American History 1988
Chapter 107 - 101 Sequoia Capital

Chapter 107: Chapter 101 Sequoia Capital

"Let me introduce Tom Valentine from Sequoia Capital. You don’t mind discussing the ideas in your head with me, do you?"

Valentine made himself comfortable in front of Dean, even beckoning the waiter to order drinks without waiting for his approval.

"I always thought that the Carriage Wheel Bar was teeming with technical engineers, but today’s experience proves that’s simply a myth. Dean Price, Mr. Valentine, pleased to meet you," Dean said as he raised his glass slightly to him.

"Haha, I like your straightforwardness, kid," Valentine’s personality was just like his appearance: rugged, direct, and enthusiastic.

After they clinked glasses, Valentine tapped the table with his finger, "Come on, lay out your idea. Only those ideas that are shared and recognized by the market are good ideas."

"Alright, Mr. Valentine. It comes from a project I was involved in once, and I’m not sure you’ll grasp it," Dean said as he took out the napkin he had just folded again.

This was the second venture capital firm he had interacted with, aside from Morgan Tailer, and Dean also wanted to see how his Teams was evaluated by the venture capitalists.

"An instant messaging software mainly for the office environment?" Valentine looked at Dean with some surprise, "Honestly, in my investment career, software is a first for me."

Valentine founded Sequoia Capital in 1972, and his first investment was in Atari gaming systems, which brought him a return of over three million US dollars.

Afterward, with Apple, although Valentine initially turned down Jobs during their first visit, he eventually managed to get on board with Redshirt Capital. This brought vast profits and reputation to both Valentine and Redshirt Capital.

His most recent sizable investment was in Cisco routers, and Valentine even currently serves as the president of Cisco, yet this is still a hardware investment.

Software? The only encounter Sequoia Capital had with software was a minor co-investment in Oracle, and Oracle was not the same thing as the Teams software in front of them.

The database system of Oracle was highly specialized, meaning it had certain barriers to entry.

But the Teams in front of them... although its idea was somewhat interesting, it seemed to lack its own moat.

Unlike hardware, which requires greater investment, especially once economies of scale set in. Even if technology isn’t a barrier, someone wanting to replicate it would need to think twice because of its prohibitive cost.

On the other hand, if software doesn’t have an absolute advantage, a few computer experts combined with a set of servers might well produce a similar product.

After briefly running through his assessment in his mind, Valentine briskly wrote a number on the napkin.

"$50,000 for a one-third stake in Redshirt Capital. If you accept it, we’ll get you in touch with lawyers, accountants, and even software technicians, and then help you get it made and onto the market as quickly as possible."

Valentine was very familiar with this process; venture capital firms offer more than just funds. Their most valuable approach is actually helping startups grow together.

"Mr. Valentine, I appreciate your recognition of Teams. However, I believe it is worth more—of course, I’m not trying to haggle with you, I just want to try pushing it to the market first."

From Sequoia Capital’s offer, Dean sort of understood the different attitudes people held towards software. Clark from Silicon Graphics, also in the software industry, clearly recognized the value of Teams more.

But Valentine, who started with hardware investment, obviously lacked confidence in investing in software. If it weren’t for the fact that there were no similar products to Dean’s Teams on the market, Valentine might not even have made an offer.

And after hearing Dean’s response, he was even more surprised than when he first saw the idea for Teams. "Dean, from your answer, may I infer that Teams has already been created?"

Dean shrugged noncommittally; he never fought unprepared battles. His idea was not just on paper; it had already become a product.

"Alright, I take back my initial offer." Valentine took out his pen and revised the number he had just written, "$150,000, other conditions remain the same. However, the premise is that Redshirt Capital needs to verify Teams, provided that it really exists."

Valentine was well aware of the fundamental difference between an idea and a product; an idea is just a concept, and its ability to become a product is an unknown.

But a startup with an existing product has already managed to avoid many risks in advance. At least investors don’t have to worry about whether the founder can create the product they want anymore.

Once the product exists, what a startup needs is simply to promote it, and that is precisely the best use of venture capital funds.

Therefore, Valentine didn’t hesitate to triple the valuation of Teams from $150,000 to nearly half a million dollars, because they no longer had to take on extra risks.

"Mr. Valentine, thank you for your interest. However, before accepting Redshirt, I need to visit another friend first," Dean said, not planning to accept the investment today—he needed to see how Teams performed in the market first.

Valentine wasn’t bothered by Dean’s refusal of the investment. As a venture capitalist, he’d been through too many such scenarios.

