CRV's George Zachary on His Relationship To Money and How it has Changed Over Time

Thank you very much, Harry. It’s a pleasure to be here.

Well, it’s an interesting and funny story. I got involved with computers when computers were called computers and there was no internet in 1977. My career was kind of a river of startups where I was involved as a co founder. Sooner or later that led up to the year 1995 when someone asked me if I wanted to be in the venture business and I had no idea what that meant. And I kind of thought it was about country clubs and playing tennis. And I initially turned down what the job was because I thought it was about doing those things.

And sooner or later, I realized it was about meeting super interesting people that wanted to start doing new cool and exciting things and having a chance to work with them. And I thought that was fantastic. And then I realized it was a great thing to do, an exciting thing to do and a chance to learn about exciting ideas and I decided to do it.

Well, it was exciting to see the blowout of two thousand and two thousand and eight, exciting in the sense of the overall energy that gets created and dissipated the overall mania that gets created in society. I think the way it affects me is I can see the onrush of excitement and human behavior, and it’s really an animal spirit sense. And the way it affects me is I don’t really get caught up in it. And in fact, I tend to shy away when I hear people starting to get super excited and super crazy about valuations.

And I tend to be a naysayer slightly doubting of when things are about to get overvalued and people in the room tend to look at me and think, okay, is George just kind of doubting how richly valued this be? But remember, this is me thinking about what they’re thinking about richly valued. It kind of, I always feel like, okay, I’m becoming the old person because I think it’s a richly valued. I think in the year 2000, one of my mentors thought this as well. I remember him telling me, George, what are you thinking?

This thing is completely overvalued. You should sell this company to this other company. And I remember thinking, what is he talking about? And now looking back, I remember exactly that he was right. I should have sold the company and we did. And we ended up getting out. That’s a very long way of telling you, but I guess just to rephrase it, it’s made me think about being careful about getting involved in capital intense projects that the further on you are in the cycle, the more careful you should be about financing companies that will take lots of rounds of capital.

It’s the old Warren Buffett quote of I’d rather invest in a great company at a good price versus a good company at a great price. What I’m always looking for is my internal conviction and feeling of being compelled to want to invest. So that’s number one. And number two is, is this basically a good price for entry? And it’s a lot easier of a decision if you’re an early stage investor, as opposed to a mid stage or growth stage investor, where you can get bitten by the public market valuations.

So that’s a lot easier. And you also have to basically allow yourself some flexibility on the pricing, but when things really get out of control or when the valuations basically quintuple, like let’s suppose you have a standard kind of $20,000,000 valuation three years ago for a Series A and all of a sudden it’s a $100,000,000 valuation. When I was in the business twenty years ago, a seed deal was $300,000 and a seed deal meant that there’s actually a deck with probably a prototype. What people might call a Series A today.

I’ve heard this my entire career. My batting average in venture is very high statistically compared to most people in venture. I’ve had this my entire career and I do not know why it comes basically from the sense of listening to the founder and listening to the idea of what they’re doing, being very focused on everything they’re saying and not paying attention to some report that says this market is blah, blah, blah, billion dollars, etcetera, etcetera. Feeling how excited I personally feel, not because of my vision of what the business should be, or what one of my partners thinks.

It’s really do I feel excited listening to this person? One of the first investments I was involved with was in early nineteen ninety six. And I was involved with supporting the original partner in us backing Elon Musk’s first company. And I remember when I first met Elon, I was like, wow, this guy is really smart. And I’m excited about what he’s doing. And it was literally, you put in the first address you’re starting from the ending address and it prints out a map and everyone thought it was kind of a dumb idea because there was quote unquote physical maps, but I felt compelled by Elon because he had this core of excitement and of intelligence.

He was just in a physical presence that I felt bad. And I have no idea why I have this. I have lots of theories. I grew up in New York City, in Manhattan and Queens. I was exposed to thousands of people, maybe tens of thousands of people on the weekends because my parents and I would go walk around in Manhattan. So I had to quickly develop senses of people of who were friend and foe. So I got a sense of the energy of people, a sense of people quickly.

That probably helped, but I don’t really know just kind of that way.

