"A 100-Year Firm Is Independent of Exit": Talking Evernote with Morgenthaler's Gary Little

1/13/12Follow @wroush

Earlier today I grabbed some time with Gary Little, who’s been a partner at Menlo Park, CA-based Morgenthaler Ventures since 1998 and has led the company’s investments in Evernote, the fast-growing Silicon Valley startup that aims to help you “remember everything.” I’ve long been intrigued by CEO Phil Libin’s publicly stated ambition to make Evernote into a company that lasts 100 years or more (“We don’t want to exit, we want to build a permanently great company,” Libin has said). Little, who’s on the startup’s board, agreed to share his own thoughts about that in a live, public chat on Twitter.

Little tossed off some great insights, as well as a few funny lines. For readers who may have missed the live chat, I’ve embedded a curated Storify version below. And for those interested in continuing the conversation, I’ll be hosting Little, Libin, and another Evernote investor, Sequoia Capital partner Roelof Botha, in person at a February 7 event called “Xconomy Xchange: The 100-Year Company—An Evening with Evernote, Morgenthaler, and Sequoia.” (The event is set for 5:30 pm to 8:30 pm at Microsoft Silicon Valley in Mountain View, CA; to get a ticket at the early-bird rate, register before January 18.)

If you really want to help people store their memories online permanently, you do have to think about how to make sure your company, or at least its computer servers, will be around decades from now. But there’s a problem: venture capital funds, traditionally the only entities willing to invest in risky high-growth businesses at the early stages, generally want to earn their money back on a much shorter time scale—10 years at the most.

Libin’s strategy so far has been to raise multiple rounds of venture funding, each dramatically larger than the one before, and use part of the money to provide liquidity for early shareholders (including employees). That helps to stretch out the time before a company has to think about getting acquired or going public. And in fact, if you think of an IPO or acquisition as just another in a series of liquidity events, it can make a company “independent of exit” altogether, in Little’s words.

But it’s only a plausible strategy, he acknowledged today, if a company can justify much higher valuations in each funding round. Finding investors willing to buy in at those levels takes “either huge growth, or huge cashflow,” he said in the tweetchat. “Growth firms invest in growth. LBO [leveraged buyout] firms invest in cashflow.”

Fortunately, Evernote has been demonstrating such growth. When Morgenthaler first invested, the startup had fewer than 5 million users. When we started planning our February event last year, it had 16 million. Now it has 20 million. Word of mouth has been powering new sign-ups so far, with Japan emerging unexpectedly as Evernote’s hottest market. The main challenge for Evernote right now, Little says, is “continuing to recruit the world’s best people” to keep the growth going.

Here’s the Storify version of the chat. We hope you can join us on February 7 to keep the conversation going.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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