Recycling robots raise millions from top venture firms to rescue an industry in turmoil

The problem of how to find the potential treasure trove hidden in millions of pounds of trash is getting a high-tech answer as investors funnel $16 million into the recycling robots built by Denver-based AMP Robotics.

For recyclers, the commercialization of robots tackling industry problems couldn’t come at a better time. Their once-stable business has been turned on its head by trade wars and low unemployment.

Recycling businesses used to be able to rely on China to buy up any waste stream (no matter the quality of the material). However, about two years ago, China decided it would no longer serve as the world’s garbage dump and put strict standards in place for the kinds of raw materials it would be willing to receive from other countries. The result has been higher costs at recycling facilities, which actually are now required to sort their garbage more effectively.

At the same time, low unemployment rates are putting the squeeze on labor availability at facilities where humans are basically required to hand-sort garbage into recyclable materials and trash.

Given the economic reality, recyclers are turning to AMP’s technology — a combination of computer vision, machine learning and robotic automation to improve efficiencies at their facilities.

trash cans

Photo courtesy of Flickr/Abulla Al Muhairi

That’s what attracted Sequoia Capital to lead the company’s latest investment round — a $16 million Series A investment the company will use to expand its manufacturing capacity and boost growth as it looks to expand into international markets.

“We are excited to partner with AMP because their technology is changing the economics of the recycling
industry,” said Shaun Maguire, partner at Sequoia, in a statement. “Over the last few years, the industry has had their margins squeezed by labor shortages and low commodity prices. The end result is an industry proactively searching for cost-saving alternatives and added opportunities to increase revenue by capturing more high-value recyclables, and AMP is emerging as the leading solution.”

The funding will be used to “broaden the scope of what we’re going after,” says chief executive Matanya Horowitz. Beyond reducing sorting costs and improving the quality of the materials that recycling facilities can ship to buyers, the company’s computer vision technologies can actually help identify branded packaging and be used by companies to improve their own product life cycle management.

“We can identify… whether it’s a Coke or Pepsi can or a Starbucks cup,” says Horowitz. “So that people can help design their product for circularity… we’re building out our reporting capabilities and that, to them, is something that is of high interest.”

That combination of robotics, computer vision and machine learning has potential applications beyond the recycling industry as well, according to Horowitz. Automotive scrap and construction waste are other areas where the company has seen interest for its combination of software and hardware.

Meanwhile, the core business of recycling is picking up. In October, the company completed the installation of 14 robots at Single Stream Recyclers in Florida. It’s the largest single deployment of robots in the recycling industry and the robots, which can sort and pick twice as fast as people with higher degrees of accuracy, are installed at sorting lines for plastics, cartons, fiber and metals, the company said.

AMP’s business has two separate revenue streams — a robotics as a service offering and a direct sales option — and the company has made other installations at sites in California, Colorado, Indiana, Minnesota, New York, Pennsylvania, Texas, Virginia and Wisconsin.

The traction the company is seeing in its core business was validating for early investors like BV, Closed Loop Partners, Congruent Ventures and Sidewalk Infrastructure Partners, the Alphabet subsidiary’s new spin-out that invests in technologies to support new infrastructure projects.

For Mike DeLucia, the Sidewalk Infrastructure Partners principal who led the company’s investment into AMP Robotics, the deal is indicative of where his firm will look to commit capital going forward.

“It’s a technology that enables physical assets to operate more efficiently,” he says. “Our goal is to find the technologies that enable really exciting infrastructure projects, back them and work with them to deliver projects in the physical world.”

Investors like DeLucia and Abe Yokell, from the investment firm Congruent Ventures, think that recycling is just the beginning. Applications abound for AMP Robotic’s machine learning and computer vision technologies in areas far beyond the recycling center.

“When you think about how technology is able to impact the built environment, one area is machine vision,” says Yokell. “[Machine learning] neural nets can apply to real-world environments, and that stuff has gotten cheaper and easier to deploy.”

Freshworks raises $150M Series H on $3.5B valuation

Freshworks, a company that makes a variety of business software tools, from CRM to help-desk software, announced a $150 million Series H investment today from Sequoia Capital, CapitalG (formerly Google Capital) and Accel on a hefty $3.5 billion valuation. The late-stage startup has raised almost $400 million, according to Crunchbase data.

The company has been building an enterprise SaaS platform to give customers a set of integrated business tools, but CEO and co-founder Girish Mathrubootham says they will be investing part of this money in R&D to keep building out the platform.

To that end, the company also announced today a new unified data platform called the “Customer-for-Life Cloud” that runs across all of its tools. “We are actually investing in really bringing all of this together to create the “Customer-for-Life Cloud,” which is how you take marketing, sales, support and customer success — all of the aspects of a customer across the entire life cycle journey and bring them to a common data model where a business that is using Freshworks can see the entire life cycle of the customer,” Mathrubootham explained.

While Mathrubootham was not ready to commit to an IPO, he said they are in the process of hiring a CFO and are looking ahead to one day becoming a public company. “We don’t have a definite timeline. We want to go public at the right time. We are making sure that as a company that we are ready with the right processes and teams and predictability in the business,” he said.

In addition, he says he will continue to look for good acquisition targets, and having this money in the bank will help the company fill in gaps in the product set should the right opportunity arise. “We don’t generally acquire revenue, but we are looking for good technology teams both in terms of talent, as well as technology that would help give us a jumpstart in terms of go-to-market.” It hasn’t been afraid to target small companies in the past, having acquired 12 already.

Freshworks, which launched in 2010, has almost 2,500 employees, a number that’s sure to go up with this new investment. It has 250,00 customers worldwide, including almost 40,000 paying customers. These including Bridgestone Tires, Honda, Hugo Boss, Toshiba and Cisco.

Google hires former Disney and Star executive to head its India business

Google said on Friday it has appointed Sanjay Gupta, a former top executive with Disney India and Star, as the manager and vice president of sales and operations for its India business.