You know, there’s a difference between, well, that is what people call charisma. I think there’s force of will, which is different than charisma. One of my mentors, Catherine Gould, who has passed away. Catherine used to work for Larry Ellison when Oracle had just started. She was a fantastic investor in late eighties, early nineties. And what Catherine told me was that you want to go after the founders who just want you out of their way. They don’t want help. They don’t want coaching. They basically want the money and they just want you out of the way.

I remember asking her, well, why is that true? And she said, well, the Steve jobs or Larry Ellison want coaching. Because they think they know what they’re doing. They’re really smart. And there’s already some proof that the business is working. And the last thing you should do is get in their way. Most of the great founders that I’ve met, they will listen to the data and act, and they’ll also listen to you, but they’ll take your input into account, but they’re not going to necessarily do what you want.

And I haven’t found them to be particularly charismatic. They do have this force, this willpower. So I would agree with you. There isn’t necessarily charisma, but there’s this kind of force field that seems to pull people in. People have called Steve Jobs a charismatic figure. It’s really just, he brought people into his force field.

Well, it doesn’t make a difference whether I invest a cent or $10 or $50 My ideal thing to do would be to invest no money and to get a lot of returns. So a lot of times people think, Oh, you know, we have a X dollar fund and I have to invest the fund. So how many checks do I need to write to invest the fund? It doesn’t really make a difference that what makes the difference is the returns and limited partners don’t pay us for investing, they pay us for creating returns.

And a lot of times people lose sight that the only thing that matters are the returns. Don’t think about what the investments are in terms of investing. It’s not about the check writing business. It’s about using the check writing to create the returns. So if you lose sight of the returns, the business is over. And a lot of this thinking started when the fund sizes started to become large and people started living off of the management fees. So the incentives started to diverge from the limited partners incentives.

And people started thinking of it as an investing business as opposed to a returns business. This became prevalent in the mid to late nineties.

Well, don’t think you’re seeing it wrong. That’s the outcome a lot of times, but ten, twenty years ago, I got in the business, there were certainly outcomes that were a million or $5,000,000 and or $10,000,000 and that $10,000,000 was a huge outcome for the founders. A real estate in the Bay Area was a lot cheaper back then. You could buy a really nice home for a million and $0.5. Really nice home in Palo Alto was a million dollars, not $10,000,000 So I think the cost structure of living and having a great life also changed.

So I think in terms of fund size and returns, I do think fund sizes have gotten too large and it really took off after Google and predominantly after Facebook in terms of the misalignment of founders and investors check sizes. It’s always been said to be true the entire twenty five years I’ve been in the business. And I don’t think that will completely go away. And that’s really built off of what does the founder need as a person versus a portfolio for the venture business. If I’ve got a portfolio, that means I’ve gotten multiple investments for the founder.

There’s just one investment, the 30,000,000 to that person could mean a big deal to a venture investor. They’re not going to get $30,000,000 for themselves individually for being on that board when that company works out, that’s kind of a large difference. So they may be motivated differently. I think in terms of the fund size, that $30,000,000 of the fund size is $500,000,000 It just means there’s a different outcome size. And it doesn’t mean like that it’s bad. And sometimes it’s the logical outcome, and no one should be ashamed about it or upset.

Well, it’s pretty interesting. First off, I met David right after PayPal was acquired by eBay. And the way I met David was through Elon Musk, because I knew Elon well, we had become friends. And I remember Elon telling me, you have to meet this guy, David Sachs. I worked with him. He is the smartest guy in the management team at PayPal. Okay. That was a lot coming from Elon back then, even though Elon was not very well known. So I met David and we were friends and we stayed friends well before genie got started.

Well, genie was not working out. And the thesis behind genie was that there would be a social network for people above 30. Unfortunately, Facebook expanded into that segment. So that didn’t work out. In the process of building Genie, David developed Yammer to basically help the development team, the engineering team quickly build out features. David and I had discussed Twitter and Facebook and their ability to help people talk to one another and quote unquote, be more productive and what the gaps were in that productivity. And I really liked how David was thinking about those kinds of features.

I noticed that his thinking there was different than some of the Twitter founders. And because I was involved in Twitter, I knew how the Twitter people thought about communication. David thought about it in a completely different way. So I was really impressed with David’s thinking. So I just had a sense that David was going to build a great business. And my feeling about David was a super smart person. I was completely compelled that David was going to create a big company. He was compelled and needed to build a great company.

