Michael Moritz: Lessons from a Long-Ball Hitter

(page 2 of 2)

What about Cisco (CSCO)? (Sequoia invested in Cisco two months after the 1987 stock market crash.)
For us, Cisco is always the company we think of when we think about bad times. I had been here a couple of years. I was the guy who sat around the table and said nothing. The one thing I remember was the vociferousness with which they talked about the business. They had a mantra: "We network the networks."

Many investors had already passed on the opportunity. What people forget is that many companies were doing something similar: DEC, IBM (IBM), 3Com, and many startups. There were 20 companies.

So why did it succeed?
They had a very good understanding of what the customer wanted. They didn't have to run any advertisements until Year Five. They had a very aggressive sales machine. John Morgridge, the CEO, had lived through some tough experiences. He had this wonderful mixture of experience and an avuncular calming presence and a taste for frugality. They didn't do anything extraneous. They outsourced manufacturing. It allowed them to ramp up quickly.

There's some talk about the dearth of innovation today. Is Silicon Valley dead?
Things get overblown in the Valley. As the obituaries are currently being penned, those are overstated, too. Last time I checked Stanford hasn't stopped producing wonderful 23-year-old graduates. And Silicon Valley houses many companies with frustrated engineers. Good ideas and brilliant people will find us very willing to step out into the cold with them.

So what has changed?
What has changed is that there are more smart people elsewhere. Good ideas spread more quickly.

Are there any benefits to building a business in a downturn?
There's less frenzied money. There's more time to think. The hiring environment is a lot easier and the money goes a lot further.

Do you still do seed-stage deals?
We do seed stage. Thirty percent of the companies we finance were incubated here. We are very selective. We are doing it with a few rather than a lot. My guess is more of it happens over the next few years because of the dearth of financing.

What about Google? Didn't they crack their business model during the downturn?
The chilly aftermath of the Internet bubble was a big benefit to Google. It helped with hiring. It made it difficult for startups to get financed. Its larger competition had to tend to the home fires. There was not a clamor to go public so it helped them stay out of the crosshairs of the competition.

Do you think the Valley will help lift us out of the recession?
If certain Valley companies can come up with enhancements to U.S. productivity, that is a benefit. That is the Valley's major contribution. That's been a bigger boon than the jobs directly associated with the Valley.

I don't think anyone should expect Silicon Valley to create tens of thousands of manufacturing jobs. It could create lots of service-oriented jobs. The Valley can't help a displaced auto worker or an uneducated 23-year-old.

Ante is an associate editor for BusinessWeek.