Rory and Scott McGrew ponder luck, happiness and the two words you should never say in a VC pitch.
Transcribed by https://otter.ai
Rory O’Driscoll
If you find yourself recalling against the new and dismissing it, you need to quit. To be brutal about it. You need to go You’re done.
Scott McGrew
I’m Scott McGrew. Welcome to Sand Hill Road.
Rory O’Driscoll
I don’t want to get to know you. I want to understand your business. I want to stand you in the context of your business. I’m not looking for a friend. I’m looking for an investment opportunity.
Scott McGrew
That’s Rory O’Driscoll. And despite what you just heard, he’s actually a really nice guy. He’s a partner at scale venture partners, and his lead investments in box and DocuSign. And exact target among others. He likes investing in entrepreneurs, he just doesn’t like networking with them. You told someone once you’re an awful networker Is that true?
Rory O’Driscoll
I think I think
Scott McGrew
you said it.
Rory O’Driscoll
Yeah, I did say it probably. I don’t leave it networking. I think in this business, those two ways to do the business, it’s kind of a dimension of the who, you know, dimension and what you believe dimension. Right? And I tend to be much more than what do you believe? Why do you want to invest in first, which means that you’re kind of first instinct of action is to sit back and think is this a market I believe in to do some research rather than the other method of, you know, do I know these people are, you know, do I want to back them just because I know I’m Right now as I’ve done it for a long time, I’ve actually recognized a there’s actually wisdom and both. And both methods work, I see people who were all in on one method, all in on the other method and boat works better in the best way in the end is to be a bit about, right. I don’t think you can do this business unless you can vote read people and get on with them. Right. And I think at the one on one level, I very much enjoy that. Right? I don’t enjoy so much there. You know, interminable, meaningless conversations, right? I much prefer to have like, I love to meet the founder and talk about what they’re doing. Right? The idea of a new really genuine talk about them about you know, what they’re doing and think about it and kind of process through it. You know, the idea of coaches meeting for coffee, you know, makes me want to tear my hair out, right? And when I say that, it will feel a little jerky because in the end, these are deeper human relationships for five or 10 years. And you know, many of the people I’ve backed 10 or 15 years ago are close personal friends. But it starts to the prism of the business rather than just the touchy feely because I don’t think you learn anything that way.
Scott McGrew
But it’s unlikely you’re going to find Rory Driscoll at a networking event.
Rory O’Driscoll
Don’t do a ton of them, I will admit, right. I mean, my wife after about 10 years said, Did you ever get anything from any of them and I had to go. And she said, so how about you be home with the kids? And I rolled
Scott McGrew
Now, is this because you’re introverted and such thing as an introverted Irishman? It does
Rory O’Driscoll
not. I mean, people who normally would not say I meant it’s rarely been I’ve really been accused of it. Right. It’s more. Yeah, that’s funny thing, though. I will say I love the Susan Cain book on introverts, right, I thought was a really profoundly important book about, you know, that you don’t have to be a rah rah. And I think we’re seeing a lot of that now, which is, is that you know, some of the information on successful leaders who are much more about managing teams and being a little and much less about the rah rah. So I think that I, I like that strength. I don’t think I’m as introverted as that I like people. I like going out. I like a few drinks on a Friday night. I enjoy company But I think when I’m doing the work, as I say, I think it’s I think it’s as simple as if you lead from what are you doing? versus Who are you it’s you’re not just trying to quote unquote, meet people, you’re trying to understand what’s happening and what matters and therefore, how that falls into whether or not it’s an interesting investment opportunity for you.
Scott McGrew
You came to America from Ireland with $200 250.
Rory O’Driscoll
I think I there is I totally I actually came most recently from London, I’d actually moved from Ireland to London had a business it didn’t work out. But fundamentally Yes, you have to be able to prove you can support yourself together the United States. So yes, I had to save up for my 200 bucks to get in so that the guy at the immigration couldn’t say send you back because he can’t support yourself. So yes, I had that money.
Scott McGrew
Now this sounds like you came in on a horse cart or something like that. But you were coming from what the London School of Economics, right?
