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Sequoia Capital’s Abhay Pandey on why VCs invest in 'crazy ideas' as well as 'smart' ideas

05-September-2015
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Sequoia Capital’s Abhay Pandey on why VCs invest in 'crazy ideas' as well as 'smart' ideas

Addressing the International Advertising Association India Chapter’s Silver Jubilee Summit at Kochi, Abhay Pandey, Managing Director, Sequoia Capital, spoke about the key features that drive investors to invest in new ideas and start ups. 

“Smart ideas are the work of youngsters and entrepreneurs who are thinking beyond today. Capitalists only work to fund these ideas,” he mentioned.

In Pandey’s opinion there are two sets of people who are going to decide what the future of business and investment is going to look like. He lists them as, “The Mavericks: These are the people who think of crazy ideas that the world pretty much dismisses. But their energy, passion and relentless aggression keep working to convince those around them that these ideas make sense. Over time these ideas are converted into reality and the future. The second group of people are the smart people; the ones who come up with the disruptive ideas which help us to do things better than what we did yesterday.”

He stresses that VCs will simply follow these two sets of people and help them in making their ideas a reality.

Sequoia Capital was founded in 1972 in Silicon Valley and has been associated with the birth of major brands like Apple Computers in 1978, Cisco and Oracle in the late 80s and 90s, Google and Yahoo in the late 90s, Youtube and Linkedn in the early 2000s and more recently Airbnb, Dropbox and WhatsApp. Pandey uses it as an example of how capital is successfully invested in new ventures.

In order to get an idea of what the near future will look like he uses two well respected organisations, Google and Y Combinator (which funds start ups) to make his point.  “We know about the reorganisation of Google with the creation of Alphabet. The prime driver behind this was to let share holders know the difference between the operating part of the business which is Google and YouTube and the investment part which is what I want to focus on. If you look at the different parts of the investment business they tell you where Google is spending on ideas that are not profitable today but are serious investments for the future. Calico for example, is investing into anti-aging research; Nest is into homes connected via Internet, Viber is working on much more rapid Internet access. Then there are companies like Google Capital and Google Ventures which are not investing in properties within Google but looking outside to support those ideas and make them a reality.”

Pandey also uses one of Google’s most controversial companies, Google X as an example of investing in the future. The smart labs inside Google works on futuristic projects, many of which might be considered crazy ideas. And as these ideas start taking shape they have spun out to independent divisions. “Many of the projects like Google Glass, drones for deliveries, nano-particles to detect cancer are slow moving but can have impact in the future if they work,” he said.

Turning his attention to Y Combinator, the comparatively small seed fund company in Silicon Valley focuses on early stage investments. “In 2012, 80 per cent of the ideas funded by the Y Combinator were consumer Internet ideas. Over the years venture capitalists have been following suit and investing in the same thing. No one wants to invest in the sixth dating app or the 11thfood delivery company and so on,” Pandey pointed out.

Today Y Combinator invests a major part in enterprise-tech, health and bio-tech, fin-tech and other things like robotics.

Big Small Companies

A great way to look at change in business is to look at the Fortune 1000 companies. In 2003 there were 35 per cent new companies that entered the list. And each decade the number of new companies on the Fortune 1000 list increases. The rate at which the old is being displaced by the new is increasing and it’s happening across sectors.

“A big company always considers another big company as its competition and keeps an eye on that. What they lack keeping an eye on are the smaller companies which, because of their agility and innovation, move forward and get a lot more leverage.”

“What all this means for us is that each organisation needs to focus on innovation and change which needs to be ingrained in all individuals across the organisation. In a company like Google, even the legal department which is supposed to be the most cut and dry section prides itself on being cutting edge,” Pandey explained.

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