Tal Morgenstern of Sequoia Capital has summed his mission up perfectly in his one-line LinkedIn profile description “Trying to help entrepreneurs when I can. Cold-calls / PMs welcome.”
I took his word for it and sent him an email asking if he'd be willing to be interviewed for the Zirra blog. I got a quick 'yes' and next thing I knew I was on the phone asking Tal all of my burning startup investment questions. Below is what he shared about how Sequoia Capital chooses startups, and tips on preparing for VC interviews.
Tal joined Sequoia Capital in January 2013, where he focuses on internet, mobile and enterprise companies in Israel. He joined Sequoia after a successful stint as an entrepreneur, founding worldclass.io, an online learning management SaaS company, which develops ‘micro LMS’ that enables educators and individuals to launch branded online learning environment in minutes, with no coding. Prior to worldclass.io, Tal was vice president of product at Bink Financial Innovation. He has also been a consultant with the Boston Consulting Group, and an associate with Innovation Endeavors, an evergreen VC fund with a unique approach to venture-creation.
What do you think defines a great startup?
I think it’s a combination of extraordinary founders who are tackling a difficult, meaningful problem. More secondary considerations are technology and monetization, but Sequoia places an emphasis on partnering with businesses that are founded by exceptional founders who are deeply passionate about solving a BIG problem.
Why are you excited about fintech?
It’s a huge space that’s relatively untouched by technology - yet. There’s a wave of newcomers going after sectors like small business (SMB) lending, alternative credit, retail banking and so forth, but at the moment, it’s not even a drop in the ocean. The vast majority of money in circulation is still governed by ‘old school’ organizations so there’s a huge opportunity to carve out pieces of this market.
Will predictive analytics play an important role in fintech?
I think people overuse the term ‘predictive analytics’ when what they really mean are many different things. I think the role of data, and specifically, contextual and personalized data, will allow companies to build a competitive advantage in this space. In Sequoia Capital’s portfolio you can see companies such as Behalf or Forter, who are applying super complex data capabilities, but that’s all being done in the background. The actual business proposition remains simple and straightforward.
Is there anything you will not be investing in this year?
We try to remain very open in our approach. We believe that dogmatic thinking is a bad idea as a VC. So I can tell you all about certain markets [that we don’t think we want to invest in] but then we meet that special team in a seemingly less interesting space, but we get excited about the founders and what they are doing - we invest. We do tend to avoid niche markets or company’s where the best case scenario is mediocre. We are truly looking for world-changing companies.
Are we in a tech bubble?
Probably not; I think public markets have remained relatively objective and the private market is betting on companies making real money and growing fast. However, I don’t want to completely dismiss hyper-valuation in certain sectors, so I do think the markets will self-correct, but this doesn’t mean another dot-com crash. I think we’re seeing technology going into previously untouched markets and this creates a huge opportunity and correspondingly, capital influx.
You founded Bink to make banking and basic financial management simple and fun, which is a completely new approach to money management. What did you learn about the ‘psychology of money’ and what users want from a money management user experience?
I do think financial management can be fun, but to do so, you need to understand that most people are not really interested in managing money per-se. As far as the psychology goes, what people are interested in is in planning their next vacation, their kid’s birthdays, and buying their next car. You need to build a product that puts these values and aspirations in the front and allows people to manage their lives - not numbers.
What do you think of equity crowdfunding?
It definitely plays an increasingly important role in today’s universe. It’s absolutely a valid option for a young company starting out. Having said that, top funds tend to bring much more to the table than just money; therefore, in order to succeed in the long run, you want to build these capabilities somehow. Things like hiring top people, navigating a tricky M&A situation, doing a growth round, etc., are things that a good investor should bring to the table and I’m not seeing this yet in the equity crowdfunding universe. Overall, I’m very excited to see the world of startups becoming accessible to private investors as an asset class.
In terms of equity crowdfunding living up to its expectation, I think it’s here to stay, certainly as an additional layer of financing and maybe, even as a challenger to early-stage micro funds and angels. Whether it will affect traditional venture capital and angel investing, I think the top tier funds will remain relatively untouched; however, equity crowdfunding will definitely force individual investors and under-performing seed-stage funds to up their game.
6 golden tips for meeting with Sequoia Capital
We asked Tal if he had any advice for entrepreneurs who are looking to raise capital, and he gave us this golden checklist that we think companies trying to raise funds will find invaluable:
1. Get a warm introduction to Sequoia Capital (if you can, of course).
2. Meet Sequoia early on in the process.
3. When you get that meeting, remember to focus on the big picture and that it not a product meeting and not a sales meeting with a customer.
4. Build a great team. To us, the team is the single most important factor so start with this and explain why you are passionate about this problem.
5. Leave time to ask questions and remember that the meeting shouldn't be a monologue.
6. Bottom up market size is better than a Gartner report.
7. By definition, startup (and VC) results are driven by outliers. This suggests you want to take outside advice (my own included), with a grain of salt. Stay true to your passion and original thinking. You're not looking for broad consensus. Rather, you want to be the unorthodox, the challenger. This is how big companies are created.
Tal points out that there is plenty more advice out there on the internet, so that companies should remember to do their homework, practice, and come prepared.