Sramana Mitra: Did Facebook come to you or did you go to them?
Anand Rajaraman: A bit of both. At that point, they already had Peter Thiel’s money. He was the only investor at that time. They had just launched at Harvard and Stanford.
Within those universities, we could see the growth. At that time, Zuckerberg wanted some advice that Venky and I were in a unique place to give him. He connected with us through a mutual acquaintance at that time.
Sramana Mitra: What did he want to know from you?
Anand Rajaraman: He had two offers for his Series A. One was from Accel, which he eventually ended up taking. The other was from the Washington Post company. We talked to other entrepreneurs who had taken investments from these funds.
Accel was a prolific investor. And only a very few companies have actually taken money from the Washington Post. One is Junglee. We started Junglee back in 1996.
VCs in Silicon Valley didn’t want to invest in companies started by students who dropped out of college. It was very different. Washington Post happened to be our first customer, and they also became our first investor.
Sramana Mitra: But you discouraged Mark Zuckerberg to take money from the Washington Post?
Anand Rajaraman: We gave him the pros and cons. We enjoyed working with Washington Post, frankly. They were on our board as well. They’re very forward thinking. We also worked with Accel in the past. Accel also ended up being an investor in Kosmix.
At some level, Facebook is the prototypical example that motivated us to start rocketship. We could see the engagement and adoption. There was no marketing driving this. There was no business model, but that didn’t bother us.
We met Facebook because we were embedded in the Stanford ecosystem. We got somewhat lucky there. How do you make that luck systematic? That’s what led us to start rocketship.
Sramana Mitra: The characteristic of Facebook is hyper-virality. If you want to do blitz-scaling, you need hyper-virality. Otherwise, putting that much money into a company with no validation of how it’s going to make money doesn’t work unless you have these extraordinary levels of virality.
Anand Rajaraman: That’s true. But remember, Facebook was very capital-efficient compared to the startups of today. They didn’t raise that much money.
Sramana Mitra: Yes. I actually use that as a case study all the time, which is why Zuckerberg ended up owning so much of Facebook even after all these rounds of financing.
Anand Rajaraman: Both Google and Facebook were super capital-efficient compared to companies that came later. That model works. I’m more worried about the capital-intensive scaling models.
Sramana Mitra: I don’t like that model at all, which is one of my questions actually. Are you into this hyper-scaling with huge amounts of capital?
Anand Rajaraman: I’m not a huge fan of the model frankly. It seems to be a reality of our times. One of the nice things about environments where there is capital constraint is that a good entrepreneur and a good team gets it sorted out. They will get funding. The weaker ones won’t get that much funding. You won’t have companies bashing each other’s brains out with marketing dollars.
One of the problems we have in the current scenario is, if you have any kind of interesting market opportunity that’s uncovered by a company which can be served by a commodity product, instantly, 10 other companies will pop up. Then there’s enough capital that they will all raise large amounts. Then it’s a race to the bottom in terms of margins.