E12: An Inside Look Into Sequoia's Strategy & Operations, with Alfred Lin

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Welcome back to Turpentine vc, a podcast where we discuss the art and science of building successful venture firms VC to vc. I'm joined by Alfred Lynn today, who of course needs no introduction, but has been a partner at Sequoia capital for over 13 years and has invested in Airbnb, Doordash and more legendary Silicon Valley companies. We dive into the unique ways which Sequoia operates as a firm in this episode, why they don't actually track Aum, why they launched the Sequoia Capital Fund, the decision making behind creating Sequoia Ark, and more. If you like what you hear, please do subscribe and leave us a review. We also started a companion newsletter which sends the top three insights of each episode straight to your inbox. We'll link it below in the show Notes. Without further ado, here's my interview with Alfred Alfred, welcome to the podcast. Thanks so much for joining.

Thank you Eric for having me on the show. It's great to see you always.

So we're going to deep dive into how Sequoia operates, but first I want to get into Sequoia's DNA. You know, some firms have a great 10 year run. It's rare for firms to have an excellent 50 year run. Give us some of the history and explain how you guys do generational transitions so well.

When Don decided to call Sequoia Sequoia Capital and not Valentine Capital, it set the stage for what he thought he wanted to build, which was to build something that was long lasting. And so that set the stage for having one of the most important things about our culture, which is to be sometimes unconventionally and extremely obsessed with the long term. Another part of our culture is our desire for holding ideas in tension. We often talk about having two opposite ideas and holding that intention at Sequoia, whether it's individual performance and teamwork at the same time, whether whether it's performance and doing the same thing over and over again, but at the same time being innovative. These are the type of things that we think about and also a lot of what we think about for ourselves and the founders that we work with is about being supportive and also demanding at the same time. On top of that, I think the transition is one of I've experienced this both as an operator because I was at 2 sequoia backed companies and also internally. I've been here for now 13 years and I saw the transition from Don to Michael and Doug and then from Michael to Doug and Jim and then from Jim to rule off. All of these things happen over a longer period of time than is apparent to many people on the outside.

Let's go deeper into firm building because firms are these kind of amorphous, sometimes nebulous structurally in terms of how they operate and kind of all the different dimensions of soft power that are involved. How have you sort of cultivated your firm building skill set or chosen in terms of where you choose to get involved and where you can make the biggest impact?

I think the one thing that we've been more focused on recently is around the culture of innovation. And in 2019, Pat and I ran the US off site. And you know, Sequoia fashion is not just to have a boondoggle of an off site, then discuss things and review what happened the past year. And it's a boondoggle. We, we actually gave homework assignments. We asked everybody to write a business plan in 2019 what 2030 will look like back to thinking long term. So that's 2019 we'll implement in 2020. What do you think we can get accomplished in a decade? And that's the business plan. And then on top of that, we ask people for their view of what 2030 would look like as a pre parade and a pre mortem. And the pre mortem is always around complacency. So that's our biggest risk. And so if complacency is going to be our biggest risk, then to counter, combat and counter complacency, make sure you don't rest on your laurels. But also you have to continue to innovate. And so we've been very focused on lots of things around innovation over the last three to five years because of that off site. One of those examples are the fact that we launched ARK and we launched the Sequoia Capital Fund. So in, in one sense, we are going earlier, we show up earlier and we stay longer because of the Secure Capital Fund. And that is something that we'll continue to see us doing, which is to figure out ways to continue to help the daring build legendary companies from the idea stage, from ARK all the way to the IPO and beyond, which is where the Sequoia Capital Fund comes in.

Yeah, that's a great overview. We'll get to both of those products in a second. And I like the 2030 phrasing as well. But first let's go backwards just to get context here. On this podcast, we've talked about firm structure, how firms are structured. We've talked about with a few firms, we talked about with a 16Z and their massive fund, and kind of like Vertical funds basically, and they've chosen the specialized collection of funds. And then we've also talked to Kleiner who's tried to go really big in a bunch of different areas and then also, you know, gone back to basics as it were. And you said, you know, 10 years in the future. It's also interesting to go 10 years past. When you think about, you know, Sequoia in 2012, 2013. Why don't you talk about how the firm is structured today? Maybe in contrast to some of the examples I mentioned, what is the structure that you guys think is best sets you up for success and how that's evolved over the past decade.