Gupta will be replacing Rajan Anandan, who left the company to serve VC fund Sequoia Capital India as a managing director in April this year.

Gupta served as a managing director at Disney India and Star (which now Disney owns) before joining the Android -maker. He helped Star make a major push in the digital consumers business through video streaming service Hotstar, where he aggressively worked on partnerships and licensing for cricket rights and other content.

Hotstar has cashed in on the popularity of cricket — during a major cricket season earlier this year, Hotstar claimed that more than 100 million users were enjoying its service each day and more than 300 million were doing so each month. (Facebook roped in Ajit Mohan, the former chief executive of Hotstar, to head its India operations late last year.) Gupta also held top executive roles at other companies including Bharti Airtel telecom network.

Sanjay Gupta, a former top executive at Disney and Star, is now the head of Google’s India business

In a statement, Gupta said, “it’s an exciting opportunity to leverage the power of technology to solve some of India’s unique challenges and make Internet an engine of economic growth for people and communities. I am happy to join the passionate teams across Google and look forward to contributing to India’s digital journey as it becomes an innovation hub for the world.”

When Anandan, a long-time influential and widely respected Google executive, left the company earlier this year, Google said Vikas Agnihotri, who is the director of sales for the firm’s India operations, would be temporarily taking over the role. For Google, this was the latest in a series of high profile departures in Asia. Karim Temsamani, head of Asia Pacific (APAC) at Google, also left the company earlier this year.

Even as India contributes little to Google’s bottom line, the company has grown increasingly focused on India and other Asian markets to develop products and services that solve local problems and address barriers that are hindering growth in these markets.

In a statement, Scott Beaumont, President of Google APAC, said company’s operation in India “is important and strategic for its own sake but also for the innovation which then feeds breakthroughs elsewhere in Google.”

Gupta will also have to oversee some major challenges, including the fast growth of Facebook’s advertisement business in India and an antitrust issue with the local regulator.

Los Angeles-based BuildOps, subcontracting software for real estate, raises $5.8 million

Software development companies tackling services for niche industries, like commercial real estate subcontracting, continue to find Los Angeles to be fertile ground for development.

The latest company to raise funding from a clutch of investors is BuildOps, which raised $5.8 million in seed financing from some big names in the Los Angeles tech ecosystem.

Led by Fika Ventures, with additional investments from MetaProp VC, Global Founders Capital, CrossCut Ventures, TenOneTen, IGSB, 1984 Ventures, L2 Ventures, GroundUp, NBA all-star Metta World Peace, Oberndorf Enterprises, Wolfson Group, and scouts from Sequoia Capital, the new financing will be used to support the company’s continued growth.

BuildOps sells software that integrates scheduling, dispatching, inventory management, contracts, workflow and accounting into a single software package for commercial real estate contractors with staff ranging from a few dozen to several hundred employees.

Software for the service industry is nothing new for Los Angeles entrepreneurs. The unicorn ServiceTitan hails from the greater Los Angeles area and a number of other software as a service businesses are calling the greater Los Angeles area home.

It’s hard to argue with the size of the commercial construction market. Over the past three years commercial construction spending grew from $626 billion to $807 billion, according to data provided by the company. And while most large vendors — architects, general contractors and property management companies have some project management software, the fragmented group of subcontractors that provide services to those customers has remained resistant to adopting new technologies, the company said.

Co-founded by former ServiceTitan devel

oper Neeraj Mittal; Microsoft, Nextag, Swurv, and Fundly former executive Steve Chew; and Alok Chanani, who previously founded a commercial real estate company and was a former commander of a transportation unit of the Army in Iraq.

“At BuildOps, we are on a mission to bring a true all-in-one solution on the latest technology to the people who keep America’s hospitals, power plants, and commercial real estate running. We are privileged to be working closely with some of the country’s top commercial contractors,” said Chanani.

That sentiment is echoed by Liquid 2 Ventures managing partner and former National Football League superstar, Joe Montana .

“Liquid 2 Ventures has an investment thesis in supporting America’s working class and I just love the idea of making their lives far easier and better. You have one solution that does it all and talks seamlessly to every single part of their business from parts to ordering to inventory and more,” said Montana in a statement. “There are very few world-class technology solutions for commercial subcontractors like this and we believe in the founders.”

Don Valentine, who founded Sequoia Capital, has died at age 87

Sequoia Capital founder Don Valentine passed way at his home in Woodside, Ca., today at age 87 of natural causes.

Sequoia posted a tribute to Valentine shortly afterward, calling him “one of a generation of leaders who forged Silicon Valley.”

A native of New York, Valentine majored in chemistry at Fordham University before joining Raytheon in South California, then moving north to the Bay Area to work at Fairchild Semiconductor, where over the years, Valentine began investing his own small checks into technology companies that he was meeting. According to Sequoia Capital, he soon attracted the attention of an early mutual fund group, Capital Group, which staked Valentine, allowing him to form a $3 million venture fund in 1974. Among his first bets from that pool of capital: Atari and Apple. He later led the firm into numerous other high-flyers, including Cisco Systems.

Valentine continue to lead Sequoia until handing over the reins well before retirement age to Doug Leone and Michael Moritz, though he continued attending partner meetings for another 10 years. The partners have said they were happy for his continued advice and guidance — not that they always agreed with him.

In 2017, in keeping with the firm’s focus on succession and ensuring smooth transitions, partners Roelof Botha and Alfred Lin were made U.S. co-heads of the firm working under Leone, who oversees the firm’s global operations with Neil Shen, the founder and managing partner of Sequoia Capital China. (Moritz stepped away for health reasons in 2012, though he has continued to remain actively involved in the firm.)

