’s ability to make money and eventually monetize. I am a shareholder as well and I say this because somebody the other day said to me, there are like, “Twitter reminds of instant messaging, it was never able to really monetize.” Do you get a bit nervous sitting on such a big stake that if something goes sideways, you’re screwed?
CS: Okay, I’m still not admitting the size of the stake in the company but I have a stake in Twitter and I am really bullish on that company. But I deeply deeply believe in Twitter as a business and I mean a real business. Data just came out today from Compete that shows how commercial the traffic is and how it is actually converts to sales, more so on Twitter than Facebook even.
KR: But how do you monetize that? As Twitter the corportation.
CS: So what’s happening in the display advertizing business forever is that you put a billboard up on the 101 and you have no idea about the performance of that ad. There is no actual linkage. In the early days of Goolge, a Google ad just dropped you off at the front door of a website. Zappos would advertize, it would be like, “here’s Zappos.com, have a good one.” There was no actually linkage to a purchase. Google goes out and buys Urchin to make Google analytics. Now they can start to track the clicks all the way through to a conversion. Now instead of hand wavy bullsh*t, ads are being sold on math. This ad is worth exactly $82.33, not a penny more,not a penny less. If you’re billing less, you’re leaving money on the table. The math really moved into that because you had this closed feedback loop. So what’s possible on Twitter today, is the richest possible feedback of data we’ve ever had because it adds the component of mobile that Google never really had. So you can literally watch how a twit, whether it’s a twit view or link in a twit goes up, how it fans out, who influences it, where gets clicked on, where conversion that might lead to later, how many social interactions happen around that, whether it’s retweets, favs, replies. You could actually link it to FourSquare check in. You could actually link it to where the phone went, where the location of that phone was. You can see how those tweets fan out across Facebook, how they fan out across blogger.
KR: That makes sense to me. The problem I’m having is like when Google Adsense was described to me for the first time, it just made sense to me, “an ad in Google search results in a typed keyword, that’s the ad, that’s what I paid for, it paid through.” What is the ad product there? What is the Twitter product where this is I give Twitter money, this is what I get, this is what I can track?
CS: When you have that accountability loop, now you can start informing the value of promoted tweets and promoted accounts, of promoted trends. Just this last week, the studio behind the Super 8 did a special preview day only for Twitter, you need a Twitter related password, you can only discover if you’re on twitter to go to secret movie theatres around the country that were premiering Super 8. They did a million and half dollar worth of sale, 100 thousand people went to see that movie only through Twitter as a preview. So not only did it generate buzz but you can directly link that to 1.5 million dollars worth of sales. They came out all happy, everyone’s thrilled about it. It blew up, it did a huge huge weekend. The studio is already saying a lot of those things to Twitter. That closed feedback loop on how promoting things over Twitter impacted that movie, now raises the value of those different advertising products. The clearer the analytical linkage between those events, the more valuable the advertising is. If you’re a CMO right now, trying to figure out where to put your ad dollars, in an environment likes this, a tough business environment, you need some accountability. You can’t just spray and pray anymore. As you put them in these places where you are like, “look…” I mean that’s why it’s kinda easy for Groupon to get started is, there is a lot of accountability in that advertisement, you only actually pay for it when it’s redeemed. That’s a pretty low risk model. In the case of Groupon, you have a very clear association between what it costs and how many of them happen because you’re tied into the transaction. There’s a spectrum I have in my mind, all the time, from left to right for the viewers at home, it’s basically bill boards out on the road, no performance, no idea, you start to get into television, radio, print, we have some idea of circulation, the Nielsen numbers are always very flimsy, I mean how do you know how many people looked at an ad page in a magazine. Arbitron for radios is a joke but a little more accountable than the billboards on the side of the 101. You move down you get to digital CPM, here at least we know the denominator, we don’t known how many people actually interacted with the ad, we know how many people saw that ad. You get into that category of CPE, you’re like, “somebody might have hovered over the ad, maybe seen a quick video, they didn’t necessarily click, we didn’t drive any user interaction. You get into that CPC stuff, you’re like, “now at least I know I prompted a user to go to a place they weren’t expecting to go before.” As we keep moving down, these things are getting more valuable, more accountable. Advertiser are willing to pay more. You get into the CPA, you’ve delivered a lead, that’s pretty valuable, pay per call. You get into a new type of category called door swanger, cost per location. If I know I delivered somebody to a physical premise, “f*ck, you pay me.” I got somebody to go into your store, that’s a payable event. Even if I don’t know what they bought there, I know I got them there. So FourSquare and Gowalla are pioneering this, let’s get somebody to register they are there and then we can figure out the intent loop that got them there and get paid on that. Coupons are one step further, now you can actually see, “not only did I get them there, but I also got them to transact. Give me a piece of that transaction.”
