Andy Rachleff: Democratizing the Investment Business
A former venture capitalist, entrepreneur, and Stanford GSB lecturer explains how to build a great company.
Andy Rachleff (MBA ‘84)
After more than 20 years of advising and investing in entrepreneurs, Andy Rachleff reluctantly joined their ranks, co-founding Wealthfront Inc., an online financial advisory startup, in 2011. A 1984 Stanford Graduate School of Business alum, he had recently retired from the venture firm he co-founded, Benchmark Capital, where he invested in companies including Juniper Networks and Opsware, and was lecturing about tech entrepreneurship and management at Stanford GSB. Students and up-and-coming entrepreneurs often asked him for investment advice, yet he could not tell them what to do. “I had access to resources they could not afford. It struck me that if I could give someone with as little as $5,000 access to the best-managed pools of capital in the world, I had to do it as a social good,” he says. Palo Alto, Calif.-based Wealthfront, where Rachleff is president and CEO, has so far attracted $200 million in assets and is growing at 20% per month. In our interview, Rachleff explains the key to finding product/market fit and posits that, contrary to Silicon Valley conventional wisdom, failure may not be the key to success.
In 10 words or fewer, what is the big idea behind your business?
Everyone deserves access to sophisticated investment management.
What is the best advice you’ve ever received?
Two things come to mind. The first is something a lot of people say but very few people are able to follow: You can’t earn outsized returns if you don’t take risks. It’s what separates the premier venture firms from everyone else: They have a culture of taking risks. Human beings want returns, but they don’t like risk.
The other advice came from Bruce Dunlevie, a former classmate and a partner of mine for 20 years. Other than my wife, he is the most influential person in my life. His advice was to always put the gun in the other person’s hand. In other words, if you are in negotiations with someone, you tell them to tell you what they think is fair, and then you do it. It’s a much better way to live to give trust first, rather than to make someone prove he is trustworthy.
What was the most difficult lesson you have learned on the job?
I don’t think about failure. It’s not how I operate. I think you learn a lot more from your successes than from your failures.
What advice would you give other entrepreneurs on how to build a great business?
Don’t bother doing something if you can’t win big. I am very negative on people who do quick flips. What makes a great entrepreneur? Someone who wants to change the world, build a great company, and make a lot of money. You need all three. People who are in it just for the money don’t do great things.
I always ask, “What are your aspirations for this business?” If a founder says he or she thinks it’s cool to sell the business for $50 million, I don’t want to have anything to do with her. It’s selfish. Startup founders recruit talent by selling them a vision. The employees kill themselves to build a business. If the founder sells the company early, she makes $10 million, but the employees walk away with only $100,000.
New York startups tend to sell too early. In Silicon Valley, we have always had phenomenal role models who want to change the world and build great companies. But increasingly, the culture is being affected by bloggers who glorify the flippers.
How do you come up with your best ideas?
Great ideas find you. I don’t think you find great ideas. As a venture capitalist, you don’t come up with ideas. The entrepreneurs come up with the ideas. It is a lot harder to be an entrepreneur than to be a venture capitalist. And the great ideas that lead to great businesses generally find the entrepreneur, not the other way around. The ones where the entrepreneur is looking for the idea tend to result in flips. Look at Microsoft. EBay. Dropbox. Airbnb. None of those guys was looking to start a business. The ideas just hit them. The great ones just know.
What is your greatest achievement?
Marrying my wife has to be #1. We were married in 1988. I saw her at a software trade show. She worked in marketing for an artificial intelligence software company. I don’t know how I knew, but I knew right away that I was going to marry her.
What do you consider your biggest failure?
I don’t think about it.
What values are important to you in business?
Treating others the way you want to be treated. I’m a big believer in the golden rule. It is the dominating value in my business relationships. If you treat people well, by and large, they will treat you well. That principle lets you sleep well at night and earns you tremendous respect. Every once in a while, someone will take advantage of you, but you just choose not to work with them any longer.
What impact would you like to have on the world?
I teach so I can train the next generation of people who work in tech startups to do an even better job and hopefully achieve their aspirations. The early investors in Benchmark were primarily charitable foundations, so it felt wonderful to generate a lot of value for them that could be invested in good causes. My wife and I have also been able to use a large portion of our wealth for philanthropic purposes, such as medical research and education. Democratizing an industry like finance is also a social good.
Why are you an entrepreneur?
I am an accidental entrepreneur. I wasn’t looking for this.
What was your first paying job?
I strung tennis rackets in high school. I attended tennis camp, and a bunch of my instructors were from India. Back then, tennis strings were made of cow guts. In India, they used lamb guts. I imported them from India, because they were much less expensive.
That was where I learned the importance of selling. You have to sell to compete. It’s an enormous part of being successful at anything. You will not rise in your career if you are the smart person sitting in the corner.
How do you achieve balance in your life?
It’s an illusion. I don’t think you can have work/life balance and be professionally successful. You have to make some sacrifices. I don’t want to invest in people who have a life/work balance, and I don’t want to hire people who have a work/life balance.
What is the best business book you have read?
The Innovator’s Dilemma, by Clayton M. Christensen. It’s an amazing insight, and I think it deserves the Nobel Prize in economics. I would have been a much better VC had this book been around earlier in my career.
What businessperson do you most admire?
Coach K, Mike Krzyzewski, the basketball coach at Duke University. He is the best leader I ever met. He has a philosophy about leadership that makes you want to follow him. He is one of the winningest coaches in sports. He recruits players and is honest with them about whether they are ready to go to the NBA early. Because of this, he has developed a reputation that if he is recruiting high school kids, they can call one of his former players and he will say, “Coach will be straight with you.”
He also has a way of developing people that I think is brilliant. He hires assistant coaches and views his job as developing them to be head coaches for other Division I basketball programs. He is helping them find a better job and compete with him. His view is: “Think how much bigger my talent pool will be. The best coaches will want to come coach for me because they will see me as the best path for their dreams.” He gets better people to work with him. That’s why I admire him so much.
What is the most valuable thing you took away from your time at Stanford?
The relationships. My best friends to this day are my classmates.
What do you think is the greatest innovation in the past decade?
The iPhone. The iPhone made smartphones worth buying. That made smartphones ubiquitous.
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