The most interesting part of Gary Rivlin’s NY Times piece today on VCs experience post-Google-partum was the following anecdote about Mike Moritz of Sequoia:
Stewart Alsop, a partner at New Enterprise Associates, said, “We wouldn’t have done a Google,” adding, “we can’t be irrational like they can be at Kleiner or Sequoia.”
Mr. Alsop said that a few years ago he and Mr. Moritz were about to invest in a company, X.com, when they learned that the entire staff, except for the company’s founder, had quit en masse. Mr. Alsop did not go forward with the deal. Mr. Moritz invested anyway – and ended up making his firm a bundle. X.com later merged with PayPal, which is now owned by eBay.
“I’ve competed with Mike Moritz on numerous deals and I cannot figure it out,” Mr. Alsop said. “I can’t figure out how he decides to make investments. I’m flummoxed by it.”
There will be many VCs who read that sort of thing and tell their partners Ah-ha!, my gut instinct approach to investing is validated! Mike Moritz does the same thing! He’s not rational always either!
Wrong. Moritz may end up in the same place as cowboy (venture) capitalists, but you don’t get to his first-quartile IRR without knowing why you invest in things. What Moritiz is very good at is recognizing epochal market dislocations and the companies set to exploit them. At the same time, he is equally adept at holding his nose against the bad smell that often comes from such firms.