Perhaps the early stage team is slightly larger than when I joined in 2010. So today I think we have approximately 16 investors. Back then we've had approximately 12 investors on the team. In some sense the structure is about the same. I think that that's been deliberate because we want to have a small team of investors focused on early stage investing, growth stage investing and then helping our companies build for the long term. All we have done around structuring is add around in terms of company building. So ARC is a company building program. Many of our operators, our talent team, our marketing team, our partnerships teams, they're helping our companies with company building. So yes, we've added to the team in other areas, but in some sense the structure of Sequoia has been pretty much the same for a long period of time.

The AUM has been significantly increased. Right. The scale, maybe the structure is the same, but the scale has massively increased.

We don't really track AUM at Sequoia. So it's one of those things that everybody's seems to care about in the venture capital industry. We only care about what, what the fund size is that we're investing out of. We have approximately a $200 million seed fund. We have approximately a 700, $800 million venture fund. We have approximately slightly less than a $2 billion one and a half billion dollar growth fund. And we have an expansion fund for the companies that are global but pre public. And then we have the Sequoia Capital fund, but and the addition has been the Sequoia Capital fund recently. And we split out venture into seed adventure on the early team. And growth has been expanded from growth and expansion, but that's about it. It's not that complicated of a business and from a structure standpoint, but the idea is to get to be able to work with founders from idea to IPO and beyond so we can invest pre seed and seed out of our seed fund we can invest in the series A out of a venture fund, we can invest out of the series B and C for a growth fund. For very select companies that we have a long term relationship, we may invest pre IPO out of our expansion fund. And then for the Secure Capital Fund, any of these funds that distribute the shares can go into the Secure Capital Fund because we think it's a long term company that we want to hold. For the Sequoia Capital Fund. I think the it's been criminal in some sense that we didn't think about this earlier. I mean we distribute these shares and our LPs just immediately, most of them immediately sell these shares. Imagine if you had just held Google not when we distributed it, but held it to today. Imagine if you had held Nvidia to today. I think that the simple math would be something to the effect that we invested in Google only use round numbers. $11 million in 1999. Today it would be worth probably 100 to $110 billion today. That compounding is why the Secure Capital Fund exists today. And we wish we had had it back when the company went public. But the same is true with Nvidia. Nvidia was started as a seed investment in 1993 and I think our total investment in the company ended up being $4 million and it'll be worth close to 60 billion today.

Oh my God.

And so not every company will compound the same way. But back to thinking about the long term. One of the things that we talk about here is having a long time span of discretion. We work with founders that with a decade of time can turn a seed of an idea into a product, then into a company, into a business, into a company that then can become a market leading company. A category defining company that can become a legendary company. And if it does, over a time span of 10 years they can turn a seed of an idea into a billion dollar company. A $10 billion company. You let them compound that over 30 years. In the right hands you can turn it into a trillion dollar company. Which is what happened with Nvidia and Apple and Google.

Hey. We'll continue our interview in a moment after a word from our sponsors. That's a great overview. On the capital side I want to go into the ark and sort of the pre company side because I've marveled at how and this inspired me to start on deck is how YC has this incredible business model where they get hundreds now over a thousand of you know, companies a year where they get 7% more now and in exchange for, you know, a few months of, of, of working with them. You know, the yc, you know, helped Airbnb at the very beginning. Sequoia comes in and, and you know, does the, does the investment in later rounds puts a lot more capital and a lot more work in. And while Sequoia did phenomenal on that investment, which you led, YC also did phenomenally and was able to do, you know, hundreds and thousands of more companies with less work. And it feels like this incredible business model. And I'm curious why firms like Sequoia or anyone else who has a great, good enough brand to be able to do it didn't compete head on earlier. I'm curious if one, you accept my sort of praising of their business model and, and two, why didn't that, that happen sooner?

That's an interesting question. I, I let this just pop up a level. YC has done a lot for the entrepreneurial ecosystem. I don't envy them that they came up with them with this idea. I'm like, we should applaud them for that. And we should. And we partner with YC a lot because they, they are very good and so why not partner with them? And so I don't think of ourselves as competing with them on specifically about ARK and yc. We didn't launch Ark because we thought YC was a better business model. In fact, I don't think ARK and YC are similar in many ways. We specifically are about building the company for the long run. We're trying to teach the best ways of company building that we've learned at Sequoia for the last 50 years. So we're not about the next quarter in our program, we're about the next decade.

Could you see ARK getting to if it's 10 companies a year or whatever it is at the moment, could you see it 10xing to 100 companies a year? What could be the future of ARK?