And that’s one of my key criteria with founders is does this person need to create a big company, not just want, but need to, which will create a persistence that follows through their entire life almost to build and create companies. That’s David.

My own personal theory is that this person or persons have some type of psychological need to quote unquote win. And the winning is based on mastering chaos and is a continuous need of mastering chaos. It’s not just, okay. I put some points on the board. It’s they need to show themselves. They need to satisfy some type of biochemical loop or psychological loop in their brain that they can master chaos. And it probably evolved when they were young kids in some loop. And my own personal theory is that it has to do with chaos in their home environment.

I’ve noticed that beyond my own portfolio in a wider portfolio that it has to do with some type of parental instability. And it’s usually one parent or the other. Sooner or later, I think I’m going to write a book about this, not about people in my own portfolio, but on a pretty wide founder group. And I do believe that parental instability or home instability leads to a situation where the smartest and most interesting founders who are strong enough, I would add, sooner or later learn how to master chaos because they had to survive in it.

And by surviving and mastering chaos, they will repeat that over and over in their lives as a tool to get through intellectual challenges, as well as monetary challenges, and they’ll just keep doing it. And that’s one of the reasons why successful founders, quote unquote, keep starting companies, because they need to do it. Not because they need to do it for money, but because they need to do it for their own minds.

Well, even before it gets to that point, I have a pretty good sense that this has occurred for someone. Before I even thought about getting into venture business, while I was an undergraduate at university, I actually studied a version of psychology having to do with biology and computational linguistics at MIT. It was kind of a weird course, I ended up coming out really that it had to do with a version of neuroscience and during the developmental period. And this is kind of what led me to these theories that I just discussed with you.

That’s a great question. Up until that point in my career in roughly twenty three, twenty two years, I had invested about $240,000,000 So I’ve never been a person just to write a ton of checks and throw darts at a wall and see what happens. I hadn’t invested a lot of money. I wasn’t a growth investor. I wasn’t a big check writer. I’d met TJ Parker, the founder, co founder. I just thought TJ’s background being in pharmacology was perfect. Exactly coherent with what he was doing. So that’s one of the things I look for is coherency with what the company is about.

So it wasn’t like TJ was building a rocket company, for example. I mean, he wasn’t doing what Elon’s doing now. His personal interest was not rockets. It was in pharmacology and helping people. And it was a people view of it. So for me, I knew that that’s where his heart was and he understood the human problems. So I instantly knew that I knew this was a big issue for people managing prescriptions and integrating it within our lives. I’ve had family members who’ve had to do this probably because now I’m a 54 year old person and I’ve had elderly people in my family have had to manage the prescription issue.

But you know, that’s a market issue, but with TJ, I hit it off with him on day one that I met him. By day four, I was shaking hands with him on a $30,000,000 check. And I remember he was asking me on day three about, okay, let’s go through all the diligence on the data. And I was like, why? And he’s like, okay. And I was basically two steps ahead of everyone in the venture business.

At that point on investing, I didn’t really need to get into tons of data on the diligence because I was absolutely convinced that this person who understood pharmacology, who was doing this for human centric reasons, as opposed to, Oh, I want to sell drugs off of a catalog for the cheapest price available, was committed to building something that would help people. I just had an absolute strong sense that this person was capable of doing it. Now, the biggest question I had was whether he would be capable of beating the incumbents or someone with the biggest distribution like Amazon.

Sooner or later that became a terminal proposition of the company being sold to Amazon.

I’ve always been in a human first data second.

Yeah, there’s different styles that have worked. In 1995, ’96, when I got in, there were about 50 people that entered into venture. And as of several years ago, there were about five of us left. Most of the people were exited out of the business in the first four or five years. And of those five that were left, almost all of us are driven by the human side of things. And then basically use the data side of things to help make decisions. And we look for the same thing in the founders.

So we look for founders that are human centric people that also use the data to drive the business. And interestingly, the investors are the same way also. So there is a corresponding method of determination.