KR: Sure. But there are down sides to coupons though.
CS: Sure. But as we move down the spectrum, each one of these is more accountable, and the relationship between the ad unit and the conversion is… I mean the very last one is where FourSquare is better positioned than anyone. If your payment method, if you’re fully integrated the point sale, you can start plugging in any of these data points and you know exactly their performance metric. I mean I think Square and Twitter are perfect complements to each other in that respect. That’s why I get very confident about Twitter being an incredible business. It shows in the number of advertisers right now and the way the money is starting to stack up other there. It’s a real business. Certainly there are people wasting time saying, “this is what I had for lunch” but businesses are starting to realize there are some real data and really tight feedback loops being built there.
KR: It’s fun to watch the revolution of this stuff too. There was a lot of “this was where I went for lunch” back couple years ago, “or this was whom I’m hanging out with”, @this person, @that person. Now that’s all gone. Now it’s more news centric, link sharing. It’s fascinating.
CS: It was very group me, fast society, that’s how we used it. I remember one night I was at a concert, all these cameo people kept on dropping. I kept twitting each one. I lost half of my followers in one night because I think I had lost 40 followers that night, they were like “dude, this is twitterhea. Back then, it was all text too. Your phone would just blow up.
KR: Right… People would just be like “stop tweeting, I’m not there.” … That’s funny. So you have a very large fund. I know you don’t disclose how big it is. I’ve heard it’s very large. Are you still doing small deals out there? Start up type stuff? What are you looking for? A lot of entrepreneurs or would be ones are watching this. I asked Tony Conrad this question one time, “what gets you excited right now? What are the things you look for in a start up when you are making an investment?”
CS: So I am still doing some start up investment, not as much. I think the market got ahead of itself. I think some of the prices just got kind of ridonculous. There is a certain entitlement among many founders that stuff that haven’t been built yet, hasn’t been launched yet or doesn’t have any users worth double digits millions of dollars right up front. I think they’ve pushed so hard on terms that … while it’s a great environment to be an entrepreneur, it’s not a great environment to be a seed stage investor. I really paired back, I’m trying to build a portfolio of investments. There are key investments that I would never not do. I’m an investor in Milk. There’s just no way I wouldn’t do that deal. If Evan Williams ever started something new I would write him a blank cheque. …came along and gave me an opportunity that was just a no brain. I deeply admire Kevin and Mikey, the velocity of users on that company. They have four guys there. If you have Kevin come here, we can directly see the productivity of that company go down. There are only four guys in there building that thing.
KR: When I first met those two guys. It was only two of them. We were having tea at San Francisco. This was before you made your investment because you were out of town or something. They were sitting there like, “oh sh*t, the server might be down. Oh it’s AT&T, it’s back up.” They had no idea and they were getting … at that point it was insane, one image upload every couple of seconds. Now I’m sure it’s even crazier than that.
