Silicon Valley's Hottest VC Is a Rug Dealer
3/21/2012 @ 1:03AM |21,303 views
This story appears in the April 9th, 2012 issue of Forbes Magazine.
It’s a balmy February evening in Palo Alto, and Pejman Nozad is sipping tea on the deck of the Rosewood Hotel, the hot spot of venture capital’s capital, Sand Hill Road. He’s chosen a table situated just central enough so that he can see everyone who walks in. As usual, it’s packed with the startup crowd— entrepreneurs in thick-rimmed glasses and jeans mingling with their backers, finance types in pressed slacks and camel-colored Italian leather loafers. Nozad has the peppered-hair look of one of the money guys, but in his soft blue blazer, adorned with a pastel paisley pocket square, he buoyantly bridges both groups.
“There’s Mike Abbott. You know him? One of the smartest guys I know, just brilliant,” says Nozad, waving him over for a warm hello. He asks about the kids. Abbott just left Twitter, where he ran engineering, for a partner spot at venture shop Kleiner Perkins Caufield & Byers. As Abbott leaves, Nozad leaps up. “My gosh, how are you?” he says, motioning over Lorenzo Thione, the Italian-born cofounder of search firm Powerset (which sold to Microsoft for $100 million four years ago). “I knew you wouldn’t last at Microsoft,” says Nozad, an early investor in Powerset. “Starting things is in your DNA.”
Thione beams a wide smile as he describes his latest “passion,” a Netflix-like service for high-end contemporary art. He mentions how much money he’s looking for. Nozad leans in a little: “This is so fascinating. I have people you should talk to. I know the top interior designers in New York. And I want to meet your cofounder. I never invest without that.”
As the patio cools, Nozad, 43, scans the bar. The Rosewood is morphing into the night. The tech set has scuttled their iPads, settling in for cocktails, as a few coiffed call girls work the crowd—perhaps the surest sign yet that money again flows freely in techland. Nozad wants the L-shaped couch just at the corner of the entrance. “I’m afraid my friends might not find me,” he tells a buxom waitress.
Ensconced in his new perch, he spots Darian Shirazi, who joined Facebook out of high school as its first intern and early hire. Within minutes Nozad is listing names of key investors and possible board members Shirazi should seek out for his business data startup, Radius. In the same breath Nozad mentions a friend Shirazi should set up his cousin with. “He is the nicest guy, but she has to move from London,” says Nozad emphatically. “She belongs here.” Shirazi chimes in, acting as cultural translator: “Persians are always matchmaking.”
And, yes, that’s exactly what he’s doing, all day of every day. Nozad is one of Silicon Valley’s greatest connectors. Top investors take his calls. Hit-making entrepreneurs consider him an uncle. And somewhere in between he’s piling up small stakes in some of the hottest startups in the world. Yet Nozad doesn’t have the staple calling card of Silicon Valley. No M.B.A. No Ph.D. No “technical background whatsoever” (his words). He’s never even worked at a technology company.
Nozad’s path to Silicon Valley power broker—and VC investor with a net worth in the ballpark of $50 million— was a far simpler one: He sold carpets.
University Avenue reflects Palo Alto’s diversity in full. It starts as an exit off the Dumbarton Bridge, which cuts across the southern edge of San Francisco Bay, runs though rough-and-tumble East Palo Alto, then tree-lined stretches dotted with multimillion-dollar mansions, and eventually hits, as the name implies, the Stanford campus. A few hundred feet before that terminus, across from a Starbucks and a Thai restaurant, sits the Medallion Rug Gallery, a warehouselike store where for 34 years the Amidi family has been selling “exquisite art forms” that just happen to cover your floor.
In 1994 the family patriarch, Amir Amidi, found himself on the phone with Nozad, who despite no tangible experience and poor command in English had answered a television ad for a salesperson. “Have you ever sold anything?” Amidi asked the brash caller in Farsi.
“No, but give me a chance,” Nozad responded. “How can you deny someone you haven’t even met?”
Nozad had already learned that you can’t get something if you don’t ask. He grew up in Tehran, but in the 1980s Nozad’s family fled to Germany. Nozad intended to join them after his compulsory stint in Iran’s military service, which he would satisfy by playing soccer for the country’s premier team. When a military officer questioned his discharge, on account of his sporty tour of duty, Nozad found a high-level cleric and published an interview with him on the benefits of soccer—and then had that cleric expedite his discharge.
