You Can't Build Apple with Venture Capital
sandofsky.com
sandofsky.com
IIRC Apple was a technology startup based on electronics and stuff.
>his name alongside Steve Jobs.
One name comes to mind.
At the beginning Apple just had Woz & Jobs and no other assets.
>You Can't Build Apple with Venture Capital
Of course not. Founders like Woz & Jobs are the far more rare & valuable asset.
If you back-calculate what that really means to Apple[0], I would say that at sometime in 1970's dollars these two were a million dollar asset. Then you have to go quite further back before you reach a point where nobody would ever invest a million in these two, but there was a time.
>Investment returns always correlate with risk.
Always is easy to disprove with a single contrary event. A continuous contrary indication could even be a sign that "never is the new always". How would you like that? I like to do (simple) math, but if that's all there is, comparing risk/reward ratios gets entirely non-meaningful as risk approaches zero, its risk/reward ratio approaches zero too. Simple math. Extrapolating from two close-to-zero numbers is one of the least accurate ways to predict what happens if values rise to far-from-zero. Then when you're considering reward/risk ratio since it is a meaningful concept too, even a mathematical or financial genius will have trouble applying that to the real world as risk approaches zero itself.
And as we now know (for a long time now) Woz &Jobs were still a million-dollar asset back then anyway. Before anybody would ever pay that much.
How quickly people forget.
So without being monetized yet they started out worth more than the "market" could bear.
While the mainstream market could easily bear IBM for decades (still can), after so much wealth had already been extracted.
Valuations are kind of difficult to pinpoint anyway. Aren't they a bit subject to manipulation too? Aren't lots of startup valuations strategically built toward a goal of making money through a lucrative IPO, with the idea of a profitable product playing second fiddle?
This founder contribution really has to be balanced against financial wealth in what looks strikingly like a more than fair arrangement when only the numerical finances are considered, otherwise it will never scale like Apple.
For truly intelligent performance, weights have got to be balanced. If not, eventually there will be predictable limited progress or seismic events which most often come at unpredictable times.
The more you deviate from that generous concept all around, the more your growth rate and ultimate size will be dissimilar to Apple, if not completely abysmal into negative territory, which is the default when the balance is off by even just a little bit. Most money is only bet on the ability to overcome this default, not on anything having a fraction of the potential of Apple to begin with. These are two completely different things, why would you expect similar performance?
Good position to be in, and it's rare to overcome all greedy attempts to derail it. You know who you are.
Jobs had to pull a lot of weight from a young age to be able to contribute intangibly equally to the small fraction of Woz's technology that they intended to monetize. Woz could always pull out more technology to sell and Jobs could always step up to the plate and sell it to those who could appreciate it most. Woz couldn't take it easy until he had a whole team to provide the technology that Jobs spiritually needed to bring to customers for the rest of their lives.
Without being the technical genius that Woz is, Jobs was no slouch and had a high bar to maintain, even after Woz had retired.[1]
However, after the point when the founders no longer owned a majority of the stock, their personal goodwill combined with the stock they did own, meant that it might as well be like the founders still own more than the part of the company they did not own.
As Apple grew to whatever size, along the way.
The whole time.
Let that sink in.
As long as Woz & Jobs were there, Apple could not be stopped. After Jobs picked up the ball single-handedly, as long as he was there, Apple could not be stopped. We saw what happened when he wasn't there, for that period of time, and what happened when he came back. Since he passed, his momentum is still stronger as it fades than all the new increases being successfully fielded.
You can grow like mad after a certain point without the founders any more, but you're not going to start something much like Apple without an ambition comparable to Woz & Jobs.
Takes a lot of continuous good actual will the whole time too, it's very rare when that can overcome the inevitable adverse forces.
[0] some may have to back-propagate to do this
[1] As we know Woz retired after Apple had monetized less than the full 1% of his technical ability. Think what would have happened by now if there would have been a wise enough capital structure to do a little something about the other 99%. Might have even been enough to tempt Woz. Imagine what would it be like to have a technology company 99x the size of Apple at any one point in time? It could have gotten out of hand and eventually you could very well be talking serious shareholder value ;) Too late, nobody in most businesses chases risk-free opportunities, everybody involved had already raked in the bucks beyond their wildest dreams anyway.
You never know if you are preaching to the choir or talking to yourself, it's almost insane.
"I've got everything I need to drive me crazy."
Just a minute ago I thought I saw a very stout lady wearing a Viking helmet looking like she was going to perform in the opera.
I guess not quite yet ;)
The only way for a company to have grown faster or bigger is if the founders would have held the majority of the actual stock the whole time.
Zuckerberg is the example I had been waiting for decades to point to, that nobody can deny.
He's a jolly good fellow.
If there is only one founder, odds are they don't have to be as formidable as either Woz or Jobs. As long as the founder holds the majority. The whole time. In some way or another.
You do want to grow fast & big don't you?
But probably not at all like Apple in any recognizable way, that would not be novel at all, too well-proven and risk-free ;)
>they tried to follow The Apple Way, where 1.0 products need to be so insanely polished as to blow people away.
>raised $230 Million and spent
Maybe more accurately re-stated as raised and spent $230 million.
Doesn't sound like following the Apple I remember as a startup, or any of the other startups I had studied beforehand as a young financial professional.
Could be considered a pivot in terms lots of tech operations do, if the business plan calls for raising $230 million, check; then spending $230 million, check! So far you're on track, if you pivot to the strategy of thriving on the cash flow from the operation of the business (wait, is this supposed to require a pivot?), and then get out now (ok, that's the pivot), you could consider it a complete success. It could happen, look at Wework.