Leone issued a statement this afternoon about Valentine’s passing, writing: “We are deeply saddened to share that Don Valentine passed away on October 25, 2019. Don’s life is woven into the fabric of Silicon Valley. He shaped Sequoia and left his imprint not just on those of us who had the privilege to work with him or the many philanthropic institutions that invested with Sequoia, but also on the founders and leaders of some of the most significant technology companies of the later part of the twentieth century. Our thoughts are with Don’s wife, Rachel, with his family, and with all those inspired by his pioneering vision and indelible impact.”

Valentine chose the name Sequoia because it “conveyed the longevity and strength of the tallest of redwoods,” according to the firm’s tribute today to Valentine. They note, too, the “humility of someone who refrained from putting his own name on our business.”

Valentine is survived by his wife; three children; and seven grandchildren, according to Sequoia.

Valentine joined TechCrunch at a Disrupt event back in 2013. He appeared along with another pioneer of the venture industry, Kleiner Perkins Caufield & Byers cofounder Tom Perkins . Perkins passed away in June 2016 at age 84.

From the NBA to Sequoia to TikTok and more, a week of national security concerns with China

It has been a tough week for China-U.S. relations. Vice President Mike Pence ratcheted up the administration’s rhetoric yesterday, calling the NBA “a wholly owned subsidiary of the authoritarian regime” in China while the league’s commissioner Adam Silver continued to try to tamp down the intensity of criticism over the league’s business, saying in an interview with the Wall Street Journal that “We have no choice but to engage and to attempt to have better understanding of other cultures and try to work through issues.”

The NBA was hardly the only challenge between the U.S. and China. This week saw the intensification of two threads of national security concerns continue to get airtime on Capitol Hill that could have massive ramifications for startups.

The first and potentially most potent thread is swirling around TikTok, the epically popular social video app that also happens to be owned and operated by China-based ByteDance. This week, senate majority leader Chuck Schumer and senator Tom Cotton of Arkansas circulated a bipartisan letter requesting an assessment of TikTok’s national security risks.

ByteDance remains the world’s highest-valued unicorn (which, perhaps in the wake of WeWork’s collapse the past two weeks, is not an epithet that any startup wants to actually hold these days). It has received major funding from the likes of Sequoia Capital China, and is currently valued at $75 billion.

Sequoia is clearly preparing for the worst around these national security reviews. Last week, the firm confirmed to The American Lawyer that Donald Vieira, a partner at top law firm Skadden, would be joining the venture firm as chief legal officer. Vieira has spent the last few years working on cases surrounding CFIUS, the Committee on Foreign Investment in the United States (WTF is CFIUS?), and earlier, was chief of staff of none other than the Department of Justice’s national security division.

That expertise will be critical as Sequoia potentially faces a tough reception for ByteDance in the national security circuit on Capitol Hill. Earlier this year, CFIUS required video game publisher Beijing Kunlun to retroactively divest itself of its purchase of gay-dating app Grindr over concerns that the app’s user data could provide Chinese intelligence and law enforcement officials with compromising material that would allow for individual blackmail.

While Grindr’s text messages may be far more compromising than the average TikTok viral video, the app’s small user base is dwarfed by TikTok, which has seen more than 100 million downloads in the U.S. alone. That potentially wide surveillance net is of acute concern for U.S. intelligence officials.

On top of that, of course, is the media’s heightened discussion the past few weeks that ByteDance could carefully calibrate the virality of videos on TikTok to hew toward Beijing’s censorship dictates. That has led to some teens posting various memes about the Hong Kong protests to see how far they can push the platform’s red lines (as teens are wont to do).

Strategically, the China angle has become very useful for Facebook, who faces a viable threat in TikTok’s popularity according to my colleague Josh Constine. Mark Zuckerberg has made China’s potential censorship within TikTok a major speaking point, which he emphasized in a major policy speech at Georgetown:

While our services, like WhatsApp, are used by protesters and activists everywhere due to strong encryption and privacy protections, on TikTok, the Chinese app growing quickly around the world, mentions of these protests are censored, even in the US.

Is that the internet we want?

Facebook’s strategic messaging starts to lead us to the other national security thread happing these days in DC. There have been wide concerns over the past few months on Capitol Hill over bids for subway, rail, bus, and other transit contracts from Chinese companies like state-owned CRRC and electric bus and battery manufacturer BYD . There have been motions to ban federal transit funding for projects that use vehicles from Chinese-subsidized sources.

A new report published this morning by Radarlock, a data-driven research organization, argues that Beijing is using access to these contracts to enhance its ‘civil-military fusion,’ by which China means learning how to manufacture and build leading global supply chains that help it in both private sector competitiveness and in military superiority. As the research leads Emily de La Bruyère and Nathan Picarsic write:

Through both data collection and technology, CRRC contributes to Beijing’s military and military-civil fusion [“MCF”] projects: Explicitly declaring, in its company documents, a role in the military-civil fusion strategy, CRRC has set up an investment fund dedicated to MCF; operates in MCF industry zones; shares technology, resources, and data with military-and MCF-affiliates; and assigns the MCF label to high-profile projects and centers.

Like Facebook though, these results are being highlighted by industry sources, with Politico Pro noting that Securing America’s Future Energy and the Alliance for American Manufacturing have been pushing a previous report on BYD around DC.

And that gets back to the challenges of future economic ties between the two superpowers, notwithstanding the latest developments in the trade war negotiation (which seem as likely to conclude as Brexit is to happen).

National security policy is increasingly being used by incumbent players as a cudgel to stifle competition. Many of those national security concerns are valid — and sometimes acutely so — but we also need to be extraordinarily clear that like any market restriction, there is ultimately a consumer cost to these initiatives as well. The Chinese may go without star-studded basketball as much as Americans will go without working subway cars, and that’s the cost of a relationship that has never been built on a foundation of trust.

The Station: A new self-driving car startup, Inside Tesla’s V10 software, Lilium’s big round

If you haven’t heard, TechCrunch has officially launched a weekly newsletter dedicated to all the ways people and goods move from Point A to Point B — today and in the future — whether it’s by bike, bus, scooter, car, train, truck, flying car, robotaxi or rocket. Heck, maybe even via hyperloop.