Within a month of rejoining his family in Mannheim, Germany with the intent of playing more soccer, his brother persuaded him to show up at the U.S. consulate and ask for a visa. It was a set-up of sorts. His brother was obsessed with American culture and went to the consulate almost daily only to be denied. Nozad showed up one morning, mentioned his soccer interviewing days and promptly scored a journalism visa. Two months after that he was on a plane to San Francisco, where an uncle lived, with $700 and a few words of English.
He worked at a car wash in San Jose owned by Iranians and then a coffee and yogurt shop in Redwood City tucked between a Mexican restaurant and a Social Security office. He studied English at night, living in a small room above the shop cluttered with boxes of napkins, cups and coffee beans. That’s when he stumbled upon the carpet want ad placed, fortuitously, by an older Iranian immigrant who had made a success of himself after fleeing his homeland when the Shah was deposed.
“My father had the experience, Pejman had the enthusiasm,” says Amidi’s son, Saeed (Amidi died in 2000). “The American dream works both ways. A lot of rich people have to share their knowledge and take risks with a young person. That’s how they stay rich. It’s familiar, too. Someone did the same for them years ago.”
Over the next 15 years, as his English and confidence improved, Nozad proved Amidi’s top rug seller, moving $8 million worth of floor coverings in his best year. But far more than that, he was an opportunist in the greatest sense: This American neophyte recognized that fate had bequeathed him access to the most important people in the most important region of the most important industry during its most important era.
So he made sure not to blow chance’s gift. Nozad insisted meeting his clients at their homes, toting along 20 or so rugs (“that’s two hours of talking, at least”). And before these visits he researched his hosts on Google, so that he could turn showing carpets into a two-way tutorial, peppering each ever so gently with questions about their careers, their tastes, their views on how the world works. It was awkward at first. But within months of the routine he had names to drop and technology trends to ponder. “The smart ones understood me,” he says. “They got it. They’d invite me to their office.”
Nozad started playing host. He gathered some top VCs regularly at the rug store for meet-and-greet cocktails with entrepreneurs. “People used to tease me for going there,” says Sequoia Capital’s veteran partner Doug Leone. “At five o’clock the rugs would go up and flat screens would come down. We were all immigrants … Italians like me, Iranian, Indians. I was very comfortable.”
Nozad still didn’t have any significant assets to speak of. But his boss, who had come to call Nozad his “third son,” had taken notice of his matchmaking skills. Amidi had also caught the VC bug. The family had purchased a small office building down the road from the rug store and took note as a tenant, Google, which had a few employees, exploded. Another tenant, PayPal, also grew out of its space—this time Amidi invested. “We noticed everyone around us was making more money than we were,” says Saeed Amidi. “We wanted to be part of the big game.”
In 1999 the Amidis formally launched an investment fund, cutting in Nozad as the de facto deal scout. It started with $2 million. Nozad kicked in $200,000, almost everything he had, for a one-third stake. The firm’s name, Amidzad, even blended the two family names. While their investments were relatively small stakes—$25,000 or $250,000, the kind of numbers that most VCs wouldn’t bother with— Nozad’s hustle invariably earned him what Accel Partners’ Sameer Gandhi terms “the Pejman exception.”
“He has a good sniffer, and I trust the guy,” says Sequoia’s Leone, who has let Nozad coinvest with him in four different companies. “He’s like me, from the earth.”
Nozad’s first big bet was on a startup called Danger, which aimed to make handheld devices for exchanging data. Nozad had sold Danger’s cofounder Andy Rubin a $5,000 rug. The deal took hours of negotiation, and Nozad was impressed. He inquired about Danger. He couldn’t quite make sense of the technology, but after the first business meeting with Rubin (who now runs Google’s Android division), Nozad turned to his mentor Amidi and said: “I would invest in that guy if he was selling red balloons. He will make things happen.” And so Amidzad wrote a check for $400,000.
