Alfred Lin: prediction

Transcript context

…That’s great. I want to switch gears a little bit here and talk about market size, which, for any early-stage entrepreneurs listening who are currently in a small market but are dreaming (as the way you put it out for it could be a big market), encountered the experience of banging their head against a wall because entrepreneurs keep getting these past emails from venture capitalists that say, market’s too small. How do you think about, as a great investor, whether the market is small today and will stay small, or whether the market 5–10 years from now could be enormous? How do you work that into your investment decision? That's a great question. I think the reason why there's a lot of passes on market sizes, Warren Buffett famously said, “When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” It is good advice. It's not advice I often talk about with founders because the one thing that is a little different at the early stages is that you're going after non-obvious-markets. If you go after obvious-market as we talked about—it's a very large market—there is intense competition because it's obvious. If you go after a small market and it's obviously a small market, that's also a bad idea. The question is, are you actually in a small market that looks small today but it's actually going to be a big market in the future? That's how I would like to have that conversation with the founder. Why is this market going to be large in the future? There's a bit of the founder doing some work, there's a bit of the investor doing some work, and we certainly do our own work at Sequoia. Then, we work with the founders so they’ll think about it. Some of it has to do with what are the trends that are carrying you in this business? It's not hard to know that mobile is going to be a big trend back when mobile was a big thing, but mobile had some fits and starts as well. We thought we could build mobile just on a StarTAC phone, but the user experience wasn't great. Mobile really started to take off because the smartphone started to take off and it was a fully-functioning computer. That was what carried mobile through over many years. The move to SaaS was actually identified way before this current wave because as soon as you saw people moving racks into colocation spaces, you could see that more and more software is going to be written and put in the cloud. It tool AWS coming around where developers are starting to bill for the first time right straight into someone else's racks, not your own, that you're like, okay, well this is going to carry for a long period of time because it lowered the cost of starting a company. A developer, Jim Goetz, who talked about having a prepared mind, talked about the rise of the developer as a landscape because developers didn't have to rack their own racks anymore. They didn't have to go raise a bunch of money to buy the servers and put it in their own CoLo. What they needed was just be able to have a credit card, start coding, and put it on AWS. You could see that was going to be a trend for some period of time. There's that amazing moment that we talked about in the Airbnb episode where the YC startup school where Bezos launched AWS to startups, was the startup school that Brian, Nate, and Joe went and attended before they did YC.…

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