Earlier this year, we piloted a weekly transportation newsletter. Now, we’re back with a new name and a format that will be delivered into your inbox every Saturday morning. We’re calling it The Station, your hub of all things transportation. I’m your host, senior transportation reporter Kirsten Korosec.

Portions of the newsletter will be published as an article on the main site after it has been emailed to subscribers (that’s what you’re reading now). To get everything, you have to sign up. And it’s free. To subscribe, go to our newsletters page and click on The Station.

This isn’t a solo effort. Expect analysis and insight from senior reporter Megan Rose Dickey, who has been covering micromobility. TechCrunch reporter Jake Bright will occasionally provide insight into electric motorcycles, racing and the startup scene in Africa. And then of course, there are other TechCrunch staffers who will weigh in from their stations in the U.S., Europe and Asia.

We love the reader feedback. Keep it coming. Email me at [email protected] to share thoughts, opinions or tips or send a direct message to @kirstenkorosec.

A new autonomous vehicle company on the scene

the station autonomous vehicles1

Deeproute.ai is the newest company to receive a permit from the California Department of Motor Vehicles to test autonomous vehicles on public roads.

Here is what we know so far. The Chinese startup just raised $50 million in a pre-Series A funding round led by Fozun RZ Capital, the Beijing-based venture capital arm of Chinese conglomerate Fosun International. The company has research centers in Shenzhen, Beijing and Silicon Valley and is aiming to build a full self-driving stack that can handle Level 4 automation, a designation by the SAE that means the vehicle can handle all aspects of driving in certain conditions without human intervention.

Deeproute.ai is also a supplier for China’s second-largest automaker Dongfeng Motor, according to TechNode. The startup plans to offer robotaxi services in partnership with Dongfeng Motor for the Military World Games in the city of Wuhan next month.

Snapshot: Tesla Smart Summon

the station electric vehicles1Remember way back in September when Tesla started rolling out its V10 software update? The software release was highly anticipated in large part because it included Smart Summon, an autonomous parking feature that allows owners to use their app to summon their vehicles from a parking space.

We have some insight into the rollout, courtesy of TezLab, a Brooklyn-based startup that developed a free app that’s like a Fitbit for a Tesla vehicle. Tesla owners who download the app can track their efficiency, total trip miles and use it to control certain functions of the vehicle, such as locking and unlocking the doors, and heating and air conditioning. TezLab, which has 20,000 active users and logs more than 1 million events a day, has become a massive repository of Tesla data.

TezLab shared the data set below that shows the ebb and flow of Tesla’s software updates. The X axis shows the date (of every other bar) and a timestamp of midnight. (Because this is a screenshot, you can’t toggle over it to see the time.)

Screen Shot 2019 10 11 at 3.52.53 PM

This data shows when Tesla started pushing out the V10 software as well as when it held it back. The upshot? Notice the pop on September 27. That’s when the public rollout began in earnest, then dipped, then spiked again on October 3 and then dropped for almost a week. That lull followed a slew of social media postings demonstrating and complaining about the Smart Summon feature, suggesting that Tesla slowed the software release.

A geofencing bright spot

Speaking of Smart Summon, you might have seen the Consumer Reports review of the feature. In short, the consumer advocacy group called it “glitchy” and wondered if it offered any benefits to customers. I spoke to CR and learned a bit more. CR notes that Tesla is clear in its manual about the limitations of this beta product. The organization’s criticism is that people don’t have insight into these limitations when they buy the “Full Self-Driving” feature, which costs thousands of dollars. (CEO Elon Musk just announced the price will go up another $1,000 on November 1.)

One encouraging sign is that CR determined that the Smart Summon feature was able (most of the time) to recognize when it was on a public road. Smart Summon is only supposed to be used in private areas. “This is the first we’ve seen Tesla geofence this technology and that is a bright spot,” CR told me.

Deal of the week

money the station

There were plenty of deals in the past week, but the one that stood out — for a variety of reasons — involved German urban air mobility startup Lilium . Editor Ingrid Lunden had the scoop that Lilium has been talking to investors to raise between $400 million and $500 million. The size of this yet-to-be-closed round and who might be investing is what got our attention.

Lilium has already raised more than $100 million in financing from investors, including WeChat owner and Chinese internet giant Tencent, Atomico, which was founded by Skype co-founder Niklas Zennström, and Obvious Ventures, the early-stage VC fund co-founded by Twitter’s Ev Williams. International private banking and asset management group LGT and Freigeist (formerly called e42) are also investors.

TechCrunch is still hunting down details about who might be investing, as well as Lilium’s valuation. (You can always reach out with a tip.)

Lunden was able to ferret out a few important nuggets from sources, including that Tencent is apparently in this latest round and the startup has been pitching new investors since at least this spring. The round has yet to close. Lilium isn’t the only urban air mobility — aka flying cars — startup that been shaking the investor trees for money the past six months. Lilium’s challenge is attempting to raise a bigger round than others in an unproven market.

A little bird

blinky cat bird green

We hear a lot. But we’re not selfish. Let’s share. For the unfamiliar, a little bird is where we pass along insider tips and what we’re hearing or finding from reliable, informed sources in the industry. This isn’t a place for unfounded gossip. Sometimes, like this week, we’re just helping to connect the dots to determine where a company is headed.

Aurora, an autonomous vehicle startup backed by Sequoia Capital and Amazon, published a blog post that lay outs its plans to integrate its self-driving stack into multiple vehicle platforms. Those plans now include long-haul trucks.

Self-driving trucks are so very hot right now. Aurora is banking on its recent acquisition of lidar company Blackmore to give it an edge. Aurora has integrated into a Class 8 truck its self-driving stack known as “Aurora Driver.” We hear that Aurora isn’t announcing any partnerships — at least not now — but it’s signaling a plan to push into this market.