"Dean, if Teams ever needs funding in the future, remember to contact me," Valentine gave him a business card. As startups grow and expand, they go through many rounds of funding.

So Valentine wasn’t in a rush to get involved; he could also wait and see Teams’ future performance. If this idea proves its worth, Sequoia Capital can still place a bet by then.

Valentine was confident with his connections; this wouldn’t be a problem at all. In all of Silicon Valley, venture capitalists’ relationships are intricate and complex; don’t assume it’s just a matter of pure competition.

As the president of Cisco, Tom Valentine also had his own matters to attend to, such as taking Cisco public and dealing with the combustible couple—he needed to resolve internal dissent.

Therefore, his meeting with Dean lasted less than half an hour. After leaving his business card, Valentine left the Carriage Wheel Bar.

He came here for a drink every Wednesday and Friday. He enjoyed sitting here, listening to all sorts of ideas. If something caught his interest, he would initiate conversation, just as he had done moments ago.

Watching Valentine’s retreating figure, Dean raised an eyebrow. Of course, he had heard of Sequoia Capital’s reputation. It seemed like his Teams would have a good start in Silicon Valley.

Unexpectedly, no more than five minutes after Valentine left Dean’s table, other suit-clad patrons of the Carriage Wheel Bar, who were covertly observing the scene, began to approach and take a seat opposite Dean.

With no other option, Valentine’s renown was well-known in Silicon Valley’s venture capital industry. A young person who could pique his interest must have something valuable to offer.

Ever since IT enterprises such as Aironet, Genentech, Apple, and 3Com representing Silicon Valley had succeeded on Nasdaq repeatedly, they had drawn the gaze of capital from both East and West Coasts.

Everyone was looking for the next Jobs, or a trendsetter in the tech industry. They wanted to hitch a ride straight to the gates of Nasdaq fortune.

...

Half an hour later, after shaking off three venture capitalists looking for opportunities, Dean left the Carriage Wheel Bar with several business cards in hand.

Apart from Valentine’s promise of $150,000, Dean had even received a check for $20,000 on the spot from one of the venture capitalists.

However, he declined these offers politely, knowing that money from venture capitalists didn’t come easy. It would mean giving up a portion of his ownership and putting up with more oversight and interference.

So unless he encountered insurmountable difficulties, Dean wasn’t planning on accepting too many venture capitalists.

On his way back to Stanford from Mountain View, he pondered over the commercialization of Teams.

Although someone was willing to value it at around $450,000, this didn’t mean that Dean possessed that much wealth.

Valuation of startup companies is inherently nebulous, with different people offering vastly different figures—Carlock’s and Valentine’s assessments, for example, varied greatly.

Even though Valentine valued Teams at $450,000, if Dean accepted, he would only get $150,000.

And this $150,000 was merely the startup capital for Teams; it had nothing to do with Dean’s personal wealth.

He wouldn’t become wealthy from this unless Teams one day made it onto the Nasdaq.

Therefore, Dean didn’t linger on the thought of the checks from those suit-clad patrons. That money wasn’t his.

The gifts from venture capitalists would come at a greater cost in the future.

Back at school, Dean planned to make another round of improvements to Teams, then look for an opportunity to test its group meeting functionality.

While designing, considering that some companies have a large number of employees potentially attending meetings simultaneously, he set the upper limit for Teams voice channels at one hundred people—ensuring software had to undergo the stress test of a hundred people being online at the same time.

But Dean and his team didn’t have so many computers, so he had to think of another way to carry out this test—perhaps the school library was a good option.

However, before he could begin his plan, he received a phone call from Ohio.

"John, are you saying America Online has made new charging demands on us?"

"Yes, Boss. Right after the beer festival in September, they took notice of us," said John Donovan, the COO of Price’s List, who had implemented a range of measures to boost the site’s influence in Ohio.

Participating in various sponsorship events was an indispensable part of this strategy, and as Columbus’s most influential celebration, almost everyone attended the beer festival.

To secure the precious sponsorship slots, Price’s List invested nearly fifty thousand US dollars, almost half of the site’s profit for the year, with a substantial portion of the advertising budget thrown into it.

As the citywide celebration commenced, the Price’s List logo appeared throughout the streets of Columbus. The investment proved worthwhile: in just three months, the number of Price’s List users in Columbus skyrocketed past 30,000.

But events unfolded in unpredictably peculiar ways—Price’s List made a big splash in Columbus, catching America Online’s attention.

America Online’s headquarters were also in Columbus, and before, when Price’s List was bustling in Cleveland, they didn’t pay much attention.

But after Price’s List started hosting various events right on their doorstep, America Online finally took notice of their presence.

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