Rory O’Driscoll
Indirectly actually, yeah, I had a great degree from the Law School of Economics, but then I’d done my own business in the UK and I hadn’t worked out and four years later, I was genuine The book and what you discovered, especially at that time, it was super hard in the UK to recover from something like that in your career. And you know, it was just you’d gone off the track, you’ve not done the accepted thing of, you know, joining Goldman Sachs after law school of economics. And now you’re some dude 26, who had a failed business, and it was just really hard to make it there. And, you know, the bet was, it would be easy over here, which in retrospect, turned out to be a good bet. So, yeah, so it was it was odd, and, you know, initially was hard here, but then what happened is, you know, the degree stands you in good stead. Eventually, and, you know, I was able to, you know, start working out with venture capital, but yes, it was a there was a convoluted period of around two or three years where I would have to say that at the time you look back and go, this was probably not a good move from the LS. It hasn’t really worked out as planned when I was, you know, emigrating it with 200 bucks and working the graveyard. But there you go.
Scott McGrew
I was gonna ask what was your first job in the United States?
Rory O’Driscoll
I think I’ve said this a lot. I almost feel like I’m dining out almost on the story. But yeah, I worked in a graveyard. It wasn’t that I was digging holes. I was actually wasn’t doing the accounting for the books as a temp and you know, you know, it was it was a job. It was a first job. Every immigrant has a shitty first job story. It’s just the nature of the beast, right? And you know, what sticks. And you know, it was totally fine. And I was lucky enough to meet someone who was working at Bank of America and ended up joining Bank of America’s Venture Capital Group, and had been there ever since. But yeah, everyone has a tough first jobs. And I remember, it’s not the whole great day, but actually realizing that you know, as an immigrant, you know, you four years ago, you graduate from the LSE. And now before I got that job, they gave me an accounting test. Could I add and subtract, I mean, I literally was sitting there going, four years ago, I had a first class honours degree. And now the person at the 10 badge and she is confirming that I can do basic mathematics. We have gone down a long way, but
Scott McGrew
when you put LSE on your application, and no, no, no, no,
Rory O’Driscoll
no, it is exactly what it was always done. But look, it all worked out. Great, you know, no complaints.
Scott McGrew
It looks that way. In fact, worked out great. was looking it up? I think you have 54,726 shares a box. This is a company called box for those who are not familiar with it at $17 and 87 cents that’s a million dollars and change right there just in your in your box holdings there’s obviously other things. So from 250 bucks to inbox doc alone a million bucks surrounded by rain.
Rory O’Driscoll
That sounds about right, it sounds okay, I’ll go with us.
Scott McGrew
Okay, I guess and I realized that’s just, you know, a small part of your overall net worth but what does that feel like to go from $250 coming in on the you know, the pretend oxcart right
Rory O’Driscoll
Yeah, exactly. Well, I didn’t expect to talk about this um, look
yeah, I think for a while I’ll be honest on this for a while every immigrant You know, you’re driven because you’re poor. I mean, you know, I’m not going to give the money doesn’t matter speech because we bullshit you know, When I came here, I had no money and candidly, I owed thousands of dollars back in the UK because my company had gone bust. Right. So I wanted the money, but, and I worked very hard to get the money behind. Because, you know, the the old You know, I think, you know, that Zaza Gabor used to say I’ve been rich, I’ve been poor and riches better, right? And you know, you really only have the luxury of despising money once you have it. Right. So there was a period of time Look where you just hustle and you work really really hard because you remember what it was like live? I mean, I said I had 200 bucks and I came over here I didn’t tell you I borrowed half of it from my then girlfriend now wife, but and you know, she reminds me now when she explains community properties me way back when she bought me a pair of shoes, right? That’s when the first month of meeting because I couldn’t cover them.
Scott McGrew
But that is the ultimate seed investment. And she
Rory O’Driscoll
did well she didn’t well she finds out you do good deals, I did a better deal. But you get the freedom to choose what you want to do. Right? And I actually I’m lucky in that I really enjoy the job I currently have.
Scott McGrew
I think that’s the ultimate in luxury because I am in the Same place. Yeah, I am doing exactly what I want to do the way I want to do it, which means Monday morning rolls around, and I’m perfectly fine with going into the office. Totally.