Got a tip or overheard something in the world of transportation? Email me at [email protected] to share thoughts, opinions or tips or send a direct message to @kirstenkorosec.

Keep (self) truckin’

the station semi truck

Ike, the autonomous trucking startup founded by veterans of Apple, Google and Uber Advanced Technologies Group’s self-driving truck program, has always cast itself as the cautious-we’ve-been-around-the-block-already company.

That hasn’t changed. Last week, Ike released a lengthy safety report and accompanying blog post. It’s beefy. But here are a few of the important takeaways. Ike is choosing not to test on public roads after a year of development, unlike most others in the space. Ike has a fleet of four Class 8 trucks outfitted with its self-driving stack as well as a Toyota Prius used for mapping and data collection. The trucks are driven manually, (a second engineer always in the passenger seat) on public roads. The automation system is then tested on a track.

There are strong incentives to demonstrate rapid progress with autonomous vehicle technology, and testing on public roads has been part of that playbook. And Ike’s founders are taking a different path; and we hear that the approach was embraced, not rejected, by investors. 

Screen Shot 2019 10 12 at 7.56.36 AM

In the next issue of the newsletter, check out snippets from an interview with Randol Aikin, the head of systems engineering at Ike. We dig into the company’s approach, which is based on a methodology developed at MIT called Systems Theoretic Process Analysis (STPA) as the foundation for Ike’s product development.

In other AV truck-related news, Kodiak Robotics just hired Jamie Hoffacker as its head of hardware. Hoffacker came from Lyft’s Level 5 self-driving vehicle initiative and also worked on Google’s Street View vehicles. The company tells me that Hoffacker is key to its aim of building a product that can be manufactured, not just a prototype. Check out Hoffacker’s blog post to get his perspective.

Nos vemos la próxima vez.

Sequoia shares wisdom with Disrupt SF Battlefield competitors and Startup Alley Top Picks

Editor’s note: James Buckhouse is design partner at Sequoia. 

Last Tuesday, the teams competing in Startup Battlefield at Disrupt SF, as well as founders chosen as Top Picks in Startup Alley, visited Sequoia Capital’s office in San Francisco for a discussion with partners Jess Lee, Roelof Botha, Mike Vernal, Alfred Lin and James Buckhouse. The following is a partial transcript of the session, which was moderated by Buckhouse.

James Buckhouse: We partner from idea to IPO and beyond, but it’s partnering at the idea stage that we love the most — that moment when anything is possible. And it’s happened throughout Sequoia’s history. YouTube incubated in our office. Dropbox was an unreleased demo. Stripe didn’t have a single line of code. Apple was just two dudes named Steve. And so our favorite place to be is in the earliest moments.

We’re not here tonight to share with you lessons of our great wisdom on how company building ought to go. We’re here tonight to say that we understand how hard it is. And the three partners that you’ve got here to talk with tonight — Roelof BothaJess Lee and Mike Vernal — are people who have actually been in the trenches building companies themselves.

Customers

James Buckhouse: Great companies like Apple, Amazon and Zoom all have this one thing in common: customer obsession. That’s an easy thing to think about when you already have a billion customers, and you already have a bunch of money. But what do you do when you’re at the pre-seed stage and you want to be customer-obsessed but you don’t even have a product yet, let alone any customers? How do you even begin?

Jess Lee: I think at the very earliest of stages, all that really matters is product market fit. A common mistake we see is that a founder is only obsessed with the product, and then goes on to think, “I have my product. Let me go find a market that works for this,” when it should actually be the other way around. You should look at the market first, and then get to know the customers in that market by doing customer research.

There’s a great book by Erika Hall where she discusses how to ask the right questions to customers in order to really understand their pain points, their motivations and their needs. That’s a hallmark of some of the best companies that we’ve seen, even at the earliest stages. They spend a lot of time talking to customers and understanding what they want. Something we at Sequoia like to recommend when we work with seed and pre-seed-stage companies is to actually take the time to write down a set of customer personas. Who are your prototypical or your archetypes of different types of customers? In the very early days, you might think, “I know the customer. I can remember this. I don’t need to write it down.” But as soon as you add one new team member, who maybe isn’t as familiar with your customer, a lot of things get lost in translation.

For my company Polyvore, which was in the women’s fashion space, I had a lot of engineers on my team who were men and didn’t understand women’s fashion very well. I would always beat my head against the wall wondering why a feature they designed didn’t quite make sense, and it’s because we did the personas exercise a little bit too late. It made me wish we’d done it earlier. Once we had three very clear personas, I started to notice everything ran more smoothly. I found, whether it was the sales team or the engineering team, people started to clearly communicate the idea of what our customer really wanted. People made better decisions at all levels. That’s why at Sequoia we always encourage even our earliest-stage companies to write their customer research down immediately, way before they think they need it.

Product

James Buckhouse: How does an early-stage startup make sure that they’re on the right track and building the right product?

Mike Vernal: The key thing to me is actually not being data-driven; it’s much more about being hypothesis-driven. The problem is people think about product as art. But I actually think of product as being equal parts art and science. And I think the science part of it, which is really important, especially at an early stage, is being clear about what your hypotheses are, what you think is going to work, why you think it’s going to work and really sort of pressure-testing that on a logical level. And, if you are able to, actually pressure-testing it with real data.

One of Jess’s techniques, which I think is great, is the notion of fake doors. If you want to know whether something’s actually going to hum in the market, whether people are going to care about it, build a landing page for it. Build a sign-up button for it. Run a bunch of ads for it. Test a bunch of different marketing copy and see if people actually want the product. I’ve seen a bunch of companies use this to great effect.

I think that in general the mistakes people make with product is, one, being too artistic and not scientific enough about things. And then two, to Jess’s point, the most important thing before you have a product is finding product market fit. Usually, finding product market fit in a category is a function of two or three important things. Identifying those important things and testing them to get clarity around that first, then designing the full product, is way better than just starting with a masterpiece, and then slowly painting over and over the masterpiece until you get to something that is great.

