Courtesy: Google Ventures
Bill Maris is unimpressed with the mechanics of Silicon Valley venture capital.
He sees a lot of short bets on incremental advances and copycat apps. He thinks partners get paid for putting money to work — not for making ambitious bets.
From the start, Maris sought to do things differently at Google Ventures, which he founded in 2009 after years as an investor and entrepreneur.
The fund’s partners hunt for young companies aiming high and strike deals that could take more than a decade to pay off. They’ve spread money across a broad portfolio, including areas with riskier technical challenges like clean energy and health. And the firm has applied a famously data-driven approach, hiring up quants and devising complex computer models that Maris believes offer better predictions of market outcomes.
Quoted:
“We’re failing if some of our investments don’t turn out to be crazy science projects that didn’t work.”
Bill Maris, managing partner, Google Ventures
The fresh-faced Maris, 39, cuts a low profile in Silicon Valley relative to the dollars at his disposal, deliberately avoiding the industry’s endless glad-handing dinners and conferences.
But last month, he sat down for an hour-long conversation with Re/code in his Mountain View, Calif., office.
Google Ventures occupies a squat building on the eastern edge of the search giant’s sprawling campus. From the outside, it’s just one of many plain white rectangles arrayed across the Googleplex.
Within the recently remodeled space, however, the company’s primary color palate gives way to dark wood and glass panels. You won’t find a nap pod or cartoonish Android statute here.
It’s in Google’s world but not quite of it: A $1.5 billion fund operating with a lot of latitude inside the $400 billion conglomerate.
Google Ventures arguably earned its rope after a bang-up 2013. The fund laid 75 new bets as it cashed chips on ten exits, including Monsanto’s more than $900 million acquisition of Climate Corp. and the initial public offerings of RetailMeNot, Silver Spring Networks and Foundation Medicine.
To some degree, Google Ventures’ unusual approach is a luxury afforded by a single LP with a fat pocketbook and plenty of patience. It also certainly helps that the mothership will occasionally acquire portfolio companies, lend them expertise, guarantee them press attention and present intriguing partnership scenarios (like, say, self-driving Ubers).
But to date, the firm has operated through five booming years in Silicon Valley with loose cash and winner-take-all mentalities driving acquisition valuations well north of frothy. The real test of the model may come during more turbulent times.
As it is, some of the portfolio businesses have already stumbled.
Late last year, the U.S. Food and Drug Administration forced 23andMe to stop marketing its personal genetic tests as a health-care product, its main source of revenue, stating the company had yet to prove the tests were clinically validated. The Verge also raised serious questions about the early scientific claims of biofuel company Cool Planet.
In the interview that follows — which will run in two parts and has been edited for length and clarity — Maris addresses those concerns, explains what Google Ventures looks for in an entrepreneur and lays out where the firm breaks with traditional Silicon Valley economics.
Re/code: How does Google Ventures fit within the larger Google? In some ways it could be competing for investments with Google Capital, in some ways it could be competing for “moon shots” with Google X. Can you talk a little bit about how the lines are drawn and how the logic works?
It has to do with how much we cooperate with each other, talk to each other. There hasn’t really been a case where we’ve competed with, say, Google X. They know that we’re interested in crazy far-out thinking; they’re interested in crazy far-out thinking.
They don’t have a mission to generate return while they do it, in terms of financial return. We do. So we look at the same things but from slightly different angles.
We think it’s quite complementary to have people tackling the same things, as opposed to just making one big bet. That’s how companies fail, efforts fail.
If the near-term goal is “fund the next company delivering the Internet from the sky,” well, maybe then you would say that we’re competing with Google X. But if the goal is “get broadband delivered around the world to people who may never get it otherwise," well, then we’re all headed in the same direction.
We’re surrounded by people who have great minds. That’s a real privilege and we’re trying to take advantage of that by investing in things that matter, especially around healthcare, as you’ve seen. Not only do we put in a lot of effort, but we have generated a lot of returns as well. Which, I will note, I got questioned about all the time by reporters and others, even in the venture business.
“There’s no future in life science investing, why would you waste your time, what could Google Ventures possibly know about this?”
And you know what, it’s about relationships. It’s about helping and enabling entrepreneurs who do the actual hard work. We try to give them tools and resources to help them succeed.
