Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Ho Nam was recorded in April 2016.
Ho Nam, Managing Director at Altos Ventures, makes a clear distinction between capital efficient company building and the “grow at costs in all sorts of unsustainable ways” philosophy. These are two distinctly different ways of building businesses.
Sramana Mitra: Why don’t we start by you introducing Altos Ventures and your core philosophy about investing? Obviously, it’s somewhat different from other VCs out there. I would like our audience to learn how you look at the venture landscape and how you and your colleagues at Altos have come up with a differentiated positioning for the firm.
Ho Nam: Altos has been investing in Silicon Valley for 20 years now. Several years ago, we also opened an office in Seoul, Korea which is where I and one of my partners are from. He has moved over there. We operate with two partners here in Silicon Valley and two in Korea. We’ve always taken a fairly consistent and pragmatic approach to venture capital. Depending on where you are from and what your perspective is in terms of how much capital to raise and how aggressive to be, we can be viewed very differently.
In Silicon Valley, we’re viewed as pretty conservative and very pragmatic. We stay away from the hot deals. The funny thing is in Korea where we invest with pretty much the same approach, we are viewed as these aggressive Silicon Valley types. Our goal is very simple. We partner with entrepreneurs to build fast-growing businesses in a capital-efficient manner. The way we’re different from some of the other mainstream Silicon Valley VCs is, we think it’s dangerous to crank up the burn rates of companies too fast in early-stage companies.
We believe you hurt your chances at developing the discipline and the culture needed to build a sustainable business. You can’t change the culture of a company when you’re 300 people and start telling people, “Now you got to be careful about how you spend your money because you’re big.” It’s much harder to change the culture of a bigger company than to start it right.
Sramana Mitra: Those of you who are following this program for a while, we are huge believers in capital-efficient entrepreneurship. I personally believe that unless you have a Facebook or Uber on your hands, entrepreneurs and investors end up making a lot more money if you can do a capital-efficient venture that grows fast and grows well but doesn’t burn so much money so quickly that you end up with huge capital risks. I like Altos’ philosophy. We work with them quite often.
Ho, what is your analysis of the investment environment currently? We are in the second quarter of 2016. We’ve just gone through this unicorn mania of 2015. It has started to slow down.
Ho Nam: The environment was definitely frothy last year. People do seem more cautious now. I was talking to a good friend of mine. He was at one of these very larger venture firms and they have a large new fund. He’s telling me that they’re seeing valuations come down. Even though a fairly small percentage of their fund is invested so far, they’re slowing things down. If prices are going down, they don’t want to be deploying too much capital in a downward pricing environment. There’s that kind of attitude for sure.
With all that said, the real head scratcher is you look at the SMB 500, the stock market has been on the tear over the last 30 days. At the beginning of the year, it was one of the worst beginnings ever. Then the stock market has recovered. If you look at the SMB 500, it’s at 2,100 now. That is within 1.2% of the all-time highs. It’s strange. If you’re a public index investor, you’re back to your record highs but a lot of sectors have been somewhat devastated.
Sramana Mitra: At the same time, we are not seeing any tech IPOs at all right now.
Ho Nam: That’s true. The tech sector is suffering. You look at some high-flying companies like Tableau. Their stocks are pretty much half of where they were. Yet the overall stock market is close to record high. Many tech stocks are not nearly at record highs. It’s a tale of haves and have nots. Certain companies like Apple and Amazon are almost back to their all-time highs and other companies are still troubled. I think valuations definitely got ahead of themselves.