James Buckhouse: For enterprise companies, Roelof, can you talk a little bit about the Sales Ready Product and Templeton compression approach?

Roelof Botha: If you go to our website and search for Sequoia Sales Ready Product or Templeton, you’ll find very useful content that we put together. The insight came from one of the best leaders that we’ve worked with, in a variety of companies, who argued to not just go for an MVP, a Minimal Viable Product, if you’re building an enterprise company, but what he termed a Sales Ready Product, an SRP.

The difference is that a Minimal Viable Product just gets over the hurdle but doesn’t convince your customer to jump out of their seats to buy your product. When we invested in Cisco in the late 1980s, the first product they shipped had so many bugs it didn’t work. But the product solved such an important need for the customer that they came back to Cisco and asked if they could fix it since they needed the product to work so badly because there was a fundamental problem in trying two networks at the time. And that to me was a Sales Ready Product. You’ve got something that, even if it’s not perfect, really solves your customer’s pain point.

And so to condense the whole theory behind this: Spend a little bit more time, probably another three months, maybe another four, five months, from when you would otherwise ship an MVP to ship an SRP. The reason it matters for an enterprise company is that your sales organization will be so much more effective. Your sales team will ramp up a curve far more steeply and you’ll get sales momentum much, much faster if you sell an SRP.

Culture

James Buckhouse: I’m going to do something a little bit unexpected here and call on Alfred in the back. Could you talk a little bit about what it was like at Airbnb, where they started with culture very early on?

Alfred Lin: Brian, Joe and Nate came and visited Zappos, where we offered tours, to see what the culture was all about (Alfred was COO of Zappos). At Zappos, we started writing down our core values a little late, when we were at about 300 people. And I told Brian, Joe and Nate that that was too late.

After that trip, they went back and wrote down their core values, before hiring their first employee. They knew that they had to create a new category. Home-sharing was not something that people really thought about. And so they needed people who were willing to champion the mission. And that was one of the first core values that they wrote down.

James Buckhouse: Oftentimes, people think that culture is the thing you do later on, once your business has grown large and suddenly you have a lot of people. But that’s not true. Culture matters a lot more than people think. And it matters earlier than people think. Jess, can you talk about your framework on core values?

Jess Lee: This is something we spend a lot of time on with seed and pre-seed companies, who think, “Oh, I already know my culture. I’ll wait to write it down later.” But it’s important to get it right up front. We encourage people to not pick too many core values. Generally, you want a framework that’s a core value and the behaviors you want that exemplify that core value. And most importantly, you need a story. You need some legendary anecdote or example from inside the company that really brings the core value to life.

To use Airbnb as an example, one of its core values is to be a cereal entrepreneur. The reason it’s cereal with a “C” is because at the time, Airbnb was running out of money. They weren’t sure they had product market fit, but they went to the Democratic National Convention to try the Airbnb idea when they were down to the wire in terms of money. In order to just get the word out about the business they made boxes of cereal that said “Obama-Os” and “Captain McCain.” It’s a good example of rolling up your sleeves and doing whatever it takes to get your business launched. Somehow, they actually managed to generate revenue that they put back into the business. The really memorable part of that is the cereal anecdote. Whatever it might be at your company, make sure that the lore lives on. That’s really what brings culture to life. It’s not just the value itself.

James Buckhouse: Roelof, can you talk a little bit about the culture at PayPal in the early days?

Roelof Botha: There are a couple of elements in that. One is this idea of intercept versus slope. For those of you that are fans of math or science, it comes naturally, but sometimes you get to hire people who have a high intercept. They have a lot of experience. In our case, we needed to hire people who knew a lot about financial services, because we as the early, young team didn’t. You hire people with intercept, but then you want people with slope. People who are going to learn very quickly. And at the end of the day, part of what made PayPal successful was that we had a good slope and we learned very, very quickly.

Our culture was very hard-working. We faced a bit of a crunch in June of 2000. We’d raised a bunch of money during the dot-com era, and then we were sitting with seven months of runway and no revenue, burning $10 million a month. It was a “you’re all-in” culture. Management meetings were on Saturdays, because that’s the kind of sacrifice we were going to make as a team to get to the other side. Culture was really important to the success of the company. We had a strong bond between us as team members because we were in the trenches. We had to figure out how to make this business work when the odds were against us and the press had given up on us.

Most people on the outside are going to think that you’re going to fail. Expect that. Don’t be surprised by that. Draw strength from that, and rally your team around your cause. You should ignore that kind of feedback.

Leadership

James Buckhouse: How do you discern a strong founding team?

Roelof Botha: My favorite, especially with companies at the seed stage, is to have no slides and to have a conversation with you about your business. What I find compelling is, the more I dig, the more excited I get, because your depth of knowledge, of understanding the problem that you’re trying to solve, shows itself. There are a lot of people who start companies for the wrong reasons, and they have very superficial knowledge. So as soon as you start to pressure test it, it’s clear that there’s no depth.

The founders who are the best are the ones that are so motivated to solve the problem they’re working on, they’ve researched everything. You would have found a simpler solution to the problem if you could, and you didn’t. That inspired you to start this company. As I ask you questions, you just have this depth of knowledge. You’ve thought about it so many levels deep. Those founders are the ones that keep coming up with new ideas, and that’s why their imitators don’t do so well. We see this in our industry. You come up with a great idea, TechCrunch writes about it, everybody around the world reads about it and now you’ve got 15 competitors in other countries going after what you’re doing. But guess what? They didn’t have the idea, you did. Since you had the original idea, you’ve thought about it more deeply and you can iterate faster than they can.

James Buckhouse: Jess, how about you? What do you look for to discern a strong founding team?