Danger became a mobile phone software firm and was acquired by Microsoft for $500 million, but by then Amidzad’s stake had been diluted to a pittance. Nozad made just two times his investment over an eight-year stretch. Sam Ferdows was brought in as Amidzad’s lawyer soon after the Danger deal. His memory: “Once a week Pejman was telling me about some new ‘best deal ever.’ He was doing business with handshakes. And no one ever read the fine print. I don’t think they even realized there was fine print. Once, he told me a guy was going to give us a piece of his carried interest. What the heck does that mean?”
Nozad recognized his weakness and began doing deals only if someone more experienced, and whom he liked, was willing to put up funds, too. One of his first such helpers was Babak “Bobby” Yazdani, an early investor in Google and Salesforce.com. He advised Marc Benioff on his first key recruits and also founded Saba, a human resources software company. Nozad sold Yazdani a few rugs and then asked him to meet a chip designer with a startup idea. Why didn’t Yazdani just blow him off politely? Yazdani explains, “There’s a lot of humility in our culture. I’m talking about immigrants and entrepreneurs in Silicon Valley. We all had just our families and our educations when we came here. So when someone who you have a relationship with asks you to do something, you do it. It’s a courtesy but also a discipline.”
Yazdani has since invested in eight startups with Nozad. He’s one hook that makes Nozad’s money attractive. Joe Lonsdale already had one hit under his belt when he attended a dinner hosted by Nozad at a Persian restaurant. He had cofounded data-mining outfit Palantir and had many suitors knocking when he left to launch his second venture, a private wealth management technology service called Addepar. Nozad insisted Lonsdale meet with him and Yazdani. He delicately pushed the idea of meeting at Lonsdale’s Los Altos house. “You learn a lot about someone in their home,” says Nozad, in a nod to his carpet-peddling days. Then he watched how Lonsdale and Yazdani interacted. As for Lonsdale: “I like Pejman. I needed Bobby. He knows how to evolve a startup. I didn’t know how to build a management structure over time.”
Nozad sought out technology advisors, too. Lou Montulli, a founding engineer at Netscape, was one of his first Silicon Valley friends. In 1997 Montulli wandered into the rug store owning three rugs from “an ex-wife and an expensive decorator.” He wanted to have them cleaned or, better yet, get rid of them. Nozad quickly had him buying two more rugs. He now has 20 in various homes. Nozad showed him antique looms and videos of weavers and walked him through the history of Iran’s rug industry. “He made me appreciate the craft,” says Montulli, who then brought in other Netscape millionaires in need of rugs. Over time they talked technology, and Nozad started introducing Montulli to entrepreneurs. “It seems like such a leap from rugs to startups. But he was seeing amazing deal flow. He built a great network, and that’s one of the keys to doing this successfully,” says Montulli.
Nozad’s instincts weren’t perfect— most notably, he walked away from a stake in Facebook and instead invested in Stanford’s ill-fated version of a social network, Affinity Circles. (“Here is the e-mail from Sean Parker!” crows Nozad as he pulls up a piece of would-be history on his iPhone.) But his track record overall was proving formidable, as many of his early investments were gobbled by the tech giants at prices five times what he put in, including Vudu, Vivu, Bix and Milo. While far from wealthy, he was living a proper American dream.
And then he spotted two young entrepreneurs, Drew Houston and Arash Ferdowsi, at a Y Combinator conference in 2007 toting the demo of a cloud storage system they called Dropbox. He cornered Ferdowsi, chatting him up in Farsi, and within days had the pair visiting him at the rug shop.
Escorted to the back room for music and Persian tea, Houston was sure that it was all a joke. “I was waiting for the candid cameras to show up,” he remembers.
But within a day Nozad had Dropbox pitching Sequoia for funds. He’d called his buddy Leone, who immediately e-mailed Houston for a meeting. “He was our biggest booster, and we’d met the guy that week,” Houston adds. Two days later Sequoia partner Mike Moritz (who says he “always takes Pejman’s calls”) dropped in early on Houston and Ferdowsi at their apartment to make the final decision. And two days after that Nozad delicately inserted himself into a wine-soaked dinner at Pane e Vino in San Francisco, where Sequoia partner Sameer Gandhi (now at Accel), Houston, and Ferdowsi hammered out a $1.2 million seed round.