Well, anyone can make up what the market size is. If someone had said, oh, you know, there is no market for Yammer for ground up messaging between person to person that everything is just email. You could easily prove that Yammer wouldn’t exist and that there was no model for it. So meanwhile, someone else could show up and say, Hey, there is something like this. There should be a Twitter for enterprise. So I don’t really ever trust market sizes. It’s really in the mind of the decider in the mind of the founder.

You know, I was to look back at the early part of my career, for example, people wouldn’t believe this, but Yahoo was just a list of restaurants and places to go. It was like just a list. It was a website that you went to and it was a directory list. It was not anything else. And lots of venture investors passed on it because it was just a list on like four web pages. That was it. A friend of mine was the co founder of eBay. They were passed by everyone because the majority of venture investors with the exception of one all told them who would come to a website and buy things that are a flea market.

And why would that produce a lot of margin? Like, why is that a big enough market size that a venture outcome would be produced? Like there was no view that there would be a network effect dynamic. There wasn’t the concept of network effects in the mid nineties. So I would say you need new types of investors to conceive of new models. And I think that’s probably why venture investors that are younger tend to enter and think about and go along with new innovative models. And I also think that’s why venture people at a past a certain age point exit out of the business.

They can’t learn enough.

Completely agree with you.

Well, those are all really great questions to ask. I would say the first one is I had a personal health challenge where well, is a simple word of putting it where someone told me I might have a very aggressive form of a cancer potentially. And it really scared me because you never liked to hear that you might die soon to put it lightly.

And I just saw lots of people who didn’t have as much money or education as I did not be able to take time off of work or learn as much and read as much as I could because they didn’t have time off of work or have access to resources like I did, being able to go find professors or find doctors in other parts of the country to go speak with. And I was just really persistent about that. So that was one thing that showed me that there are resources that can be tapped for people to learn so that they can take control of their health.

But it also showed me that it is so difficult to become an advocate for your own health in this overall system in The U S and I’m sure it’s actually true in the entire world. The other thing it showed me was that I couldn’t personally really change the overall health system. And that was very frustrating, but I had this determination internally that I wanted to do something to contribute. Since I really liked science and engineering, I believe that the best way to do that was to invest in founders that had a sincere interest to do that through applying science and engineering to people’s health.

That’s how I got involved in biotechnology and bioengineering as a form of investment. Was it a really tough reinvention? Because it is a very big pivot and transition to make. Yes, because unlike investing in enterprise software or consumer investing, the depth of knowledge needed to invest in the area is extremely, extremely deep, and usually involves a PhD in some one of the areas that you’re going to invest in, in bioengineering or biotech. It’s not just one area in those areas. Usually people use consultants. It’s not unheard of to spend a million dollars on a deal and a large deal just on diligence.

I knew that I didn’t have the depth of understanding and education to make decisions here. Initially, I used consultants initially, I invested in quote unquote branded deals and kind of rode other people’s coattails to get in on these companies. And then the next thing I did was go and find someone who understood the science, understood the engineering side of quote unquote bioengineering, and had a great network who could source deals and evaluate deals. While I was more of the visionary of the practice at the firm, I needed someone who could be the quote unquote entrepreneur of the practice at the firm.

And that’s how we started it. And that’s how we continue to run it.

It’s so different. For example, in PillPack, Fred and David were already there for quite a while, and had already built a relationship with TJ. And when you’re the first investor or second investor on-site, to use a good term that I use, you build the primary relationship with the founder, and you usually have a high rate of exchange of knowledge and communication. So a new investor won’t really do that, or sometimes that becomes intrusive on the early relationships. So I didn’t try to become intrusive. I tried to just become value add in some ways that were in a more of an emotional support role.

I thought Fred and David were fantastic as board members and supplying value add in terms of operations and thinking about how to access different people that need it to clear the way for the business. It’s different when I get involved in terms of being the initial board member. I end up working with the founder from the beginning in terms of who do we need to recruit? What’s our overall product strategy and business strategy? Does it make sense? The founder ends up bouncing it off of me quite a bit.

For example, I was the original investor in Udacity and Sebastian Thrun who is director of AI at Stanford. He and I brainstormed about it for two years before that. When Sebastian started the company, I was the first call. And after that, I basically gave him a check for $5,000,000 within an hour of him presenting at our firm with basically no business plan. And I just spent time with them after that, working with him on, okay, we should be focused on this product strategy and that business strategy.