Well, I think we're running ARK cohorts three times a year. So one time in Europe and two times in the US and there are about 10 companies in each cohort. I can't imagine it scaling much beyond that. It's not in our data DNA to scale the number. We want to scale the opportunity of the investment of the companies we decide to back. And so the scaling is we, we decide to pick these 10 or 12. There's a dozen companies in a class and we want to scale their potential, not scale the number. And that's just a different way of thinking.

We talked about the Perm company, we talked about Arkansas because the feedback loops are so long in terms of knowing if you're being successful or not. What are the metrics by which you hold yourselves in terms of how do you know you're winning relative to the best of your peers? Or what are the sort of leading indicators that you particularly care about and track as a firm to make sure that you're the best.

At the end of a decade, five to 10 years, you'll know you have a scorecard of the companies that you decided to partner with, how much we invested and then what the distributed value is. And but before that, the question is always, well, do you look at markups? Yeah, we look at it, but we heavily discount that because we've seen lots of situations where markups are, is not being adjusted for market conditions or how the company is doing over a longer period of time. So we don't really look at that that much, but we do look at how's the company doing. Every six months we have a semi annual portfolio review where we go through every single company that's in our portfolio. Not the ones that have gone public and that have been distributed, but the ones that still exist in our portfolio. And we look and we look back on what they told us they would do and we measure that. That's one way to see whether the companies are on track and that's on the company building side. But specifically what you're asking is, okay, how do you break this business up? There's so many different parts of this business. There's sourcing and are you doing a good job of getting in front of the right opportunities and those are easy to find. And a measure of how many interesting companies are you taking a look at? There's picking. Among all the interesting companies that you decide to look at, which one did you decide to pick and why? How clear were your memos or your due diligence? How good are you at being a partner to the sponsor and coming up with good questions for them to think through? So it's not necessarily that I'm the sponsor, I'm fully responsible for it. My partners also helped me see more clearly on the, the, the opportunity for this company. How have you helped and assisted in the picking with due diligence? Are you being a good partner partner by calling a bunch of customer references and founder references to help out your partner? Then there's, you got to, once you pick, you got to win it. And that's very easy to measure. You just, we Decided as a partnership that we want to make this investment. Do we win or do not? Usually we win. And then after that it's company building. I think company building measurements are exactly what we just talked about, which is about portfolio reviews. How is a company progressing and are you taking a lead role on the board to bend the arc of that company? Many of the companies that we work with, we judge ourselves on whether we're the first call of the founder when they have something to discuss. So it's very easy to measure some of these things. We also measure NPS of the founder, etc. But very simply, are you the first call?

What have you outside of the GP structure? When you think about firm building, what have you guys learned about? Where do you get the most bang for your buck in terms of what to invest in, in terms of platform services or, or things outside of, hey, individual partners, you know, making investment decisions. That adds the most value to founders.

The founders will tell us what they find valuable. And we're not very loud outside, but every now and then we will say something. And you know, the black swan memo was right before COVID shutdowns happened, when we were coming out of COVID and emerging. It's about adapting to endure because the market conditions were a little interesting, Interest rates are rising at a very fast clip and so cost of capital has increased. What do you need to do to change your posture of investing because cheap capital has gone away? These things are few and far between in terms of us speaking loudly. But we are not just speaking to our founders, but we're also speaking to the ecosystem about what we think the right thing to do is. But you'll find that every now and then you'll find that we make some dramatic changes. ARK was launched two years ago because we found that seed company we had over time been innovating on the program and it started with Ruloff launching something called amp. And it was actually for post series A companies where we're collectively teaching company building. So that if I were trying to channel one of my partners, I just have my partner go up there and talk about it. If I needed, if I wanted to talk about strategy and just have Ruloff talk to them about strategy. And he loves talking about strategy. And if I wanted to talk about how a growth investor would think about how to value your company because you're at growth stage, just have Pat get up there and teach valuations and how he looks at financials, I can do that too because I'm a former cfo, but you just think about how everybody has their really strong competencies and channeling each of our partners and doing what they do best. And over time we heard the feedback that what people really wanted was something that was a little earlier, not for companies that had product market fit. Amp was post product market fit. We created something called the company design program because many of our seed companies that we invested in wanted the program, but they wanted it changed so that it was a little earlier. And then we changed the company design program to ARC because that's what our founders wanted us to do. So we're constantly coming up with new ideas, but we're also constantly iterating. And so we have this concept that Sequoia about from idea to impact. And there are lots of people who have ideas but don't take the initiative. So you have an idea, take initiative, try to run with it. It doesn't have to be perfect, but then you take initiative and then you iterate and get it to to some level of high standard that would fit what our founders want. And then eventually you'll get impact out of that. So it's the sort of idea initiative iteration and then impact.