Jess Lee: I do agree, and I think different investors look for very different things. There is probably a notion of founder/investor fit to some extent. For me, I especially appreciate a unique insight and depth of understanding of that customer and that market. But on top of that, the other thing I think about is grit. I think that being a founder is so hard. I felt like I was on the struggle bus the entire time. Either we weren’t doing well, which was a struggle, or we were doing really well and then we were in a state of hyper-growth, and that’s also really hard. Your job changes underneath you every six months. Because even if you’re successful, everything that used to work for you as the CEO or founder is now broken because your team is now 50 people instead of 10.

What is it driving you, to either solve this problem or just driving you in general? Because it’s just not easy, and folks who give up too easily or came into this because they thought being a founder was going to be really cool, it’s not that cool all the time, so I look for that. Sometimes it shows up in the form being really mission-driven, and you have some burning desire to solve the problem. Sometimes it’s just that you’ve been underestimated your whole life and you’re really mad about it, and you want to prove yourself. There are a lot of different ways to suss out grit, but that’s one big thing that I look for.

One thing I also like to see, that is not a must-have but I find very compelling, is if you’re a good storyteller. I think that at the end of the day you have to convince your family that you’re not crazy for quitting your job to pursue this thing. You’ve got to convince early employees to join you when you can’t pay them any money. You’ve got to convince early-stage seed investors to take a chance on you and give you money when there is nothing there yet. And you’ve got to convince customers. Being able to tell a good story, both taking something complicated and making it sound simple, as well as being able to influence and talk about why your approach is interesting and different, not just better than the competitors. I look for that as well. I think that’s important.

One area where I do disagree with Roelof is that I do prefer to see slides. I think it showcases your storytelling ability. I look at a lot of consumer companies and your attention to design and detail is also an interesting thing that you can suss out with slides.

James Buckhouse: How about you, Mike?

Mike Vernal: If you can’t describe the business in a minute or two, then you need to keep iterating. Some bad meetings end up as the following: Someone will come in with 40 slides and want to convey all of the knowledge in the 40 slides in excruciating detail.

I think a couple of things. One is, many investors look at a lot of companies all day long so they might actually know more about your space than you might think. Then two, if you need 40 minutes to explain the business, marketing and all of these other things, then for an investor meeting that might work because you have that time scheduled, but for the random engineer you meet at a party who you want to get excited about joining your company, that’s going to be really hard.

The best pitch is when I’m two minutes in and I’m like, “I get the business. This is super interesting. Let’s ask all these questions.” The tough ones are 40 minutes of being talked at, where there is no real interaction.

Capital strategies

James Buckhouse: Different types of companies need different types of capital strategies. How do you all think about how founders ought to think about their strategy for capital?

Jess Lee: It’s really important to think about three things: First, what is the actual cash you need for your business? If you’re a pure software business you don’t usually need as much as if you’re building hardware or you’re making physical goods.

Second, what is the valuation that actually makes sense? True valuation, when you become a public company, when you do M&A, is actually a function of your free cash flow, or a multiple of your revenue, so just being able to understand in the long, long-term what is a likely five, 10-year-out valuation, and then making sure you don’t overshoot that just because you can. That’s another first principle.

The third thing is ownership. Doing the math, if you don’t need to raise a lot of money, if you don’t need to raise as many rounds, at the end of the day when ideally your company is acquired for hundreds of millions of dollars, or billions of dollars, or you IPO, what is your ownership at that moment? We have founders like Dropbox, that when they went public, Drew and Arash owned nearly 40% of the company. So you have to think — would you rather have 40% of a $10 billion company, or would you rather have 2% of a $20 billion company? That ownership at the end of the day is really important. So you have to think about those three things, which is a pretty complicated equation.

It really hit home for me when my company, Polyvore, went through the M&A process and it suddenly hit me that all the acquirers were not using funny VC math. They were looking at our cash flow and the multiple of revenue. Luckily, we hadn’t raised that much money, as I’d wanted to keep as much ownership as possible. I was optimizing for ownership for the team. Because of that, we actually had a really nice outcome, where everybody made money because we hadn’t over-raised since we didn’t need to. We were a pure software-based, capital-efficient kind of company, but I think not enough founders think about that from first principles, starting from the early days. They just look at who’s raising what, and how much they could possibly get. They want to maximize that, when in reality, it’s not actually the right way to think about it.

Roelof Botha: When you raise money, you’re recruiting a partner. I see too many companies, especially seed-stage companies, make the mistake of accepting funding from whoever shows up, when that’s probably the most expensive equity you’ll ever sell in your business. You could potentially be selling it to people that are not going to be there six months or six years from now, helping you close a candidate, helping you wrestle with an important strategic decision or helping you refine your business model. Those people aren’t going to be there, so it’s a recruiting decision. Take it seriously. It’s also important to check their references. Your investor is going to do references on you. Why aren’t you doing references on them?

First mover advantage: Does it matter in startup fundraising?

We know the world of startup funding is competitive. In fact, I’m speaking at TechCrunch Disrupt on this very topic alongside pre-seed investor Charles Hudson of Precursor Ventures, early-stage investor Annie Kadavy of Redpoint Ventures. I’ve also written extensively for TechCrunch and ExtraCrunch about how founders can optimize their pitch decks to make the most of the 3 minutes and 44 seconds the average VC will spend looking at their deck. We’ve also analyzed the best time of year founders can fundraise to get the most attention from potential investors.

But what can VCs do to make sure they’re getting the biggest piece of the most promising looking companies? We dug into how founders choose their lead investor to gain some insight into how a VC can become more competitive in a rapidly growing market.

Before we dig into the numbers

The data included in this research came from companies that explicitly opted in to participate by responding to an automated email sent to them. We are incredibly appreciative to these founders for making this research possible. You can read more about our startup opt-in process and other aspects of our methodology here.

In this article, I’ll talk about how founders choose their VCs, both in oversubscribed rounds and non-oversubscribed rounds, and how investors can use that information to beat out their competitors.