And it was a very iterative loop for the first year and then fixing some problems with some employees and some founders that were not obvious from the beginning. So there were some, for example, there were some employees that called themselves co founders, but they really weren’t co founders. There’s all kinds of strange employee problems that pop up at the beginning that you’d never expect.

I would say the most important lesson that I learned and what two of my venture mentors told me who are now twenty or thirty years older than me, but still active in the venture businesses, advisors, they told me a simple phrase, nose in hands out. So pay attention to what’s going on in the business, but don’t get involved in the company and screw it up. Unless the founder wants you to get involved. The investor getting involved in screwing up the company is about the worst thing you can do.

Helping out the founder when they’re asking for help is about the best thing you can do. There’s really only two control points you can do, which is hire and fire the CEO. Everything else you have influence over, but that’s the only real control points that you have. Being the best board member most of the time is just being an emotional support beam to the founder, helping them strategize about what the business should be, helping them recruit key execs, sometimes helping them find the right recruiting firm.

It’s a whole mixture of different challenges. And I would say it’s been different in every company. For example, at the beginning of Twitter, when we were rolling it out of audio, I had to agree with Evan to let him spin it out of audio. There were five people involved at the beginning of Twitter. Two of them are gone. It’s not a well known story. So I agreed with Evan to let Twitter be spun out. It wasn’t the Jack Dorsey story back then, it was the Evan Williams story.

Evan basically made the company what it is. Without Evan, there would be no Twitter as a company. I spent time talking with Evan about how he’s gonna do that and how he’s gonna spin out the company. That took work at the beginning and it took agreement on my part to let him do that. In return, he let me invest when Twitter was a separate company. So that was good faith on my part and good faith on his part.

It’s always been a thought at every single firm. And it always comes down to the commitment of a partnership and the people at every single firm. Do the individual partners just kind of want to milk the existing carry and fees at their firm? Or is the name of the firm important for them to carry on? Or is the value set important to carry on? And that’s really what happens at my old firm. Unfortunately, it isn’t continuing till today. It’s basically splintered out and the people have gone to different places.

At CRV, we have been very deliberate about doing this. And it involves bringing in newer, younger, fresher minds to do it, because we know that the newer, younger, fresher minds will see newer, younger, fresher ideas. It’s just kind of how the world works. It also correlates to an idea that I’ve had, which is immortality is not a good thing, not just in business, but in the entire universe, because you actually need a form of death to bring in new ideas. This is true in the venture business as well.

I’m actually not a fan of immortality, and I’m a fan of extending people’s lives so that they can be with their family and add contribution to the world. And I’m actually a fan of this principle applied to venture as well, but they have to be able to contribute. Now with using this principle in venture, I think the partners that help build the business early on, they shouldn’t have to have a responsibility. No one has a responsibility to keep building their firm. If they’re interested to keep doing it, the best way to do it is bring in competent, exciting young partners who have a commitment to building great companies and are excited about that, not just making money, bring them in and help grow them.

A lot of the growing, I think has to be sink or swim. That’s my opinion. And the sink or swim sounds a bit harsh, but that’s how I survived in the business. And a bit of the sink or swim also has to be complimented by providing some general input of, Hey, don’t do this, do that simple phrases. It’s just like nose in hands out. So I was given some smart input. Overall, you just have to build in multiple generations of ages and just have an open mind that younger people have awesome input that you don’t just because you’re older and you’re missing new things that are coming up.

You have to remember what it was like to be younger and realize that people that were older than you were missing things. You just have to remember what it was like to be younger. By remembering that it’s much easier to build a firm that basically can last multiple generations.

That is the best and most interesting question over my twenty five years. No one has actually asked me about my relationship to money.

the

So my I come from a family background of lower middle class. We never really had any money. Our extended family in Europe didn’t have any money. And our family was pretty spread out in Europe. When I finally made enough money in the year 2000, I went from kind of zero to enough money that I didn’t have to worry about money. And I have to tell you that it was pretty anticlimactic because all of a sudden I thought like these incredible things would happen in my life, but they actually didn’t.