Rory O’Driscoll
I love madness. Know, me. I remember one of my partners who also loved his job. And it was also like me raising, you know, kids under 10. So he said, TG I am, thank God, it’s Monday, right? And you’ll go to an office, you’ll tell people what to do. They’ll do it. They’ll be order, they’ll be structure you like what you do? How bad is that? No, it totally it’s, it’s it is a great luxury. And you know, lots of people don’t have it. I mean, I’m in my mid 50s. And one of the interesting phenomena and you start happening now, I think is, and this will not resonate even slightly to any 20 something listener out there. So Oh, well, is at early 50s. You start having conversation with your friends and your peers. And you know, what are you going to do? What’s it all about? everyone’s kind of that point where the kids are in college, and you get really fundamental What do I you know, what age do I want to do? You know, do I like what I do what you want something different? And then second is can I continue doing it or do I have to quit, right? It’s kind of a two by two matrix. There, there’s a lot of jobs where people are very structured out times we’re done. And I’m lucky enough to have a job. But that isn’t the case. And then I’m lucky enough to like what I do. So I’m kind of the two by two matrix. I’m clearly in the I’m really happy space. Right? And, you know, not everyone gets that. You know, I think especially as you get older, you realize that is that, you know, it’s, it’s a careers are an interesting thing and the back end arc of the career, I do hit 50. Plus, it’s just an interesting time. And I think it’s interesting, the honest conversations, you have your friends about it. They’re very different than the conversations you would have with someone to 30 you know,
Scott McGrew
I’m 51 I think I’m having more fun, currently than I ever have. I just I’m good at what I do. I’m comfortable. The kids are pretty much set.
Rory O’Driscoll
Totally. Yeah. Yeah. I totally by that, I think, you know, I think there was a great article, the Atlantic Monthly, the, you know, the arc of your career, as it goes down is closer than you think it really got what I was very good at math, but it kind of, and it sounds like it’s a counterpoint What you’re saying? It actually isn’t because it made it was Arthur Brooks who wrote it. And it was he made the point that there are things that one does better in your 20s 30s and 40s. No different things you do better in your 40s 50s and 60s, and there’s an arc down as you transition. And probably sounds like the business here in the business. I mean, it’s it’s a business you can pursue in your 40s and 50s. To some extent, if you have, you know, you need to good business judgment, but there are things you just you have to compensate for the things you can’t do as well. And I think in our bed adventure, the number one non negotiable thing is this. If you find yourself recoiling against the new and dismissing it, you need to quit. To be brutal about it, you need to go You’re done. Right? If you lack the curiosity to check the curiosity to look on the image, and if you find yourself instinctively saying, you know, I saw that 20 years ago that won’t work, then you need to either change or get out because you will absolutely fail. So that’s the heart that is one of the hardest things you got to watch which is not becoming that you know, crusty old guy who you know knows why. It doesn’t work, which
Scott McGrew
I think happens to lots of people because, you know, maybe not in venture capital, but maybe in politics or something you see people as they get older and older, be more set in their ways, not willing to accept, you know, a new idea. And I do fear that that when I am 70, there will be something in which my grandchildren will say all Come on, grandpa. Everybody knows that’s okay. And I’ll say, No, I can, but I can’t think what
Rory O’Driscoll
that would be. You know, that’s because that’s Yes, exactly. Because you can, because if I could, it would be there now. Yes. I don’t think you just have to fight against it. I mean, I think that, again, this is where a collegial group partnership helps, which is because we all I know, I okay, she exhibit that behavior. And I one of the things I like about that they’ll call me on it. Yeah. No, say, you know, you member you said that about x. And I’m like, Yeah, I did. And I was wrong. And I think just, I think one of the interesting things about a venture capital business or any investment businesses were the decision business, we don’t make widgets. We don’t make phones. We don’t make software. We make the sessions, right, and we make eight to 10 positive decisions a year, and a whole lot of knows. And if three to five of those positive 10 decisions are right, we do well. And if none of the no decisions are catastrophic, Lee bad and that is to say passing on something amazing, you can kind of sleep at night. But that’s the product we make. So it requires a high degree of kind of intellectual honesty among the group around things like this and looking at your we talked a lot about biases Anyway, you know, anchoring all the classic Cadman thinking biases, but one of the ones is the whole month it’ll never work because I saw that 20 years ago, right. And in fact, I’ve actually internalize the exact opposite. Most things that ultimately work were tried 20 years ago and failed and then the situation changes and the network.
Scott McGrew
You said that about AI that AI is not as revolutionary as some of the people pretended to be that this has been more of a slow progression. of AI and looking back at it, many years from now, we won’t think of companies as being AI companies, because AI will just be part of what computer software is.
Rory O’Driscoll
Yeah, I mean, that’s definitely there’s a lot in that. Yeah. I mean, definitely. Kind of people started talking about AI in 1956, which, you know, depending on where you create any app was probably 10 years after the first you know, massively mainframe vacuum tube based computer right? So this has been thought about a long time. And you know, what’s happened is there’s been these busts of productivity and AI and then kind of these AI winters You know, there’s been 180s one of the 90s I do not allow to happen then for 10 years and then this latest explosion, it probably starting in 2012, but the whole deep learning the papers on deep learning and then the progress on vision, so yes, this is another one of those AI spread. I mean, if if you AI went to us and you also VI Springs, this is clearly an AI spring and it’s given to you know, the stuff that was invented 1020 years ago. You right now Doesn’t seem like a I mean,
Scott McGrew
if you if you turn someone Alexa, yeah, you know what, 20 years ago, they would have said That’s impossible. Yeah. I mean, we must not even AI.