I’m on record as saying “yes, more moon shots, enough photo sharing apps.” But I am curious, as a venture capital fund with an obligation to make returns, do Silicon Valley economics not work out in your favor sometimes because you’re going to be reaching a little farther into the future? It might not be viable yet or might not be viable before they burn through all your cash?
We’re not beholden to Silicon Valley economics. I think [Google CEO] Larry [Page] would be quite happy if we invested in far-out things that didn’t make any money, even if it took ten years, as long as it furthered the science.
Now, we’re a venture fund. We’re trying to find and generate return. But that doesn’t run counter to the other goal because usually companies are the things that have the greatest impact on society. It’s not usually NGOs, its not usually nonprofits, it’s not usually grant-making organizations.
The part that gets misunderstood a lot is how long it takes. Sometimes it takes years.
This is what we try to solve with Google Ventures. If I were to leave and raise a venture fund, I would have to find 10 or 100 LPs, they would all give me a bunch of money and I would take a percentage of that to pay myself. They would expect me to invest that over the next three years, and they want that money back in seven or eight years.
So now they’ve put a timeframe on innovation. That's a problem.
They would also give me a weird incentive: The more money I raise, the more I could pay myself, because I get a percent of that. But the more money I raise, the later-stage companies I have to invest in, because I need to deploy that money. You can look out at the venture world, at people who have raised large funds, and you can see that tradition is alive and well right now.
I don’t think you could find a case of a venture fund giving back money to its LPs saying, “Oh, we couldn't find anything.” They’ve already taken your fee out of it, so they’re not going into their own bank accounts.
[Late-stage] companies need funds too. But if you want to invest in early-stage technologies, putting a timeframe on it does behold you to Silicon Valley economics. You’ve got a certain time period where you have to make the money. And you have to invest that money whether you find good companies or not.
We try to do something very different here. We have annual funds, each year is a new fund. The fund can be up to $300 million, but it's only as big as we actually invest. So if we invest zero dollars here, there is no group of LPs here saying, “You didn’t deploy any money? What’s your [internal rate of return] on that?”
I don’t even calculate our IRR. I know we’ve made a lot of money, for the LP, and that's because the founders of our company have been very successful so far. But no one has ever called me to say, “When can we get that money back?”
Here, with one LP, you can think of it as just one large fund. We can do $258 million dollars into Uber and we don’t have to take the rest of the year off. Because we have access to all of that capital. I know that might seem, probably to a reader, like a very minor point. But in terms of actually operating this business, it changes the game.
How do you pick a winner?
Carefully.
But what are some of the characteristics of the company, of the entrepreneurs, of the ideas that are really going to catch your attention?
You have to recognize that you’re wrong a lot. Probably more than half the time. And that could be because you picked wrong, that could be because it’s the wrong time, you’re too early, you’re too late, wrong product, product isn’t made right, people aren’t ready for it.
I mean, why didn’t Friendster succeed but Facebook did?
So the first thing you have to recognize is that you can be wrong a lot, and it’s okay to see those kinds of foibles and failures in those entrepreneurs that you invest in as well. The thing that reminds me of future success — when I see people that remind me of people that were successful, be it Tony [Fadell] and Matt [Rogers] at Nest, or even Travis [Kalanick] at Uber — is great persistence.
They have the ability to focus intensely on a problem, almost obsessively, and care a great deal about their colleagues, their company and the problem they’re attacking. You could find probably a whole bunch of people who would think making the black car service more efficient is not an important problem. But to Travis, and to the team, it is really important. It creates efficiencies, it frees up time, it’s safer.
But beyond that … being able to retarget is really important. Finding someone who is extremely persistent but is going to hit their head against the wall until there's either a hole in the wall or their head, is not what you’re looking for.
You’re looking for someone who can adapt when circumstances change. We know that people who have done it before tend to be more successful the second time, but people who have failed aren’t more likely to fail the second time. So there's no penalty for having tried something and not been successful at it.
And then picking the right people. CEOs who can hire properly, that’s the most important part of the job. The CEO’s job is really to hire the right team, and execute the vision second.
A lot has been made of Google Ventures’ use of data. What are the variables that go into that model, and how do you account for the natural variability of moody people, a fickle press, a fluctuating IPO market and all of these things?
It’s sort of like asking how do you build an advertising system that knows what ads to show that are relevant to people dependent on their moods and what they’re interested in. It’s really difficult. If it were really easy then everyone would have a program around this.