No doubt for $230 million investors were entitled to more than an insanely polished 1.0 product because anybody that was not a financial black hole waiting to happen could have come up with some kind of something insanely polished for way less than half that much. With plenty in the pipeline to boot. Maybe only from obscure founders though, getting in on the ground floor may still be one of the best moves.
Maybe if they were only given one million a year they could have gotten more done with a century-long runway. If not, at least it would have only cost $100 million ;) Maybe the bleeding could have even been abated before then. I guess it depends on how formidable.
Even in today's dollars which are worth a fraction of what they were in the 1970's, with one million dollars, a generous capitalist can still make a favorable deal with two strong founders and you're off to the races with no place to go but up. Compared to any unfavorable terms at all which instantly turns the default mode into failure, with all following effort wisely focused on avoiding such a fate. But no way to focus on actually pursuing a thriving future. That's OK, when money is being thrown around so willy-nilly, somebody's going to get lucky eventually anyway.
In that kind of landscape you don't pay $230 million and have it be less than insane in some way.
Looks like that's how it came out.
Too bad a couple founders like Woz & Jobs wouldn't stand a chance getting funding in this cut-throat environment. OTOH Jobs was able to prevail at a time when money was much harder to come by. There's got to be some kind of disconnect somewhere.
Now I'm no recruiter, so it might take me a couple years, but I could surely locate 460 individuals that are as far above their peers as Woz & Jobs were, who are worth investing $230 million in, more than you normally find.
And without losing a dollar, by leveraging technology itself, after 6 years have no remaining debt.
Baseline.
And there are many people better at it than me, just say the word.
It could "probably" be done for less than $230 million. Just maybe.
Using a radically new or completely traditional businesslike approach.
Everything else is gravy. It's a no-brainer.
Sandofsky makes so much sense, but he does seem to be fairly well convinced about the original iPhone:
>everything before the iPhone sucked.
He must have liked it way better than I did.
It didn't feel that way if you had the $500 Sony-Ericsson. When the iPhone came out the iPhone was not very smart by comparison. Sony had smarter phones a decade earlier, worked on regular desktop websites too without any special mobile consideration, even without a touch screen. Memory sticks for removable storage like nobody should ever have to do without. Easy-peasy remote monitoring of security cams on its "huge" 3 inch screen without any apps or cloud. Google Maps, Facebook, Java apps, email, etc. Perfectly readable on the deluxe small screen, not always ideal but there when you need it. At least the screen would never crack if you only dropped it a few times a year. HN was fine with only navigation buttons. Battery lasted weeks and one of the most brilliant features was still intact, you could pop in a replacement battery any time, and there was a separate charger for a stand-alone battery too. Just like normal. Most people truly weren't ready to pay for a top-shelf Sony. Touch screen and iOS or Android do not make a phone smart. Really made it less smart than alternatives. The smartest phones yet, by design, connected directly to a PC using USB or Bluetooth, with feature-rich phone-manufacturer software free for the download to install on the PC which can do way more than file management of the phone, and of course could get the PC on the internet without any software to begin with. Even on dial-up. Which was pretty good since most of the world didn't yet have 3G. When the iPhone came out it was only good in the big cities.
>People were happy to switch to a smartphone, aside from $600 price tag which was hard to swallow.
Cellular features, and a touchscreen small enough to go everywhere in ways a netbook is not, where it's easier to include more interactive visuals in communications, can be a very hypnotic combination. Along with the payment plan that made it fly off the shelf.
If Sony had gotten there first with the touchscreen in stealth, then launched it to the best of their proven world-class formidable ability, it would have made the iPhone look a lot dumber. But it wouldn't have made any difference at all. Even if they would have been early, it was already too late to do any Apple-style launch, Sony didn't have a swinging founder remaining, and nobody who could step up to the plate with the gusto of a founder familiar with "total ownership and control" from the beginning. Jobs launched a whole novel paradigm like few others could, not just the evolutionary device that was going to come without him. Didn't Apple start out exactly this way?
If someone wants to make a new personal cellular device as smart as they can, the closer it performs to a miniature open-source PC, the smarter and more useful to intelligent people it would be. You would have to be able to put on any OS that you could to an x86 PC, and not have things unfavorably locked down from the user. But no matter how smart, you're still not going to be able to compete with Apple on their terms when 800lb gorillas have already been laid to rest.
A pair of founders now who are like Apple when it started could never get on the radar of a dedicated high-risk capitalist. Regardless of who some investors are looking for, what are they usually ending up with?
>didn't have to be a knockout, they just had to be the last single person at the bar at closing time.[0]
Seems almost like a no-risk proposition, how does that make sense for an over-achieving capitalist?
Oh, I understand.
[0] And unbeknownst, the last man standing after the slideshow competition turns out to be what results in this type of selection. Backwards? You tell me. It gets worse, this is like a footnote
>Founders pitch investors on a hand laser thing when it's a napkin sketch.
With no idea yet of what an AI pin is, this is where I find out that it is a product that actually contains a laser. Who knew? I've never been interested in what an AI pin was supposed to be, I just know what a million dollars is. At first I thought Sandofsky was talking about using a laser to point during a slideshow pitch, my bad. Now I get the idea that the wisest investor would be able to compare prospects using only a napkin sketch better than from a carefully crafted slideshow. Surely an average person could do that, why not anyone else? Well, you'd have to be sitting right next to each other on the same side of an almost unrecognizable negotiating table, and who wants that? It may just be a napkin sketch, but if you really want to build something insanely great, and go far, it seems like it would be best when everyone is facing the same direction the whole time rather than in opposition, as much as humanely possible.