STANFORD, CALIFORNIA | Cheriton is renowned as the Stanford University computer science prof who cut Google's co-founders their second cheque. The 66-year-old, who grew up in Edmonton, now has a net worth of $5.7 billion (U.S.) thanks to that investment, along with payoffs from the other 20-odd companies he's invested in, including VMware and Arista Networks, which he co-founded and took public in 2014. His latest startup, Apstra, automates computer networks.
Your parents were both engineers, but you wanted to be a musician, right?
Yeah, I was playing guitar semi-professionally, and I applied to go into music in university and didn't make the cut. My second choice was mathematics, and I went from there into computing.
That's not a bad backup to have. What was your first exposure to investing?
My parents, who grew up on the Prairies in the Dirty Thirties, taught me to save. But my first experience with startup investing was when I moved to Stanford, and I was shocked—there was a tremendous amount of startup activity emanating out of the computer science department.
What was the original pitch Sergey Brin and Larry Page made to you back in 2004?
Actually, they wanted advice about licensing their search technology to other companies. I'd seen people try that before. The view I take is, you give birth to this baby technology, and you think somebody would like to adopt it because you think it's beautiful. But it's very hard to get anyone else to adopt your baby. I told them, "You have to raise your baby yourself." They came back some months later, and I don't think they said I was right, but they'd decided to start their own company because nobody was interested in their baby.
What did you see in Google's technology?
The first search I ever did on Google was for "Canadian currency exchange," and it located the Bank of Canada, which had more information on the currency exchange than I'd ever seen. For them to find that one needle very quickly as the first result was astounding. I always love when you have a product that sells itself because it's so good.
So you invested?
This other fellow, Andy Bechtolsheim, wrote the first cheque, but I put in $200,000 for the first round. It was a good investment.
How does your background in computer science make you a different investor from, say, Warren Buffett?
I don't actually have a very strong financial background, so I look at things more as an engineer. Is there a real need for what this company is trying to do, and does this team look like it can deliver? Warren Buffett is very tuned in to how you can goose profit margins and so on. I think I'm on the naive side—one line I've used is that I don't invest in anything I couldn't explain to my mother.
In 2012, you told Forbes you considered social networking to be a "market whim." Do you still feel that way?
I think anyone who has followed my views on social networking would not be happy with my advice, because clearly some of these stocks have done very well. But I suspect we'll see continuous churn in the social networking space.
Are there any signs of a bubble in tech?
The cryptocurrency stuff doesn't make any sense to me. I've been wrong before, but why does it make sense to pay a huge amount of money for a random set of bits that is one security compromise away from being worth nothing?
What's your advice for retail investors?
I look at investing in the stock market and bonds and so on as a horrible wealth-preservation approach relative to inflation and other things, so I tend to invest in diversified funds, where there's a money manager doing the hard work of evaluating companies. So my first advice would be to invest in a fund. Picking your own stocks is like stepping into the ring with Mike Tyson. It's hard to compete there.
What's your outlook for the next year?
I think the economy is in incredible shape. Everything is up. Taxes are the only thing going down. That said, we're way overdue for a correction. But what some people call a correction should be looked at as a buying opportunity.
You've been described as thrifty. What's your thinking in terms of personal spending?
I still cut my own hair, and I still drive a pretty old vehicle, but where spending money means I can make more effective use of my time, I do so. With cutting my own hair, I find I can do it faster than setting up an appointment or waiting in line at the barbershop or having someone come to the house. It's more practical than frugal. /Interview by Dawn Calleja