For VCs, competition is getting harder

Getting a startup funded is a massive hurdle. The good news is there’s actually far more money available now than just a few years ago. In fact, in the first half of 2019 there was $20.6 billion in new capital introduced into the startup market.

Larger funds typically known for investing in later stages have introduced seed funds so they can invest with promising businesses earlier.  Kleiner Perkins announced a $600 million early-stage fund in January, GGV raised a second $460 million “Discovery Fund” last year, even Sequoia Capital operates a scout program with a $180 million fund.

This means smaller funds or those who only invest in earlier rounds might get overlooked when founders are looking for investors.

Investor meetings are a two-way street

In addition to having to compete for the best deals, VCs don’t get it right every time. For every Uber, there are hundreds of Juiceros. The reason they only spend a few minutes looking at a pitch deck is because they’re constantly looking at pitches in hopes they’ll come across another unicorn.

But while it seems like the investors are holding all the cards, if founders optimize their pitch deck and book their meetings in a short window, they can actually create a sense of urgency for the VCs. We’ve seen this recently with the amount of founders reporting oversubscribed rounds.

When looking at how founders chose their lead investors, we discovered that there was a massive difference between those that raised oversubscribed rounds and those that didn’t.

Being the first to move means a lot, until it doesn’t

What was the number one factor in founders deciding on who to choose as their lead investor? We found that nearly 48% of founders chose their lead investor because they were the first one to make the offer.

Anecdotally this makes sense. When DocSend was raising we received a lot of “maybes” during our first few meetings. However, once we had a term sheet most of those “maybes” flipped to a firm “yes.” In fact, many investors that had originally promised a $25k or $50k investment if we found other backers were suddenly asking for $300k or $500k.

We had so many investors interested that our round was oversubscribed and we had to make some choices about who we wanted as an investor. That could have been avoided if any of those VCs had simply acted first.

But when you look at the data a different way, we found that moving first was significantly more important in oversubscribed rounds than those that weren’t. And the more oversubscribed they were, the more valuable moving first becomes.

For founders whose rounds were more than 20 percent oversubscribed, 60 percent of them chose their VC because they came in first with a term sheet. But that dropped to 50 percent for founders that were only slightly oversubscribed and all the way to 38 percent for those founders that weren’t oversubscribed at all.

While we would have thought name-brand VCs might move first, and that top tier interest may cause an oversubscribed round, we found that not to be the case. In both oversubscribed and non-oversubscribed rounds 28 percent of founders reported that a name brand factored into their decision. And for those who chose a name brand investor, only 33 percent of those founders reported that their lead VC moved first. 

The more oversubscribed a round is, the more likely it is that some VCs aren’t going to make the cut. To avoid being the firm that didn’t get the deal it’s best to move quickly when you see a company you like.

A fast round isn’t always an oversubscribed one

Another surprising thing that came up in our research was the amount of time founders spent raising and how that affected their decision making. While we assumed oversubscribed rounds happened significantly faster than the average of 11-15 weeks, we found that oversubscribed rounds only came in slightly under, at 8.6 weeks. However, there was a lot of variability in that number.

We saw some oversubscribed rounds close in as little as 3 weeks and some take as long as 20. So there’s no way to tell whether a round will be oversubscribed based on the time spent fundraising. This means that even if you meet a founder who’s been raising for 10 weeks, it’s still smart to move quickly if you want to be the lead investor.

We would have also thought longer rounds would have benefited the first term sheet more, but there was virtually no difference in the impact of the first acting VC when looking at time. When looking at founders that spent less than 12 weeks raising and those that spent more than 12 weeks, there was virtually no difference in the percent that chose their lead investor based on the first term sheet (at 47 percent and 48 percent respectively).

Terms only matter in oversubscribed rounds

When choosing your lead investor, you would think the terms would be a significant reason to choose one VC over another. But we found that it was barely a factor for most people. In fact, only 4 percent of founders who weren’t oversubscribed cited terms as a major factor.

They instead focused on VCs that had experience in their industry (at 42 percent). But for oversubscribed rounds the percentage of founders who chose their lead investor based on terms shot up to 38. Meaning when the round gets competitive, so do the terms. But they still gave an edge to that first term sheet they received.

Interestingly, a potential deciding factor in oversubscribed rounds could be how well the VC and the founder get along. In those rounds that were significantly oversubscribed, over 46% of respondents said how well they got along with their VC was a factor in choosing them to be the lead. Compare that to only 19% of founders in non-oversubscribed rounds who cited rapport as a key factor in choosing a lead investor.

For many smaller firms getting edged out by bigger players boasting multi-stage funds, it may be as simple as being decisive and personable when it comes to landing the most competitive investments.

Not all is predictable on Facebook’s social Horizon

Most of the people I spoke with at Facebook’s Oculus Connect see the proliferation of virtual reality as a foregone conclusion, one that’s just a matter of timing at this point. For Facebook, the conference’s “The Time is Now” catchphrase showcased that they feel their hardware is ready for everyone.

But despite the success, they feel like they’ve tapped into when it comes to hardware iterations, the company’s bread and butter social networking prowess feels like it’s barely improved in-headset in the past several years of VR experimentations.

“On the social side, looking back, it’s kind of embarrassing all of the stages we’ve gone through at Oculus,” Oculus CTO and veteran programmer John Carmack conceded onstage during his signature rambling annual keynote, noting that his own social APK was followed by Oculus Rooms, Oculus Venues, Facebook Spaces and now the company’s latest shiny pearl Facebook Horizon.

Horizon’s debut this year included a flashy trailer for what quickly seemed to be the company’s biggest gamble and first potential social hit, a massive multi-player online world. In introducing the software, Zuckerberg talked about people-centric software as Facebook’s “bread-and-butter,” noting, “We build a lot of the best social experiences for phones and computers, and we want to do this for virtual reality as well.”

But Facebook does not actually appear to hold that much of an advantage over much smaller game studios in terms of understanding how to make social virtual reality experience take off.