CS: Yeah. It’s five million users on the site now. I think they what did in a week was what Flicker did in its first year. Double check that, but crazy scale. But.. so I reserve money for really key seed deals. Turntable is an example of that right now. I would be freaked if I didn’t have the money to participate in a Turntable offering. Generally I’m not doing a broad basket of start ups the way I used to. I do have more capital to drop on than I have in the past. I’ve been doing some larger secondary deals, I’ve also been doing some primary deals where I come in and do kind of a momentum round for a company that is already succeeding. I’ve been writing double digit million cheques into those companies trying to keep it quiet. I think fundraising right now can be a real distraction for a founding team so I probably move quicker than anybody out there to get deals done. We don’t really do any announcements at all just because that can not only be a distraction but can tip off competitors. We just do it really quietly and move on. Perry Chen at Kickstarter was the very first guy whom once we signed the papers to invest a couple of years ago. In his seed round, he actually asked me not to tweet about it. I was like, “what are you talking about? Dude I love Kickstarter, this is awesome.” He was like, “I really don’t want other VCs to realize this is a hot space and Fred Wilson has invested and all these guys were kind of like validators. I don’t want anyone to know you guys are invested because all it’s gonna is bring more investment to competitors. It was the very first time I was told to be quiet. At first I didn’t get it, now I totally get it. Perry and Yancey went and kicked totally ass and they’re category winners at Kickstarter now. Probably a lot of that is we all stayed quiet while he just silently murdered everybody else out there to crushes.
KR: So what do you look for in an entrepreneur? What qualities are you looking for? Is it all about the ideas, the founders or a mixture of the two?
CS: Yeah. I’m still figuring that out. The first filter I have is asking, “is this a product I feel I could be helpful with?” I’ve missed really good deals because I feel like didn’t know anything about the space. I passed on Zynga. I’m going to start naming some of these and they are going to amount to the billions of dollars. I passed on Zynga because I was like, “I didn’t really know gaming. I don’t know the partnerships in Asia, I don’t know, I don’t know the space, I don’t think I would be that helpful.” It would have been, in retrospect, cool to put in dumb money but I just didn’t know how that thing worked. I passed on gilt groupe, I had never been to a sample sale, I didn’t realize what a big thing it was. I dress like this, I had no idea how much people spend on clothes and how rad that business would be in. I knew the entrepreneurs…
KR: You’ve never still used gilt groupe today?
CS: No, I’ve never used gilt group.
KR: I’ll let you know if they have a Western sale or something.
CS: Alright. I passed on AirBnB, I was just like who sleeps on people’s couches? You know, etc. There are all multi-billion businesses now that I didn’t think I would use or I would be helpful with. In the case of gilt, what am I going to do with the gilt groupe founding team. They’re already excellent entrepreneurs. Am I going to hook them up with awesome designer? Am I going to bring a bunch of people to their site? I don’t know. So the first filter is, “is this something I feel that I could be helpful with?” From there, I don’t think I’ve built a really great system for figuring this stuff out. As a VC, I’m wrong most of the time, so whenever any of the VCs tell you about the rules etc. it’s really, because we’re wrong all the time. You should expect me to be wrong most of the time. When I’m right, I’m really really right. That’s what you should expect from a VC. Sometimes I will just nail it, and hopefully those things will just out pay of meh…
KR: So you get in and you do, hopefully, follow on rounds after from that point forward.
KR: Yeah. I made bread sticks at Olive Garden. I smelled like garlic for two and half years.
CS: Hahaha, you gotta have a job like that.
KR: I can make like a kick ass bread stick though.
