Sramana Mitra: Our philosophy is much more in the former kind of financing. We are very much in the capital-efficient business building with a fundamentals-driven approach. Even if you raise a lot of money, our approach is, you need to do that at the right time with an eye towards the finer fundamentals.
Ho Nam: Just because you’re being frugal and pragmatic doesn’t mean you’re forever being conservative. We have one company that raised a billion in funding last year. They didn’t need to raise a billion. They had $300 million of cash in the bank. Earlier this week, we announced that one of our later-stage companies just raised $50 million. We are working very hard to get that company to profitability this year. We don’t need the money.
As you scale that business, adding another $50 million to the balance sheet to be opportunistic makes sense. When you see something going well, you go for it. A couple of years ago, I remember LinkedIn raised a billion dollars. Why did they raise a billion dollars? Because they might want to do some acquisitions. They ended up doing Lynda. They had billions of dollars in the bank already. They were profitable or cash flow positive at least. They don’t need the money, but they raised a billion dollars.
As you build a business, it makes sense to raise more capital. You don’t do it because you’re desperate or because you’re going to go out of business. That doesn’t make any sense to us. You have to control your own destiny.
Sramana Mitra: It’s very difficult to change culture mid-stream. If you are in the business of burning lots of money and living this kind of non-fundamentals oriented life, suddenly switching to a fundamentals-oriented culture is very difficult whereas if you were following a fundamentals-oriented culture and continue to deliver on revenues and profitability, adding money to fund that when you have good fundamentals is relatively easier.
A great case study is Atlassian. That’s an Australian company that has raised money way later and has had a very successful IPO and has not changed culture. They continue to run the company with that fundamentals-driven approach. These types of companies do a lot better in the long run.
Ho Nam: I totally agree. It’s a much lower growth rate than box.com. Box was going very fast at over 100%. Atlassian was going maybe 40% but you look at the multiples. Investors are smart. They know. Atlassian is trading at a very high revenue multiple even though it’s growing at less than half the rate of Box. People are so obsessed with growth rate and we need that to attract investor capital. But that’s not the only factor. If you’re obsessed with growth rates, you could get into trouble.
Sramana Mitra: You are one of the few Silicon Valley firms that regularly invest outside of the Valley. Tell us a bit about your investment philosophy and how your firm views the opportunities out there. As you know, One Million by One Million is a global program.
Ho Nam: Even though we’ve been in Silicon Valley for 20 years, over the last few years especially we’ve invested more outside of Silicon Valley than inside. It’s not just global. It’s also in cities like Austin, Texas. We have a couple of companies in Vancouver. This week, we just signed a term sheet for a company in New Orleans. Outside of North America, most of our attention has been in South Korea. We now have two dedicated funds in Korea.
The US fund has the ability to invest anywhere outside of the US. We used to invest about 15% of our fund in Korea. Now, Korea’s gotten so big that we have separate funds. We’ve also, in recent years, invested in founders that came out of Ukraine, Belarus, and Estonia. We had always been impressed with the quality of engineers in that region. Now we’re starting to see strong entrepreneurs who are starting to build businesses there as well.