1Mby1M Virtual Accelerator Investor Forum: With Asheem Chandna of Greylock Ventures (Part 4)

Sramana Mitra: We actually do a lot of work with bootstrapped entrepreneurs partly because our mission is to help as many entrepreneurs be successful as possible. I can tell you the vast majority of these entrepreneurs should not be raising money. They just don’t have the TAM to do a VC-funded company.

The truth is, there are lots of niches where you can build a $5 million to $10 million company, but you cannot build a $100 million to $200 million company. That’s fine. It’s just that you shouldn’t waste your time chasing VCs in those situations. On the dilution point, the thing that is very concerning is there is a lot of hanky panky in term sheets in the venture world.

Asheem Chandna: Right.

Sramana Mitra: You could work six to seven years and get nothing even if your company is acquired for $200 million. A lot of first time entrepreneurs don’t really understand the concept. They’re carried away by these very hefty valuations. Your point is well-taken that you shouldn’t be worried about ownership and so forth.

I would counter that by saying that you should actually pay attention to where your negotiating position lies. Again, I have another favorite saying which is, “Do not go to VCs as beggars. Go as kings.”

Asheem Chandna: We, at Greylock, want to be in business with entrepreneurs that are dilution-sensitive. We want to be in business with entrepreneurs that respect the value of equity and are very discerning about it. We want to be in business with people who want to grow shareholder value. We’re not fans of complex term sheets and complex structures. When we write terms sheets, our term sheets are extremely clean.

Many entrepreneurs tend to focus on the amount of capital a company raises and look at that as the strength of a business. I also see entrepreneurs’ resumes and the resumes begin with how much venture capital they raised. It’s all wrong. Many of the best businesses are built in very capital-efficient ways. Venture capital is nothing more than artificial crutch in many cases. People have a false sense of security when they raise a lot of money.

The way you get yourself into trouble is, if you raise a lot of money and you’re not doing good primary work, then you get screwed by the preference table. I would take some money, but I would want to be focused on the milestones I want to deliver.

Sramana Mitra: You bring up media. I think media is both ignorant and extremely confusing for entrepreneurs. Look at this last two years’ obsession with unicorns. What is a unicorn? You can get a unicorn without any primary milestone delivery with a stack of liquidation preferences.

Asheem Chandna: Exactly.

Sramana Mitra: Entrepreneurs are getting obsessed.

Asheem Chandna: I think there’re many smart people at venture-backed companies. The average employee at a venture-backed company is pretty smart.

But I think people are also very naive. They focus on a lot of the wrong things. They should be focusing on the primary factors like the strength of the offering and TAM. What is the quality of the people in the company?

Sramana Mitra: And customers. The bottomline is customers, revenues, and profits. That’s how you build fundamentals. You are talking to various kinds of customers all the time and you’re seeing all kinds of things. What are some areas where you’re looking to invest?

Asheem Chandna: We’re in the mobile cloud era. The frontend is going to mobile and the backend is going to cloud. The backend might be on public cloud. It might be behind the firewall. We’re going to continue to be a in a hybrid world for many years with increasing push or pull onto more public cloud. That’s what’s going on in the enterprise side.

On the consumer side, we’re going towards a multi-billion dollar audience. It’s an interesting time. We’re looking for entrepreneurs, on the consumer side, that could reach very large audiences very quickly with new concepts. Then on the enterprise side, we’re looking for primarily subscription-based businesses that can live in the mobile cloud era. There are lots of opportunities to reinvent the infrastructure stack.

Sramana Mitra: Great. Thank you for coming. It was very interesting listening to you. It’s a rare treat to talk to somebody who actually still practices real venture capital.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Asheem Chandna of Greylock Ventures
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