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February 19, 2004

Capital intensive businesses not suited for VC investments: Michael Moritz

Capital intensive businesses are not suited for venture capital investing, says Michael Moritz of Sequoia Capital in an interview to Harvard Business Review. "We had an investment in a calamitous fiasco called Webvan which was an enormous, capital intensive undertaking. Those sorts of infrastructure investments are best left to others. The best venture returns are those that come from investing very small amounts of money," he says.

According to Moritz, many people make the mistake of thinking that if they are successful at making personal investments, they can also be successful at VC investing. The latter requires the ability "to marry the real determination and enthusiasm with a considerable amount of patience".

"This is not something where you can measure, at the end of the week or at the end of twelve weeks, if you have written all the lines of code you promised or achieved the sales target that your manager gave you. This is a very difficult business to measure your progress," he says..

According to him, a highly competitive nature is one of the key requirements for a successful VC firm. "We have always operated under the premise that our next investment is our most important investment," he says. "No matter how long you've been at it, investments you've participated in and how successful some of these investments have been, the very next investment that we make may end up losing 100% of our capital," he adds.

Moritz sings his praise for India in this interview as well. "We wouldn't dream of investing in a software company today without asking the people associated with it what their plans are for doing development in India. It may even be in the first thirty days of formation of the company, but capitalizing on this enormous talent that is deployed elsewhere I think its going to be increasingly important in the venture business," he says.

Click Here to read the full interview.