Rory O’Driscoll
Yeah. I mean, we were investors in speech works, which became part of nuance in 99. Remember did very well on that. And that was early speech recognition. And you’re right. It’s the and it was. So it was the idea of speech recognition was there and I think that been generations before that, but it was very limiting in terms of what you could do. And you know, you didn’t I mean, the best example, I think united was one of the best biggest customers and if you think back I also very practical if you think back to how you used to interact with the United voice recognition system, like even 810 years ago, it was, you know, did say you tell me yes or no, it was a structured Tell me yes or no. Is this your flight? Say? Yes, say no. And it was very Latin, right and painful. And over the last 810 years, you can see that in real time. Now you can talk to it. Much more conversation. It’s still no one there perfect. But you can interrupt you can go back, you can do a lot more. And that’s, you know, just watching the speech recognition technology improved significantly
Rory O’Driscoll
in that period of time.
Scott McGrew
Now I’ll give you an insider’s tip. If you want to pitch Driscoll at his conference table at scale ventures, there are two words he really dislikes. Don’t call yourself a revolutionary and for goodness sakes, never say your company is shifting the paradigm.
Rory O’Driscoll
If you read you know paradigm, it’s the word came from Thomas Kuhn the structure of scientific revolutions, right? Yeah, Newtonian physics was a paradigm shift. But once you agree that that’s a paradigm shift and relativity is a paradigm shift. I’m sorry, most software isn’t that right. There are a few there may be like, I think some of the stuff obviously jobs and Apple did was I think a lot of data stuff is not adopted. level of paradigm shift. So you know, so it’s a useful word, but then what people do be even vaguely correct, you say, a paradigm shift within the industry of blah, right? So you end up you know, it’s a paradigm shift within the teeny tiny industry that you’ve never heard of. So whatever I mean, it, it’s a descriptor, I’m fine with it. I suppose the reason I push back it is much more a, especially in a bull market. I’m inherently suspicious of arm wavy stuff, right? I mean, I think that you know, you get back to the question, what does it do? Does it do it? Well, and is it working?
Scott McGrew
But I understand who’s gonna cut us a check? That’s
Rory O’Driscoll
exactly right. Know, in the end, who’s going to buy this and as a friend of mine, who gets promoted for buying this this year? Right? It’s very much like forget about you think about the customer. At the end of the year, whose boss says, I’m so glad you bought that software this year. We are doing really much better if you can pass that test. It’s really hard.
Scott McGrew
Looking ahead to what whatever happens next, and I don’t know that we know what happens next you’ve written in Almost every company in my portfolio are taking a more judicious approach to investment, looking to prune the marginal initiatives, are you spending less money investing less money? investing more carefully? And I think the answer is,
Rory O’Driscoll
yes.
Rory O’Driscoll
I think that when everyone’s happy, you should be a little nervous and whatever is nervous, he should be a little aggressive. I never say happy right now. Right? I think that, you know, we’re continuing to invest or continue invest. You know, I would say we’ve got a fairly steady pace. You know, we’ve got we end up doing eight deals a year, we’re going to end up doing a deal ZC we did eight deals last year, we did eight deals in 2010. Right, in the composition, stage, value, all some parameters, those deals might change. But, you know, you invention. I mean, really, my venture is unlike some lower growth industries, where it’s all about how well you buy, right, because at the end of the day, if something can only go out five percent a year, if you buy wrong by 40%, you’re never going to grow it, you can hold it for eight years, and you’re done. Right? If something can grow at 100% a year, you can survive a little bit about payment provided the provided the law investment works. What that means is one of the strengths of the venture capital business is that if you picking good companies, you can invest throughout the cycle at a reasonably consistent rate. And they’ll you know, the truth is, in periods where the timing of both valuations going in valuations going out a positive, you know, you will get a left you know, a fund that might have been a tree excellent could be for Exxon just because you bought cheap and you sold their right. And the other way, also have fun, the community x might be a two x, right. But the thing that you have within your control is if you’re picking companies that have secular growth trends, then the impact of cyclicality is by definition, much less in a way that for example, in a buyout business, that’s not the case you know, if you say if you buy a mature business at the wrong price, there’s nothing, nothing magical will happen to a company that’s growing at 5% it will glorify percent of six or four, right? whereas our businesses, you do get that magic. So he you don’t have so you can manage around the cycle easier. But kind of going back to your quote at the same time, I remember years ago, someone said to me, You always run these companies to some extent on the current rules, right? Not the rules, but the current rules and and, and you got to be ready to change. I mean, I think at the moment, the truth is, you can be judicious, but at the same time people are spending, you know, fairly aggressively and trying to grow aggressively to get left behind your left behind. Right. And it would be wrong. And we bought both foolish and wrong. So instead of a company’s Hey, you know, you should go all into cash conservation. Well, the truth is, in many of the markets we’re playing and other companies are being aggressive and you have to be relevant. Right. So I think one of the things experience brings to the table actually going back to something I said earlier, You also got to know when to change, right? If the market changes, you got to be able to say look, not in a whiplash kind of way, but look is that we have to accept that now the availability of capital is changed, which is bad. But on the other hand, the likelihood of new competitors emerging has changed, which is good might have gone down. So therefore, if your ultimate goal is to build the one two or three winner in a space, you can, as it were, adjust how the race plan to use kind of sailing metaphor, right, based on the conditions right and you know, sometimes you have to sprint for the line because the other guys are sprinting, totally mixed metaphors. But on the other times, you know, you say the key is to survive and be the winner right in that market. So I think it’s very much time dependent and deal dependent.
