Interview with Mike Moritz, Chairman, Sequoia Capital

This is a great interview with one of the most prolific veterans of Silicon Valley. Enjoy:



Learn to code

You can read my views on ‘MBA vs Learn to code‘ here. It has been the most read article on this blog by a long shot. This morning I saw this video on Michael Fox’s blog and thought I had to reblog it because it is so great.

Where I come from when someone doesn’t know what they want to do in their career, their parents push them into commerce, business or banking. If you’re open minded and not sure where you want to go or what you want to do, my opinion is that you should learn to code. If you can code you can actually create stuff.

The programmers of tomorrow are the wizards of our future. You’re going to look like you have magic powers compared to everyone else. - Gabe Newell (founder of Valve)

I  come from a highly technical background as my strengths and passions lie in infrastructure, design and architecting systems however code is where the rubber meets the road, and I don’t code, although I wish I could. Learning to code is on my bucket list.

Watch this:

Earning equity

When founding a startup there are hundreds of decisions to be made during the course of the founding years that can significantly impact your business.

One of the most impactful decisions you’ll make will be how, and who you choose to grant equity to.

If you are taking outside funding and hiring employees you’ll need to make these decisions pretty early on and you’ll need to live with them for the life of the business.

When you have something hot, everyone wants a piece of it. People will try and convince you as to why they are worthy of being a founding employee, how they can add value during the early days when you need help getting established. It is very easy to give in to requests by colleagues friends/associates who might not have what it takes to be a founding employee. When you have 5 staff chances are you need 2 or 3 engineer type people and 2 business/marketing/sales people however if you have a technology product then they should all have a level of technical competence. Finding people that satisfy this mix of skills is not easy.

During the early days you need to be tough and true to yourself as to who is worthy of equity. You need to listen to your instincts. Chances are your mate who can code or sell is not the right fit. Recruiting the right hires is a process in itself and needs to be done thoroughly, and equity must be granted deservingly.

With his in mind, I am of the opinion that there are only three ways to receive equity:

  1. Be a founder – This means being the one who incorporated the entity and started with 100% of it. This is the highest risk, but highest return way to own a piece of the action.
  2. Earn it – This means working for the business over a period of time so that you earn shares that ‘vest’ according to the option pool, usually a 4 year vest with a 1 year cliff.
  3. Pay for it – The other way is via an investment in the company at a valuation that is fair to the founders and fair to the investors and leaves  enough skin in the game for the founders to be incentivized and raise additional funding if needed.

In my opinion there is no other way to get equity. At the very early stages when it’s just the founders and no investors, it’s very easy to part with equity however at this stage it’s unlikely you’ve worked with these people before and therefore it’s risky to just give them something without being able to work together to see if they are the right fit. You need to date before you get married. The same applies in startups.

My advice here is not to part with equity (outside of the founders) to anyone until you’ve got a formal investment in place, and as part of the term sheet insist that all employees, directors and advisors be a party to the option plan and its associated vesting terms. This means that the CFO or the whiz executive you’ve just found has to earn their right to own a piece of the business.

As the founder you can play man in the middle between the option plan terms and your stakeholders by advising them that all stakeholders, including director grants, are subject to vesting. This removes the need to have those uncomfortable conversation around equity. My key point is to try and get your vesting terms in place prior to granting equity to anyone (during you Seed round), otherwise you’ll end up making promised you can’t keep.

Oh… and as a founder, don’t ever forget the risks and sacrifices you’ve made to get to where you are today. Chances are those people asking for equity are just seeing the tip of the iceberg, but with this is mind, A player employees are always worthy of generous equity grants. You can’t do it alone.