Top Silicon Valley VC: Here’s How to Spot the Next Elon Musk

gva capital headquarters
Photo: Ohurtsov

Finding Elon Musk Before He’s Elon Musk

Today’s tech titans—Elon Musk, Mark Zuckerberg, and Bill Gates—are celebrities in a way that other chief executives are not. Few people know or care who is at the helm of Procter & Gamble Co. (NYSE:PG), for instance, but even people who don’t follow business news are familiar with Elon Musk, CEO of Tesla Motors Inc (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY) .

This is in part because many tech CEOs built their fortunes from the ground up. They have a rags-to-riches tale which is appealing, romantic even. But more than anything else, people are entranced by their financial wizardry, because investors got rich. Tales abound of the retail investor who bought Apple Inc. (NASDAQ:AAPL) stock at $1.50 in 2001 and made a killing over the next decade.

But forget the anecdotal evidence and look at the numbers.

Shares of Tesla stock have skyrocketed 934% since the summer of 2010. Elon Musk built that company up from the ground level. Likewise, Bill Gates founded Microsoft Corporation (NASDAQ:MSFT) in 1975 and it made him the richest man in the world. From then to now, $10.00 of Microsoft stock would have grown to $54,250. Mark Zuckerberg’s Facebook Inc (NASDAQ:FB) stock has risen 214% since the company’s initial public offering (IPO).

Surprising to no one, Silicon Valley continues to be the place where these tech companies come of age. It is a holy site for young entrepreneurs, a place where they can go to start the next Facebook or become the next Elon Musk.

To get a sense of how the startup market is currently doing, I called up one of the Valley’s most prominent venture capitalists (VCs): Pavel Cherkashin.

As the founder of GVA Capital and Vestor.In, Cherkashin has $100.0 million to play with. He invests in fintech, artificial intelligence (AI), and big data projects; not to mention the 104-year-old Spanish church he just renovated to house GVA’s headquarters. The historic church is supposed to become a temple for the next generation of startups, so it’s very possible that the next Elon Musk could emerge from within its hallowed halls.

Here’s a lightly edited transcript of our conversation.

Pavel cherkashin
Pavel Cherkashin

Gaurav S. Iyer: What do you look for in a tech company before investing?

Pavel Cherkashin: Well, first of all we look for passionate people, because courage is more important than experience. We’ve found that the biggest failure factor for startups is not lack of money or bad product, but that founders get disappointed or stressed, and they break. We look for founders who won’t break and who can stay through several years of building a business. Since all the partners at our fund have been through this experience ourselves, we know what kind of characteristics to look for. That’s the first thing.

Then we ask: is the problem big enough? Are these founders solving a big problem? Sometimes very talented and nice people are solving too small a problem for their business to offer adequate returns. But we are not interested in that. And finally, we ask: can these guys execute their vision? Can they deliver a real solution to this big problem? There’s a big difference between almost doing something and really doing something. When you work for a big company, having a good excuse is sometimes as good an actual solution. That doesn’t work in startups. You need to deliver, no excuses.

Gaurav S. Iyer: Should investors put a premium on firms that come out of the Silicon Valley as opposed to companies that come out of Hong Kong or London? In other words, is Silicon Valley still the best place for tech?

Pavel Cherkashin: Yes, it is. It’s a closed loop. When I was in Russia, I would come up with an innovative idea and people would say, “If that’s such a smart idea, why isn’t it already implemented in Silicon Valley?” That was the justification for a good idea. At the same time, when you come to Silicon Valley you meet the smartest people from around the world. So if you can be successful here, you can be successful anywhere. But that isn’t true the other way around. If you can survive in this highly competitive environment, you can do well anywhere else.

Gaurav S Iyer: What is it about Silicon Valley that makes it special?

Pavel Cherkashin: There are two reasons and they’re both psychological. Firstly, it’s a very diverse environment. There are people coming from all over the world; people who would look weird or strange or not acceptable to other cultures. They come here. It’s the Burning Man kind of culture.

Second, there’s a high level of tolerance to deviation and failure. If you fail in other places, it’s demotivating. People point fingers at you and say you are a loser. Here in Silicon Valley, it’s the only place where you fail and people support you. We recognize that failure is training for success. You need to fail ten times before you succeed, because that’s the only way to build a successful startup. These two reasons are what set San Francisco and Silicon Valley apart from New York or Tokyo or Toronto.

Gaurav S. Iyer: Silicon Valley is, in many ways, the Renaissance of our time. Like Florence during the time of Leonardo Da Vinci or Vienna during the time of Freud, there is true innovation happening in the Bay Area. But past Renaissances were brought down by arrogance. Does that worry you? Is there too much arrogance in Silicon Valley, and has it led to a tech bubble?

Pavel Cherkashin: There’s a lot of arrogance, as you can imagine. It always follows success, because ego is a motivation for many people. But when they succeed, that ego becomes arrogance. Does that arrogance indicate a bubble? I’m not sure. In some ways, the bubble is always there. Any new technology, when it’s at the top of a hype cycle, can collapse and disappoint investors. But then entrepreneurs and investors start building real value on top of the technology. This happened with social media, online video, and is happening now with artificial intelligence and augmented reality. But it’s not a bad thing. The 0.5% of GDP that goes into this venture capital model comes out as 20% of the national economy. So the overall tech industry is doing well, but certain areas are a little bubbly.

Gaurav S. Iyer: How do you go about finding the next Elon Musk or Mark Zuckerberg? What are the early warning signs that tip you off that this person might make a great CEO?

Pavel Cherkashin: It’s very psychological. You look for extraordinary people who do extraordinary things. Those people tend to be eccentric or crazy, but they might be geniuses. Unfortunately, the difference between crazy and genius is very small. You can find these people at startup accelerators or universities, but mainly it’s through talking to other people in the tech community.

Gaurav S. Iyer: What advice do you give to these young entrepreneurs?

Pavel Cherkashin: As I said, the biggest failure factor is not being prepared for a long journey. It is bad when they are more interested in the potential outcome than in the process. Enjoy the process, because you never know if the outcome is good or bad. People who only focus on the outcome usually break after 18 or 20 months, and they go back to corporate work. Unless you are ready for a long journey, and unless you really enjoy the process, you shouldn’t consider doing a startup.

Gaurav S. Iyer: The iPhone was the “Mega-Trend” of the 2000s, but it officially ended this year. You’ve mentioned artificial intelligence, autonomous cars, and augmented reality in this interview. Is that because you see these segments as the next “Mega-Trends”?

Pavel Cherkashin: There are several segments where the market is waiting for a breakthrough. The technology is there, it’s only waiting for the right startup to make it into a product. For example, self-driving cars. All the components are there, and it is almost ready to hit the market. So in the next couple of years, we are going to see a major revolution in transportation. Augmented reality is another technology which could change our lives forever. In a few years, we will forget about smartphones because our attention will move to glasses with augmented reality. That will change the leadership in a lot of segments, including mobile phones.

There is a lot of expectation, a lot of risk. My bet is that these technologies—autonomous cars, augmented reality, and artificial intelligence—will have their tipping point in the next year. In two or three years, people will be going crazy for them.