I was capable of buying all these things, But after I bought a bunch of those things, the novelty of buying them basically wore off some of the things that I bought that were important to me that I enjoyed as hobbies. Okay. That was pretty cool. But afterwards, just knowing that I’ve had enough money to support people in my family in case they were ill. That was pretty cool. After that, I was just kind of working to make more money in case I wanted to spend it on some emergency.

It was kind of a weird thing. I was like, okay, why am I making more money? Well, in case I want to give it away. And I had never thought that I would get into that position of thinking, okay, I just want to make more money to kind of give it away. And when I talked to people in my extended family about that, they thought it was great. But then I realized that I had a lot more members of my extended family that I had never known were in my extended family that seemed to have come out of the woodwork.

So

Yeah. So my relationship to money also changed my relationship to people. And that was one of the things that I did not expect that when you make a lot of money, people treat you differently. And I did not expect that. And it was a real negative aspect that people no longer treated me as George Zachary, the person that I had been, they now started to treat me as some type of form of power, and they were attracted to me almost like the ring in Lord of the Rings.

It felt weird, and I could no longer escape it. Was it tough for you in terms

It was because what emerged into my overall extended set of family and friendships and overall community, and when I say extended, mean really extended, was that people’s behaviors started to change and some people started to have behavior that clearly set them up to become closer to me where they would sooner or later ask me for money. That was really depressing. It’s not my issue that they have problems in their life. Of course, there are people that get into problem spots and I was happy to help them out.

People had continuous issues with money in their life. It’s not my problem to help them continuously. And this became a major issue for me about how to deal with this because I had come from no money. A lot of times people say, okay, wealthy people, you know, they don’t want to, you know, they’re all into themselves and they don’t really want to hang out or be with other people. And part of that is I became so nervous about being around people who I did not know that did not have money.

I actually became scared because I didn’t know who to trust. I couldn’t read other people’s intentions in this area. So I started to become self isolated, funny expression these days, but I started to become self isolating because I didn’t know who to trust about what, I mean, did they want to hang out with me because they were friendly or because they had other incentives and interests. And what happened was I just started hanging out with people in the approximately the same economic zone because I knew they had no interest in wanting to get any money like zero.

I think that’s why a lot of times people in the same socioeconomic zone end up hanging out with one another. I also see this with people in the venture business. Like I don’t have many friends that I hang out with in the venture business here in Silicon Valley. Would say maybe one or two, but a lot of people in the venture business hang out with one another for this exact reason, as well as low, etcetera.

Okay.

favorite book and why? Foundation Trilogy. I read it when I was 13 years old, and it was fantastic because people were using advanced science and technology to look into the future and figure out what to do now to prevent disasters into the future. And I loved it. And I would say that those three books changed my life. And I will always remember those books. And the funniest part of it is that after I met Elon, those were actually his set of books that he actually loved as well.

I actually don’t know if he loves books that are different than those right now. I’m sure he has a whole set of books, but we basically bonded off of Foundation Trilogy.

There are so many funny stories. I’m in his biography. I don’t know that. My favorite story with Elon is being at a cafe with him and him telling me he wanted to send mice to Mars and me asking him if they’re going to eat cheese and he thinking that I was serious.

Oh my gosh. The most memorable board member was someone named Jim Clark, who’s the founder of Silicon Graphics, co founder of Netscape with Marc Andreessen, and several other companies. Jim, myself, and Dan Bellman, Eva Manolis, were the quote unquote co founders of Shutterfly, which is a public company now. Jim was a bit of a wild man. Jim basically used to talk to people in the board meetings that really weren’t physically there. I’ll leave it at that.

I’m actually not looking to have any legacy. I’m just looking to be remembered by the founders that I backed as a person that helped them accomplish their dreams.

The most recent company that I backed is a company named Glympse, a bioengineering company in Boston. It’s just a fantastic group of people. The founders, Sangeeta Bhatia, who is super well known in the bioengineering world and the COs, Caroline Loew. She ran a huge chunk of Bristol Myers Squibb and they have a breakthrough platform for detecting almost any disease in the body. It’s just absolutely breakthrough technology.

You’re more than welcome, and this has just been a fantastic time to be here with you, Harry.