"I am looking for entrepreneurs who balance confidence with humility"

Silicon Valley veteran Jim Breyer’s investment in Facebook in 2005 at 5 cents a share helped Accel IX become the best performing fund in venture capital history and made him a billionaire. After an illustrious stint at Accel Partners, he founded Breyer Capital. He has invested in over 40 consumer internet and technology companies, several of which have returned 100x their initial investment. His most recent exit was from Legendary Entertainment, which was acquired by China’s Dalian Wanda Group for $3.5 billion in January this year. He believes artificial intelligence is the next big thing and that’s what Breyer Capital is focused on.

>> You usually have entrepreneurial experience and then you get into venture capital. What made you choose venture capital right after business school and how did the stint at Accel Partners shape your investing approach?
I started right out of business school as an associate. My graduating class at Harvard Business School, 1987 still holds the all-time record for the most students going to Wall Street. I went to Silicon Valley. I joined Accel as an associate and I thought I would stay for two years then start my own company. But I stayed for 27 years as an associate partner and managing partner and had a wonderful experience. The most wonderful thing that I have learnt at Accel is that we can make 1000x the money if we pick the right team and build something sustainable. That’s the lesson I have learnt: do our very best and play long-term.

>> What is it that you look for when you assess teams and what they are building?
Breyer Capital focuses on Series-A and perhaps Series-B, investing at a very early stage and that’s what I love. So, I am looking for entrepreneurs who balance confidence with humility. I look at the strength of the engineering team and the vision that’s driving them, whether they are building something that really works and has the potential to transform an industry. I am looking for technical teams that are not just an A or A+ but a technical team in certain areas of algorithms, machine intelligence that are top 2 or 3 in the world at worse. I am looking for technical passion. In some cases, I am looking for domain expertise combined with very deep analytics and a love for software and algorithms. I look at 10,000 business plans a year and I meet at least 1,000 entrepreneurs or teams and in the end, I pick 6-9 investments a year. 

>> What made you bet on Mark Zuckerberg and on Facebook, which had no revenue but came with a $100 million valuation?
I looked at Myspace, a social networking company, and another called Tickle and other social networks in 2004 and turned them all down for different reasons. Friendster was another one. Either there wasn’t the depth of technology, or there wasn’t a platform strategy, or it just wasn’t the right team that was passionate about building something significant. In early April 2005, I had a meeting with Mark. Looking at the website and especially at the bottom of the website, it said Mark Zuckerberg Production. I instantly knew how passionate he was about the site and how he wanted to build something beyond college campuses. He was an owner-based entrepreneur. He cares deeply about building something. When we met, he had already thoughts about businesses outside the college market. He was thinking a product for high schools and graduate colleges. He was already thinking about other opportunities and he was just 20 years old. I was simply blown away by his intelligence, his energy and his passion, and I still am. Mark decided to hire Sheryl in 2008. He is 32 now, I can’t wait to see what Mark and Sheryl do as a team over the next decade.

>> How did you close the deal?
Mark and I met on Monday and then again for dinner on Tuesday where I wanted to buy him a glass of wine, but he was underage. He was not yet 21, so, only I had a nice glass of wine. We met again on Wednesday and had a serious negotiation and handshake on Thursday where the valuation was pretty much set at 5 cents a share versus today’s stock at $120 to $130, depending on the day. He wanted me to join the board and I wanted to optimise ownership. It was then a question of negotiating what the dollar amount in percentage of the start-up would be. For all the start-ups that I have invested in when I was at Accel, it was a personal as well as a formal investment.

>> Early on in your career, you had a chance to work with another visionary entrepreneur, Steve Jobs. How was it working with him?
When I was a junior at Stanford, I had sent a resume and a cover letter to Steve Jobs. Steve had passed that on to the vice president of marketing. I joined part-time during the summer as I was a student at Stanford. After that experience, I knew one day, either I wanted to start my own company, or be an investor in companies like Apple. I was also able to get to know Steve very well over the years. Steve is more than just one in a billion and a great friend as well. Mark Zuckerberg is one in a billion as well. Great entrepreneurs like Steve and Mark have the courage and intensity to go after what they believe and they are not afraid to be wrong. Being great listeners, they have an intuitive sense of where the markets and consumers are headed much before it is apparent to most. They have the ability to not only attract the best talent, but also know how to motivate and retain them. Some of the great entrepreneurs come around once in a decade, perhaps less, and part of my role as a venture capitalist is to be sure I am doing everything I can to find the next Mark Zuckerberg and Steve Jobs.

>> Do you think you will find great entrepreneurs in Artificial Intelligence, which you believe is going to make more money than the Internet in 1995 or social networking in 2005? What is it about AI that excites you?
I have made a dozen or so stealth investments at Breyer Capital over the past two years in artificial intelligence and human assisted intelligence. It’s an area of great passion. Most of the investments, whether they are in India, China, the United States or London, are in and around great universities like Indian Institute of Technology, Delhi, Cambridge University, Oxford, Harvard, MIT and of course, Stanford, which is, perhaps the epicenter. AI is transforming several industries including less obvious ones like content and entertainment. In my view, 60% of the return that will be generated in VC in the next decade will be in this space. It may be the most revolutionary, and is definitely the most interesting investment theme in the next decade. Algorithms and human assisted data analysis can be applied to verticals like finance or healthcare to improve user experience or patient outcomes. From an investment stand point, I have always been passionate about technologies that intersect important verticals, whether it’s healthcare, education, or finance. And it is at this intersection where the great opportunities lie in my opinion over the next decade. Data analytics applied to challenging problems will be the place I will be looking to invest.