CS: Really? … You know what I’m saying. Those jobs… you can tell who’s had those jobs and who hasn’t, you can tell on the first day at work whether someone had been in that job or not. Around the time I was getting ready to leave Google, we had a generation of computer science students who were showing up who had never had real jobs because they were paid to go to school, the worst thing they have mabye done is TAed. Their summer is spent at computer camp or something like that. I swear we would see people walk up to the chefs and be like, “What? No f*cking pheasent?! You ran out of f*cking pheasant, WTF!” I was like dude, “are you sh*tting me? they give us free breakfast, lunch and dinner from organic locally sourced cuisine you can eat all day and you can invite your friends to come here and eat and you’re complaining there’s no pheasant?” The entitlement was just crazy. I think rule number one is I look for people who’ve had a sh*tty job because even in our worst day in our industry now, it doesn’t compare to a really sh*tty day at a true ass busting work. Number two I look for people have lived, traveled or studied abroad. I think it forces humility on you. In our environment, we’re totally in control, we can go to our favourite places because we speak out language. You show up to another country and don’t speak the language and you’re just like, “uh..” you have to walk up to perfect strangers and ask them for directions and figure out “sh*t” to eat. Your head is spinning the whole time and jet lag on top you. I really think that builds an implicit humility, resourcefulness and collaboration in people. So I look for that a lot. I look for people who play sports whether it’s team sports or individual sports, I don’t care about. But I do care that they have some balance in their life and they have some sort of endorphins that keep them healthy and have some boundaries and know when to turn off the switch and go outside a little bit. Honestly it just makes more rounded people and ideas come from those kind of people. The really true self-destructive, Mountain Dew guzzlers type whose bodies fall apart, they’re not driving the creativity in this Valley, they’re not conceiving other new ideas, they’re not coming up with cool “sh*t”, it’s people with these broader life experiences who have balanced relationships who come up the cool sh*t.
KR: College degree, no college degree? Does that matter to you?
CS: College degree is not a pre-requisite, it is kind of funny. Doing well in college, I do think does correlate for me with the successful people I have worked with.. I don’t think that’s a pre-requisite at all but I do think college done right, particularly like a liberal arts school, is a lot less about the individual facts. You learn more about how to think, how to communicate, experimenting with personal boundaries, getting laid, drinking too much, taking the time to go abroad. I worry that CS students these don’t have time in their schedule to go abroad anymore. And yet living in Latin America kicked my ass and talk me all kinds of cool sh*t and made me more interesting. The last thing I’m going to say is I look for interesting people, people that I want to spend time with. You’ll hear a lot of people say I’ll have this test, will I be willing to sit next them on a plane from New York to LA or New York to San Francisco. For me, I think I told you, I bought the house next door to my house up in Truckee, I live near Lake Tahoe. It’s called camp Lower Case, it’s where the portfolios come up one by one and do retreats. For me it’s like, “would I have these guys up to my house? Would I break bread with these guys? Am I comfortable spending that kind of time with them? Would I find it interesting, enriching? Do their ideas inspire me and get me eager to help them out?” So that’s a big filter for me too. At the end of the day, hopefully we’re all going to make money but I hope when I reflect upon this time as being fulfilling as being meeting interesting people, having fun, healthy. Otherwise, it’s just not worth it. Otherwise, we would all work for hedge funds and be miserable. But out here, hopefully, we’re infusing some humanity and we’re building cool sh*t that people like and that makes the world a better place. Hopefully, our business falls in line with that.
KR: Have you ever made a bet on an individual but not on an idea? I made an investment here just about six months ago in the start up where I wasn’t too sure about the idea but I sat down with the entrepreneur and I was like, “this dude is brilliant. This might not be the idea, but he’ll make this work somehow. ”
CS: If Evan Williams told me if he was getting rid of the grilled cheese business, he would get a blank cheque from me.(chuckles) Evan always figures it out. He just has insights that are way ahead of mine. In fact, Evan and I have a relationship that he knows when I object to something, then it’s the right thing to do, multiple times along the way, I’ve been like, “no way! Users will hate that. You’re gonna kill the company..” Every time it’s been right. So I’m the key contra-indicator to Evan Williams. I would back anything he did. I haven’t done a lot of that. I’ve tried … see if I can be helpful. But I’m not ruling it out.
KR: Lastly, any URLs you want to push people to? To check out what you’re doing?
CS: Well, I have everything at lowercasellc.com and up there I kind of listed all the posse that I call the guys in my portfolio, I talked about my ethos a little bit, how to pitch, those kind of stuff.
KR: No full time blog or anything?
CS: I like to get back into that. I have a lot I want to write, probably a little longer than 140 characters. I’m like you, I take my sh*t seriously, I can’t throw a post up, I really want to edit it and work it.
KR: Honestly, it’s easier to fire a video and shoot something real quick and just put that on your blog. Think of how long it takes our buddy to write those books too and deal with that whole editing process.