Courtesy: Google Ventures Graham Spencer, general partner, Google Ventures
It takes into account hundreds, thousands of variables, and I can’t point to any one and say this is the key. If there were one key, if it were, “What university did the CEO go to?” then we would know, “Okay, well, we only need to pay attention to that.”
But it’s a lot more complicated than that, and that’s why we have a team of people who are really savvy, experienced statisticians, engineers, led by Graham Spencer on our team, who help us understand how to use data properly.
Because you can 100 percent use data and statistics in exactly the wrong way. That’s a trap some fall into, one that we really try hard to avoid. But I think it’s important to use that as a tool. If you’re in a dark room and you have a match, and you’re trying to find your way out, you should probably light it. At least you know, there’s a couple windows, the doorknob is three feet off the ground, there is a coffee table in the middle, be careful of that.
Can you give me a sense of how big a role it plays in the ultimate decision?
Is Skynet just deciding, making decisions for us?
Yeah, or is it one vote among several, like Deep Knowledge Ventures.
I’ll put it in these terms. Data around the table is at least as important as one person's “vote.” And when I say that, what I mean is we don’t actually take a vote. It’s not a place where the majority decides what we invest in. It’s a place where the brave decide what we invest in.
Everyone can be against something, but if you have one person who’s really brave or making a huge mistake — it’s hard telling the difference between the two – who steps forward and says, “You folks are crazy, we need to invest in this company and let me tell you why,” well, we have done investments like that.
The data is a support. It’s just like having your other partners there.
One of your portfolio companies, Cool Planet, got kind of smacked down by The Verge. They cast a lot of doubt on the scientific claims of the company and the founder.
I think the founder did, I don’t know that the company got smacked down.
Okay. To the degree that his was the founding technology, are you still confident in that investment?
I think [Verge writer Ben Popper] drew a really clear line between the founder and the company. He separated them [into two stories], because they were separate.
Now the reality is we’ve got a company that has investments from us and from some major oil companies. We try not to be foolish, we make mistakes, but we vetted the technology. What I find so ironic about the Verge story is, it’s basically a story about, “Could we be wrong?”
Well, yeah, of course we could be wrong.
Venture funds get beaten up for not investing in important things. Okay, if you want venture funds to invest in important things, then don’t penalize or make fun of them when those important things don’t work.
“Your rocket ship doesn't work, so you look foolish, you should stop doing that, you got duped.”
No, we didn't get duped. If the technology doesn't work, that's too bad for everyone, right? Because it would be great if you could make gasoline out of corn and byproduct. That would be amazing. We think it has a great shot of still working. We’re still investors in the company.
Others are investors in the company. They just raised a new round of funding, a significant round of funding. They’re building a pilot plant to try this out at scale.
We’re in the business of betting on crazy far out thinkers doing sometimes crazy far out things. Sometimes we’ll be wrong.
We’re failing if some of our investments don’t turn out to be crazy science projects that didn’t work. Then we’re not actually differentiating ourselves from any other investor who’s trying to make a return on incremental things. That's not what we’re trying to do.
Do you ever think some of these investments become somewhat self-fulfilling prophecies because the name “Google Ventures” is involved, to the degree that I’m going to write about it because it was a GV deal or they might get the notice of additional customers and partners?
I hope so. I hope entrepreneurs can extract every scrap of value out of our investment as possible. If the minimum they can get is a spotlight shone on them because of the Google Ventures name, fine. I hope we can deliver more than that, but at least it’s something.
Quoted:
“We’re in the business of betting on crazy far out thinkers doing sometimes crazy far out things. Sometimes we’ll be wrong.”
Bill Maris, managing director, Google Ventures
At the end of the day, we’re minority shareholders in all of these companies, and all of these companies have more than one minority shareholder. To say it was self-fulfilling, it never works that way. We even know from studying the data, there are so many factors that go into making a person successful or a startup successful that you can’t trace it to one thing. But I’m happy to use whatever resource we have to help our entrepreneurs succeed.
But, you know what? If the entrepreneur or the idea is flawed, and we fund it, and therefore others get excited because Google Ventures funded it, those companies still fail. That’s happened. Fortunately, it’s only happened probably less than I can count on my two hands, out of 230 companies. I don’t know the exact number, but it's not a lot.