Yeah, on those dimensions, there's any, you know, there's a number of inflection points by which you can, you know, focus or try to add the most value. There's the coming up with the idea. There's helping them get in front of customers or, you know, introduce to customers. There's helping them hire early team to bring the product to market. There's helping them fundraise and presumably you help across all dimensions. But have you found that there's a sweet spot or inflection point that you think investors can add the most value? And other ones where, hey, the founding team should really be taking care of this and investors shouldn't be as focused on it, or how do you think about the different things that startups need and where investors should add the most value?

One thing that we think about is the balance across the team. And you know, if you look at Airbnb, Brian, Joe, Nate, they're very different, but they complement each other. And so we look for out outlier teams, but sometimes the outlier team is not completely balanced out and you want to fill in here or there or elsewhere. And so I think it's important to look at it from a bespoke perspective on how you can help. We like generally to give people frameworks and show them how it works. Might have been done at another company, but then they have to do the work and do it themselves. So you can teach people how to recruit and what other companies have done, but they need to put it into practice. And so maybe that's where we would draw the line.

I want to go back to the conversation you said you had a few years ago with your partners when you were talking about 2030 and some of the takeaways from that off site you mentioned were that you started Arkansas and you started, you know, you went early stage, you went late stage with the, you know, Perma Capital Fund. What are other ways in which you think Venture might be different in 2030? Like in the same way that you said Sequoia isn't that different structured wise in the last 10 years? Do you think 10 years from now it's going to be pretty similar, maybe a couple, you know, other big products that like, like Ark and Perm Capital. Because there was this, there was this idea a few years ago that hey, venture is going to evolve and, and become more data driven or there's going to be new types of products or new types of platforms and it's not just going to be the same thing that it has looked like for the past decades. Where do you stand on how do you expect Venture to evolve in the future?

You should expect this business to always be in almost any industry and any business to be somewhat barbelled. There's just truths about the business that is not going away. And so in some sense that's not going to change. And then there are things that you're constantly innovating because areas that are interesting to invest in changes, the type of ways that you find new investment changes. But in terms of innovation, your job is to continuously figure out what new ideas that you need to have to continue to make yourself front and center. And the one thing to always think about is just to be customer obsessed. We have a line at Sequoia about being customer obsessed first and then competitor aware second. And then I learned that from Amazon. In some sense. Bezos always talks about we only listen to our customers. And it's not exactly true. He does have a benchmarking group so he knows what his competitors are doing. But really just if you listen to your customers, they will tell you what they want. And doing that is half the job. The other half of the job is to invent on behalf of your customers.

Well put. We've been, we've been talking about firm strategy, but of course firm strategy is synonymous with partner strategy. So talk about what makes for a great Sequoia partner today. How has it changed over time. And how is it perhaps different than other firms I've heard Sequoia partners described as? They're killers, the stone cold killers in the positive sense. I'm curious how you think about what distinctly makes a Sequoia partner.

Well, my partner Pat, likes to use the term highly competitive with a heart of gold. And I think that that that encapsulates both the hype, you know, sort of supportive and demanding aspect of that we hold ourselves to as well as we hold our founders to. And I think the words were used very, very deliberately because hyper competitive in the sense there are people who are driven. They go to the gym every day, and they work out every day, but they're not a competitor. Competitor means that you will get on the field and take the shot. And the highly competitive part is there's three seconds on the clock. Okay, are you gonna take the shot? How many people are gonna be like, screw it, it's three seconds on the clock. I don't know if I can make it. I'm not gonna take the shot. At that point, there's a set of people who will, and then there are people who will take the shot. And then the next question is, will you make it? You're not gonna make it every single time, but what is your chances of lasting for the whole game? And there's three seconds on the shot clock, and you still. You just are hyper focused on making sure that you get the ball and you take the shot and get the shot in. And then the second part of having a harder goal. I don't think you can do this job if you don't care. And you gotta care for. You gotta care for your founders, you gotta care for the company, you gotta care for its employees. It's just a lot easier when you care about the. The eventual outcome in a way that is not about money or about the IPO or about the dollars gained. It's about the fact that you're helping build something that didn't exist before. Many of the founders that we back, they start their company because they see a problem in the world and they want to go fix it, and we want to help them fix it, and we want to go change the world with them. And I think that that's. That that's what we look for in our partners. And so one. One way to think about it is there is a P and L, but, you know, you're going to take, I don't know, somewhere between 30 and 60 shots in a. In a career. If you work in this business for 20, 30 years. What are those slots? What are the name of the founders that you're filling those slots with? What are the names of the company that you're filling your slot with? And do you feel good about that? Do you care? Do you put Karen, which, which names you're going to fill each box with?

