“In early 2000 when the market melted down, we had seven months of runway left and no revenue.”
Roelof Botha
That’s Roelof Botha, Senior Steward of Sequoia Capital. In a revealing new interview with Bloomberg, Botha digs into the toughest times at Paypal and why great companies are built in the down market.
When Paypal Almost Died
In 2000, Paypal was one of the hottest startups in Silicon Valley. It was growing as much as ten-fold each month — but that growth came at a cost.
Between sign-up bonuses for new users and rampant fraud, Paypal was losing a fortune. And with markets in meltdown in 2000, fundraising was impossible.
As CFO, Botha was in charge of this gusher of red ink.
Back to Basics
The team at Paypal did the only thing it could do. It focused on improving its product and making customers happy.
“The only thing we could control was building a business and serving our customers.”
Roelof Botha
Bit by bit, the losses receded. In 2002, Paypal agreed to be acquired by eBay for $1.5 billion.
Botha had survived.
Today’s Down Market
Today, founders are in their 8th quarter of the down market. Many I speak to are worn out and numb.
I know this downturn seems like it will never end. But nothing lasts forever.
In time, tech will boom again. Deals will get done that probably shouldn’t at prices that would make us blanch today.
That’s the one area where I disagree with Roelof.
He says “it’s the end of easy money.” I say memories are short.
But What About Interest Rates?
A small number of incredible technology companies are founded every year. This is true in good markets and bad.
If you’re a founder, your only job is to create one. If you’re an investor, your sole function is to find such a company and back it.
High interest rates have not stopped innovation in the past, nor will they now.
“In 1999, with Paypal and Google, [interest rates were] over 6%. Today the 10 year yield is only 4.5%. So great companies are built in recessions, in high interest rates environments, in low interest rate environments, so that’s what we focus on.”
Roelof Botha
Startup valuations had to reset to reflect those higher rates and the lower stock prices that come with them. That reset is largely complete.
So long as your company is priced appropriately (about $6-10 million pre-money for a seed round), the investors are out there.
Wrap-Up
I’m a little worried about some of the founders I meet.
We’re almost 2 years into the most brutal tech market in a generation. And they’ve been grinding it out the whole time.
This down market will separate the winners and the losers.
Some founders will give up. Others will persevere.
Which one will you be?
What do you think of Roelof’s interview? Leave a comment and let us know!
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