Nozad barely said a word but made sure to leave that night with a piece in Dropbox for Amidzad. “He’d done the introduction, and we wanted to do right by him,” says Gandhi. Based on Dropbox’s recent $250 million raise, at a $4 billion valuation, that stake is currently worth $80 million.
It’s a Wednesday evening in January, and Nozad is on a typical adventure. He’s wandering through a wood-paneled library at Stonebrook Court, a 30,000-square-foot Tudor mansion and estate owned by his buddy Kelly Porter in Los Altos Hills just north of San Jose. Dreary 19th-century paintings cover the walls. A warm flame crackles in a carved marble fireplace. “Can you believe this exists here?” Nozad says. He peeks into the ballroom to admire the 16th-century painted Venetian ceiling. “I’m talking to Lady Gaga’s people. I want to host a party here for all of my entrepreneurs. Wouldn’t that be amazing?” he says. This isn’t totally absurd. Nozad is an investor in the musician’s startup, Backplane.
Porter works for a small mergers and acquisitions advisory firm. He’s doing a favor of sorts for Nozad. Earlier in the day two dozen investment bankers and deal lawyers gathered in the ballroom of Stonebrook Court as the heads of corporate development from Google, Facebook, Twitter and other top firms divulged where they’re looking to do acquisitions. These are the kinds of cozy conversations that make Silicon Valley run. Nozad was invited, then asked to bring a few of his entrepreneurs, including a fresh-faced 21-year-old who had just dropped out of Stanford to do something in social payments. The kid barely has a company.
During cocktails Nozad’s scruffy-looking crew sticks together like a high school clique even though most barely know one another. Everyone else is wearing dark suits. “I still have to pinch myself every now and then,” says Shane Hegde, the Stanford dropout. “That I’m here, living this life. Pejman is a great guide.”
Nozad believes Hegde is “brilliant,” and he’s invested in Swap, his six-month-old startup. He didn’t push introductions at the Stonebrook soiree, though. When an M&A lawyer asks Nozad what he does, he merely says he “invests in amazing people.”
That business is getting more complicated. It used to be a rich man’s hobby. But now a raft of so-called super angel funds, including Paul Graham’s Y Combinator, Eric Schmidt’s TomorrowVentures and Ron Conway’s SV Angel, are raising hundreds of millions to dabble in newly launched startups, promising connections and expertise along with checks. “There are too many of them investing in too many deals,” snickers one prominent venture capitalist. “This doesn’t end well for a lot of white-haired guys who should know better.” Meanwhile, the big-money venture capital firms are doing smaller deals to get early access into promising companies.
Nozad isn’t worried. He’s offering entrepreneurs something others won’t. Once, he gave an entrepreneur his wife’s Mitsubishi Mirage. The guy was 21 years old, had just moved from Israel and was broke. A year later he had a stake in that same guy’s startup, alongside Sequoia. Last year he invested in a guy’s company to give him enough cash to move from Texas to Palo Alto. “I don’t like his business idea, but he is brilliant,” says Nozad. He regularly hosts events for Stanford’s Persian student organization. The last one was a tour of Facebook’s new headquarters. “They should hire all of these kids. They are so smart!” And one day some of them will start companies and give Nozad a call.
Late on a Wednesday night Nozad has gathered seven of his entrepreneurs in a private room at a New Orleans-style restaurant in Palo Alto. Three are Iranian. After a few glasses of wine the conversation drifts away from business models to stories of family back home. There are tales of nighttime caravans smuggling family members into the Afghan desert and talk about the years spent in limbo awaiting life in a better place. Nozad’s eyes moisten as he describes a trip he took to Iran a few years ago, bringing along his wife of 19 years (his childhood sweetheart from Tehran) and his son and daughter.
He’s come a long way from charming clerics into a military discharge. Two years ago Nozad decided to invest independently of Amidzad. He still does deals with the family but more are solo, where he is betting his own money. “I realized I’m actually kind of good at this,” he says. “I wanted focus.” He’s already sitting on several windfalls besides Dropbox, including Addepar, the social networking site Path, social charity startup Causes and a gaming outfit, Badgeville. And he still sells carpets—he’s founded his own upscale rug gallery, bringing in his brother to run it. In America, where anything is still possible, such is how great fortunes apparently begin.
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Silicon Valley's Hottest VC Is a Rug Dealer - Forbes