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How Greylock Partners Finds the Next Facebook

Stashed in: @reidhoffman, Awesome, @davidsze, Greylock, @kevinrose, @ev, @joshelman

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The alternate title for this piece is apparently "The Popes of Silicon Valley"!!! Anyone who knows David Sze finds this irresistibly funny.

Holy smokes:

Out of thousands of business plans Greylock sees each year, only 20 or so make it to a full partnership meeting. Of those, only half get funded.

The alternate title comes from Nirav:

For a startup, getting Greylock’s backing means more than just an infusion of cash. “It’s like your company’s been blessed by the pope,” says Nirav Tolia, founder of Nextdoor, a social media site that got funded by Greylock two years ago. When that news got out, he was flooded with offers from other VCs wanting to get into the deal. “Firms will say, ‘I don’t even know what Nextdoor is, but I know David Sze is on the board, so I am going to write a check.’”

What firms are those??

The best startups are the ones where it's not obvious to invest:

“There is a lot of mythology about how firms decide,” says Sze one recent afternoon at his Sand Hill Road offices. The space is, for the most part, nondescript—tidy rooms and cubicles above a New Republic bank branch. There is something unusual installed on one wall: the shape of a slender tree painted black, branches blossoming outward. At the end of each branch is a small wall mount holding every cellphone and mobile device Sze has owned—from a brick-sized US West to the Apple Newton to the iPhone. It is a physical reminder of how quickly technology has transformed just about every part of our world over these past 20 years. For much of that time, Sze has been deep inside this revolution, finding the companies that are driving it.

“A lot of these voting systems are consensus oriented, where you need to have 100 percent unification of the group,” observes Sze. Greylock’s system is different. A few years ago, the partners analyzed their pitch meetings, looking at ones that had led to their best deals and their worst. The deals fell into three categories: ones everyone hated, ones everyone loved and ones they fought over. It was this last group that yielded Greylock’s biggest wins. Facebook, Pandora, Airbnb were all hotly contested pitches. On Airbnb, Sze clashed with Hoffman, certain the idea would never work. Luckily for Greylock, Hoffman doesn’t back down easily. “We are looking for outliers and extremes,” explains Sze. “So we try to heighten this conflict.”

Ev Williams asked Kevin Rose about David Sze:

“I don’t know if you know my history with VCs, but it’s not entirely friendly,” says Ev Williams, co-founder of Twitter, whose backers famously ousted him. This winter, Williams went looking for investors for his new company, Medium. He had his pick of investors. Who wouldn’t fund the next Twitter? He didn’t really need the money, though—thanks to the Twitter IPO, he is worth more than $2 billion. This time, he was looking for something less tangible. “To me, character was one of the very most important things,” he says. Before deciding on his investors, he called around to other entrepreneurs to get reference checks on VCs. One call had particular impact. Williams spoke to Kevin Rose, a co-founder of Digg. Greylock had been one of its venture firms. Williams wanted to know one thing: How had David Sze—the partner who got Greylock in to the deal—treated the foundering CEO as his company was unraveling? That is, of course, when you see a VC’s real mettle—when he’s about to lose all his money. “The thing I heard, time after time, was David was always trying to do the right thing for the entrepreneur,” says Williams. “People don’t universally say that about all investors.”

In January, Williams announced that Greylock would be Medium’s lead investor. In the strange calculus and karma of Silicon Valley, if Medium comes anywhere close to Twitter’s success, Greylock’s investment in Digg still might pay off.

I love this description of Josh Elman:

“Hey Josh, when you were at Twitter is this how you guys used to do it?”

It is a bright spring morning in San Francisco, and Josh Elman, a young partner at Greylock, is sitting in a room full of product engineers, designers and managers at Nextdoor—a startup that aims to do for neighbors what LinkedIn did for job seekers. The wide-open loft space has huge windows. Covering one wall is an essay titled “Our Manifesto.” Coders click away at their computers—the dress code, flannel shirts or ironic T-shirts, Buddy Holly glasses. One guy has a Mohawk.

“Wait, I think it’s more helpful if we look at Facebook,” Elman clicks at his laptop. Dressed in an orange T-shirt with kittens printed across the front, jeans and sneakers Elman, 38, looks as if he could be one of the engineers or managers listening to him. And not so long ago he was. Elman used to be Twitter’s growth hacker—Silicon Valley-speak for the guy who gets people to use your site. Before that he launched Facebook Connect, and before that he was one of the first product managers at LinkedIn. There are few people in the world who know as much about building a social media platform. And today he’s here to show Nextdoor how he did it, so they can do it again.

I love this quote by David Sze:

“Everyone can tell you why something is going to fail,” says Sze. “The real trick is, Can you create the conviction on why something might succeed?”

I had a Greylock full partners meeting in 2005 for Encryptanet.  It was a funny experience.  Our sponsor, Charles Chi, was thoughtful and helpful.  One of the participants in the meeting came in cold, so he had formed an opinion that we were an anti-phishing security company that might help Paypal solve their fraud problem.  Over the course of the meeting he became fairly hostile when he realized that we were using security technology not for its traditional use, but to provide self-managing, dynamic, micro-access to digital content--a completely different problem and solution.   His assessment was, "Well, if you aren't solving the phishing problem, what good are you?" and stormed out.   They ended up not doing an investment.  

That kind of hostility in a partner meeting seems uncalled for.

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