>> Which companies are getting it right in artificial intelligence?
The very best companies in the world are often the very best artificial intelligence companies. I travel everywhere with my Amazon Echo, Facebook and Google, which particularly adapt with respective places. Apple is doing some extremely creative work and then there are number of start-ups that are below the radar, which would prefer to remain independent. I have invested in Kensho, a next-generation analytics and knowledge platform for investment professionals, which is a company that was started by Daniel Nadler, in Cambridge, Massachusetts. The company uses data analytics and machine intelligence to analyse news events, answer traders’ questions, and develop automated reports that predict where markets are headed. I don’t think it’s an overstatement to say that Kensho’s AI software has the potential to solve some of the hardest analytical problems of our time. Legendary Entertainment is a perfect example of how artificial intelligence can revolutionise an industry. Legendary uses AI, statistics, and machine learning to analyse how a particular film is being received on social networks. They use that data to make content marketing decisions, to decide how many theaters to open in and how to maximise the impact of marketing budgets. In the future, I believe the types of advanced analytics, AI, and human-assisted learning used by the company to analyse consumer preferences will influence most aspects of filmmaking.

>> When you started off with internet networks in 1995, you were probably the only VC going to tradeshows. And in 2005, you took a bet on a college student who started a social network when not many people took him seriously. But today everybody is talking about AI. So, how do you stay ahead? 
By stepping back. I mentioned the academic campuses around the world — the great universities. In many cases, that’s where a lot of great PhD students, post-doctorate graduates and professors around AI live and work. I spend at least one day in a week on a university campus somewhere in the world. It might be Palo Alto, California, or it might be Cambridge, Massachusetts. A couple of weeks ago, I was in Cambridge, England or it might be Delhi or Beijing. The centre of innovation around AI is the academic university combined with great local ecosystems. My job as a venture capitalist is to compare and contrast the very best artificial intelligence teams around the world. Currently, I am evaluating a team in Delhi, I am evaluating a team in Palo Alto, in Cambridge, England and they are all pursuing somewhat similar AI opportunities.

>> China is another subject close to your heart. You have been investing there for the last 10 years with IDG Ventures. How has the experience been?
I just arrived back from Beijing. I have made 25 trips to China over the last decade. Investing in China, just like in India, is challenging if not impossible without local partners. IDG is ours in China. We started investing early in internet companies. The IDG China team did the Series-A in Tencent, Baidu and number of other successful companies. Those are some of the great early-stage investments ever. At the senior levels of IDG China, we have had no partner turnover over the last 11 years since Breyer Capital started working with the team and I am very proud of that. There is a great part of pattern recognition that occurs when you see all business plans, and you compare and contrast with each other. But having deep personal friends, who are also on the ground, and whom we trust completely is my view of how to succeed globally in early-stage investments.

>> So, you are saying that a partner is essential for early-stage investing in India and China?
100%. Currently we are evaluating potential local partners in India. When we sit down a year from now, I am certain we will be talking about a local partnership between Breyer Capital and investors who are on the ground in India. Breyer Capital will only get more active in India with a local partner. In China, it has worked extraordinarily well. Our investments will be half in the US, one-third in China and then, the rest in India and the United Kingdom.

>> A decade ago and now, what is the biggest change you have seen in China?
When we started, it was about cross-border investing and within China. In many cases, it was the model where, if something was working in the US, there would be a team in Beijing or Shanghai or Hangzhou that was looking at what was happening in US and iterating very rapidly.  Today, the domestic market in terms of mobile usage, size, and growth is enormous and the innovation that companies like Tencent do are breathtaking. In integrated messaging, when I sit down with my friends at Facebook and when we look at the best worldwide messaging products we think of WhatsApp, Messenger and Instagram. Many of the technologies that have been developed at Facebook are world class. But we also appreciate the integration of themes, photos and sharing that WeChat represents in China. So, we are learning from WeChat what a truly differentiated application might be. The world’s first trillion dollar market capitalisation company will either come from the US or China. Apple, Facebook, Tencent and Alphabet are the four companies I would watch out for. I see that the technology talent, whether it’s India or Beijing, in some of these very important areas is second to none. The very best software engineers in the world might be most typically from Silicon Valley, but China and India are right there.

>> Are you concerned by the valuation froth or the increasing competitive intensity in the early-stage space?
I have been investing in China for over a decade and the pace and strength of innovation there is only increasing. China continues to represent tremendous long-term investment opportunity, particularly in companies applying machine learning and artificial intelligence to revolutionize industries. I take a long view of investments, and believe there is still tremendous potential to create significant value, even amid the competitive intensity for deals. When we do a Series-A investment in a really good technology company, it is often on the radar of Tencent, Alibaba, Baidu or JD, who more often than not make an offer to buy the company.

>> Despite your home runs, do you regret missing out on any investment?
Scott Cook is my neighbour in Woodside, California. I tried very hard to invest in Intuit. The analysis was right, but Scott picked a couple of other venture capital firms with more experience than I had. But we are great friends and we often work together. So, that is one thing that comes to my mind, where 27 years later, I am still kicking myself as to how did I miss it. I asked Scott what I could have done differently. He said it has worked out okay for me in the end and we laughed about it. 

>> What is the most difficult thing you have to deal with as a venture capitalist?
Every day is a new challenge, so the challenge is to remain humble in the face of intense competition. Now the top twenty internet companies in the world represent 80% of the market capitalisation. The top ten represent two-thirds of the total worldwide market capitalisation. The very best top internet companies like Alphabet, Facebook, and Amazon are founder-driven and led. The intensity around competition is higher than ever before for early stage. My weakness is that I am not an operating person but I have operating empathy, and so one of the most important things as a venture capitalist is, we know what we don’t know. And as a board member and investor providing advice, I always try to learn by listening to the very best teams and entrepreneurs.