[MUSIC] Joining us now, from Silicon Valley, from the heart of Silicon Valley, is Bruce Golden. Bruce is a partner at the famed venture capital firm Accel Partners. And Bruce, welcome on board, and thank you so much for agreeing to spend some time with us today. >> John, it's a great pleasure to be with you. Thank you for inviting me. >> You're welcome. So, you've been an observer of the patterns that go on in the entrepreneurial world for quite a long time. And that's kind of what good investors do. They find these patterns and they try and match them. And one of the patterns you tell me, that you've told me before that you like to find, is that of capital efficiency. Would you explain kind of what that means and why it matters to people like you? >> Sure, absolutely it's an excellent question. To really address the question, we need to talk a little bit about the whole theory behind venture capital. And for those of the students watching this, or people looking at this class and understanding what's the point of this model? What's does capital efficiency really mean? The whole premise of starting a company and as an entrepreneur and aligning yourself with early investors and employees is to really optimize ownership over time. The intent of, one of the great things about being an owner, founder, is that you build a business. You own ideally most of it. And you try and preserve that ownership over time. And the key way to achieve that is through capital efficiency. The venture model is really based on the idea that as a business progresses, and as it achieves milestones that raises the probability of success, you're able to raise capital at different stages. In essence, sell smaller slices of the business for more capital. And so at the heart of this notion is capital efficiency. Capital is expensive and entrepreneurs early on should really understand just how vital it is to get their arms around building a capital efficient business. I'd also say it's not just about ownership. It's not just about financial outcomes. It's about culture building and values, that the great organizations are built on a culture of discipline. And so, from day one we look for entrepreneurs that understand it's really important to spend money wisely. To imbue this notion that capital is scarce and expensive and should be used very preciously. >> And there might not be any more of it. You never know about the future, right? >> And there might not be any more of it, exactly. And our business goes in cycles where there are easier cycles to raise capital and more difficult cycles to raise capital. And, so, if you looked back, historically, at venture capitalist cycles some of the greatest companies of all time were born in a period of real capital scarcity. Because that crucible of capital being so expensive, built a notion of make every dollar, spend every dollar wisely. So, we look for businesses that are inherently capital efficient because generally they're more successful over time. The teams are more conservative and healthier. And just grow up in an environment where they spend money really effectively. >> So, could you tell us a story about a company, maybe one of your investments where a capital efficiency kind of lay at the heart of the success for both the founder and for you guys. >> Sure, well, in recent memory, especially as I've been a member of the Accel London team, so I've been focused on European originated startups for the last 12, 13 years. Probably the best poster child of capital efficiency is a company called SuperCell. This is a Finnish originated games company that many people recognize as the creator of Clash of Clans among other well known games. And the thesis of this company was to build a tablet first model. They really, this is a very experienced games team that came together with the view that the tablet was going to be transformational in terms of being the next great platform for mobile games. >> Very interesting. >> In short, they raised one round of primary capital. We invested $11 million in the Series A. And that was all the money this company ever needed to be cash generative. >> Amazing. >> So, in an astonishingly short period of time, because they were so laser focused on implementing their model. And in fact, killed the first couple of games projects that they developed. They just didn't think they were above the bar. And after killing a couple projects- >> That takes courage- >> So, they had the discipline and the insight to know what mattered and what didn't. And then once they developed Clash of Clans, they knew, okay, this is the game. >> The winner. >> Is the winner and after that they completely control their own destiny. This team ended up owning the vast majority of the business and it was an incredible financial success. I mean, this one investment more than returned the entire fund that we invested in, based on that $11 million investment. >> Fantastic. So, prior to the $11 million they took from you, what did they do to get that started? And how did they come up with whatever resources they needed, or didn't they? >> Well, they boot strapped it themselves, and so essentially this team just lived off of internal savings and there was all based on sweat equity. They really, they were committed, fully committed to this concept on their own. And in fact, we approached them. We really had to encourage them to take outside capital when they did. >> They didn't think they needed it. >> They had not yet read your book. But they actually had a mind set of, we would prefer to raise money when we were further along. When we had more to show. In this case, we believe so strongly in this team, and the clarity of their blueprint that they had articulated for this kind of business, and we had been investors is a number of gaming companies prior to this. So, we had our own what we call internally prepared mind initiative around, what a great new game company at this point in time would look like. When we met this team and saw what they're working on, we preemptively said we really think it's in your best interest to take this capital because we can help accelerate your time to market which is a kind of a key issue. >> Yeah. So how about a story? Everybody loves all these wonderful successes. But there are many lessons to be learned from failure as well. Is there a story where a lack of capital efficiency made an investment that you thought was going to do well, actually not do so well. >> There's a pattern as a partner at Accel now for over 18 years. So, I've lived through multiple cycles. And in fact I joined, I was an entrepreneur for 14 years before joining the firm as an investing partner in 1997. So from '97 now through 2015 I've been a full time partner. And when I joined the venture business and think back about lessons learned around capital efficiency, I'm aware that in the days leading up to the bubble of 1999 and even the early 2000s, the companies that struggled the most generally were the most capital intensive. >> Yep. >> And what happened is after the collapse in 2000, valuations and fundraising environment just went negative from basically the second half of 2000 till about 2004. Prices and the way companies were valued continued to decline or, best case, went sideways. And it was a brutally difficult fundraising environment. And some very well founded companies with brilliant teams, with great subject expertise, couldn't survive. >> They lost it, yeah. >> And it wasn't strictly a function of there wasn't a market, there wasn't a well thought out business plan. The fundraising environment became so difficult, that because their models required so much capital to eventually achieve a cash sustainable position. They just- >> They couldn't get there, yeah. So, there's lots of talk about unicorns today of course and the apparent ease which some companies are raising very large amounts of money. Are we headed for another such period? [MUSIC]