Scott McGrew
So going back to the beginning, what would you tell the young Irishman with $250 in his boss given a little inflation $350 in his pocket, who is coming to America.
Rory O’Driscoll
Well, yeah, that just, this is a great business. I mean, I think that the first thing I’d say is yes. take more risk. tomorrow. Yes, definitely. I think that be more optimistic, right, in the sense of
Rory O’Driscoll
not in a Pollyanna kind of way. But the truth is,
I think a lot of investing is, you know, in the public markets as a template, the template cynicism, I think this business is tempered optimism, right? Because the truth is, you know, there’s no other business equity business in the world that has the same uncapped upside. Right. And I look back and I go, you have to be clear eyed, you have to be realistic, but at the same time, you have to look for those investments that have big markets have big opportunity, not thinking big, but, and because that’s just the correct strategy to win. Right? This is not this is not a I mean, as a member, one of my partners, many of you, I said, the investors aren’t coming to us for the safest equity investment in our portfolio. But they don’t want you to throw it all away. They don’t want to be drunken sailors, but they want you to invest and create the companies that can you know, give them that massive extra return and believe it’s doable. I mean, it’s very hard to until you’ve seen it. I mean, I think the hardest thing to convey is until you’ve seen it happen and felt it happen. It’s very hard to understand, but, but then you kind of go Oh, I got it.
Scott McGrew
Coming myself from a family who has roots in Ireland, I am a bit reluctant to bring up the concept of luck. luck of the Irish is quite the cliche, but O’Driscoll isn’t afraid of it not afraid to admit something we really haven’t heard up until now. Some of the success of those in venture capital is just plain old lucky timing.
Rory O’Driscoll
The main thing the last 10 years Anyone has been putting money out in the last 10 years has been incredibly lucky. It turns out if you buy at the bottom of a 10 year bull market and you hold a lot of stock all the way up, you look really, really smart. But, and if you’re honest, I mean, I think is it Julia drunk Ben, who, you know, that writer of the American Empire, she has a great expression, it’s 90% cohort. Most of your life is 90% cohort. In other words, and actually, if one of our principals was actually giving me the same equivalent adventure, he said, they did some research on trying to identify patterns of success and venture. But, you know, school background education operator versus investor, no statistical correlation whatsoever. And the only thing they found statistical correlation on was this year of first deal. In other words, if you did your first deal in 1999, you didn’t make it. I watched all the I did my first deal in 95. I watched all those people in 99. Enter the industry, do five deals and get fired by If you did your first deal in 2009, or 2010, you made out like a bandit, because you got good positive feedback early on and you just wrote it up. But so I no one ever wants to say it, but repeat it. You know, we all think that we are the great man school of life for the great woman School of Life. 90% cohort 90% timing. I turned out I was lucky enough to be a software investor with a checkbook in hand in March of oh nine. When you know, the equity markets started on a 10 year overall upward trend. And cloud software started on a 10 year upward trend that accentuated that. Lucky me. And you know, I think the only smart thing to do is to be able to admit it.
Scott McGrew
Rory O’Driscoll , Scale Venture Partners. For more interviews with Silicon Valley’s most influential entrepreneurs, check me out on TV at press here. That’s Sunday mornings on NBC Bay Area and everywhere in the world on iTunes.
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