In this interview, Bambi Francisco interviews Mehdi Maghsoodnia, investor and Executive in Residence at Trinity Ventures, a venture firm in Silicon Valley. Mehdi has over 20 years of experience in areas of Internet applications, e-commerce, consumer services, enterprise and mobile solutions.
Importantly, the two discuss why the government shouldn't be spending billions of dollars to defend an auto industry that's not competitive. And, why there should be a greater discussion around how to invest more in startups and entrepreneurship.
BF: Mehdi, we're living through the most challenging economic times in history and millions of jobs are lost. Hundreds of thousands of jobs are lost every week and it seems like Silicon Valley could be a bigger part of the discussion that's happening here in Washington to create jobs because there is so much innovation happening here. Do you think Silicon Valley could be a savior?
MM: That is an excellent question. I do think that a lot of people are suffering and the economy is looking worse every week. So I don't think Silicon Valley itself could be a savior. We're probably not big enough to be the driving engine for the whole U.S. economy. But it's important to realize that the model could be a very interesting model to be applied to a lot of the different sectors to the U.S. economy. In fact what gets me excited about what you are doing is that I don't think we've done a good job of expressing to the larger audience out there as to why the venture community and the entrepreneurship in general is so critical to our way of life in the U.S.
In the venture community and in the Valley, we create a lot of unique jobs. Defendable jobs. Meaning we create companies and services that you cannot find anywhere else on the globe.Therefore once you start that company like Google, Yahoo, MetApps and so forth, you get the feeling that those jobs are here to stay for a long time to come. We do that effectively and efficiently. We do that with very little cash and money invested into the companies. Could you apply that model to the energy sector or medical pharmaceutical research? I think that is a valid discussion and I hope that Washington was doing more of that instead of us handing out cash to old fashioned existing industries. We would rather do more efficient industries creating unique dependable, competitive jobs.
BF: What do you like to be covered on the Wall Street Journal or New York Times? Is it how much money are we going to give to Detroit to bail out the auto industry?
MM: That is a great example and I don't mean to pick on Detroit. We invest around 20 billion in venture community a year and you cover a lot of these companies. You realize how many companies pay highly educated individuals in the Valley. These individuals that are getting hired in the Valley can actually retain jobs anywhere in the world. They can be hired in India anywhere else. And to see that same equal amount of money, $14 billion being spent in Michigan to defend an industry that it is not competitive. And people who are being employed who are not competitive on a global basis. It does make you think like that investment is not on par, so we could do a better job. I don't think the blame goes to the workers or the industry. It goes to the approach of the investment. So I think we could do a better job.
BF: Despite the fact that there a number of layoffs in big companies, there still won't be enough entrepreneurs out there because they'll be afraid that they might still be looking for jobs If there is enough innovation, there will be enough jobs that will be created in the Silicon Valley or from these new startups.
MM: I think that you know the stats around job creation. Most of the jobs in the US are not created within large corporations. They are created in small businesses. And I think it's very natural that job efficiency is very high in the early days of small companies and actually decreases as a company grows. This means that as a company grows to be very large entity, the number of jobs it creates as a proportion of growth of revenue is not very efficient. So in some ways what we do in the Valley is a very natural and healthy process. We create new growth and new industries. I think that needs to happen in every part of our industry. If you go into any industry and a company has been around for more than 70 years, by definition you are not getting enough renewed growth in that industry and they are probably no longer competitive. Again, I am not trying to attack any segment, but if you look at GM who has been around for 60 years. That by definition should tell us that we're not being competitive in the auto industry. There should have been new names. There should have been new brands that would have been more competitive on a global basis. And when we don't show that competitiveness that would eventually catch up to us. They did that with Merrill Lynch and Goldman Sachs.
BF: It's a bigger disaster when you keep holding onto them.
MM: Exactly. Its like you go to a forest and you see an old growth of redwoods and they don't let the sun shine through and after a whole the forest will burn down. It's the same philosophy that you need that growth to make the industry competitive.
BF: Well let's switch gears and talk about the new growth. What kinds investment themes make sense in today's environment. What are the different trends that you are seeing?
MM: Because I think the economy as a whole is under pressure, people are much more cautious about the amount of money they invest into new ventures. So I think one of the key criteria is for anyone who is forming a new business is to be cost cautious. Most good entrepreneurs are cost conscientious. So in that sense, if you can't have investors support you, you have to show them that you can build value with their money. And I think we do a pretty good job of that in the Valley. Other than that, I would say that for that reason alone if you try to build a new company that requires a lot of upfront capital.
BF: Well, fortunately these days with the technology cost being down, its a lot easier.
MM: If you start a SAAS company and you try to build an infrastructure it might be costly. But a lot of companies are leveraging an existing infrastructure. So some indsutries are under pressure because they need upfront capital. But most of the venture deals for Trinity are very capital efficient.
BF: Well you defitnely have to be during these times. Medhi, thank you so much.