Hey. We'll continue our interview in a moment after a word from our sponsors. Picking a great investor is, is perhaps in some ways different than picking a great founder. And, and you don't always pick the, your investors who, who previously founded company, big companies before or who were, you know, achieved great notoriety or something or you know, a big audience or some big deal flow mechanism because you at Sequoia already have the, the brand. But it seems like you really bring on people who are certainly extremely accomplished and extremely well thought of, but who really want to dedicate themselves to the craft of being a great investor, which is perhaps different than, than being a great entrepreneur.

I think the dedication is, is important for both. If you're going to be a great founder, you're going to be dedicated to your craft. And if you want to be a, if you want to be successful at Sequoia, you need to be, you want to, you will need to be dedicated to your craft. And the craft here is about sourcing, it's about picking, it's about company building and it's across all those dimensions. And not everybody will have every single one of those things checked off when they join. But it's willingness to learn from your partners, it's willingness to leverage your partners. Because we think of ourselves as winning as a team. The way we win as a team is we leverage each other for sourcing, we leverage each other for picking, we leverage each other for company building. And back to some of the examples, yet we use arc. Why do we have arc? Because every single person has maybe their very special area that they can teach. Well, there are specific areas that I'm just not as good at. So both at Airbnb and Doordash, if it wasn't for Bill Korn, how would I don't know if we would have gotten the best choices for VPs of engineering and CTOs at each and every stage of the companies. And it's because I leveraged my partner Bill that allowed me to help Tony and Brian pick the best CTOs for their stage of company. At that time. Many of the questions around company building I got from my partners because they read the memos and they asked very important questions and they became first order issues at board meetings. And that allowed me to go focus on those issues with the founders at DoorDash at Airbnb and various other places. So what we like to think about is we like to bring together the team and have people who are different from each other. But what we like is to have them come together as a team and be able to look at a problem, look at it. In this case, it's evaluate a company or during portfolio view, evaluate the performance of that company and have a 360 view. Someone will have a view from finance, someone will have a view from operations, someone will have a view from sales, someone will have a view on product. And we can look at it, look at that problem from a 360 degree view. We often tell the founders that we back if you get one of us, you get all of us. And that is, I think, very different than how a lot of funds and firms work.

I'm curious, given that you've gone from early to late, why not go even. What do you think about the incubation stage? We had General Catalyst come on and talk about the, you know, billion dollar creation fund for, for incubations. I'm curious, what are your thoughts basically about venture firms, incubating companies and how you think about it? Sequoia.

But there are companies that have been incubated in our offices too. I believe Palo Alto was pretty much incubated at Sequoia YouTube, you know, when it was, it was an idea and they worked out of Sequoia's offices for, for a long period of time. You'll see people we call entrepreneurs in action. We don't like the EIR phrase because we don't like the phrase residents. So we'll have entrepreneurs in action at Sequoia every now and then. So there's some level of incubation here as well. It's not a focus of ours at this point in time. I'd also point out that there's two types of incubation, one of which is it's partly your idea and partly some founder's idea and you're working on it together. We like that form of incubation as opposed to we come up with the idea as we go hire. We hire someone to be the CEO of that company. I think that has a lower hit rate because if you're the, you're truly. It's your idea and you're the founder of it, unless you're dedicating yourself to it, there's no one else that really understands your vision as well as you do if you are the one coming up with the idea.

Yeah, that's a good distinction. We talked about some of the transitions that you're making. How much do you think about macro in terms of how to determine fund strategy? We saw founders fund decrease the size of their fund because of the macro situation. Of course, you're always going to tell entrepreneurs, hey, great companies are built in any market. But in terms of how you operate as a fund, how does macro determine any sort of strategy or decision making?

I think there's very simple ways to answer that in terms of macro. We are not macro economists, so we try not to dwell on macro too much. We have very simple sort of ways of looking at fund size, which is, okay, well, we're about to launch a new seed fund. How many investments do we think we'll make in the next two to three years? And what's the average investment per company that we think it will take to invest in those companies? And it's just a multiplication problem, so it's not that sophisticated. And on macro, I would say there are a few things around macro. If you're building for the long term, every single company, every single founder who cares about their idea doesn't. Will start their company. They don't care right now. They don't care. A founder who's in love with solving a problem that they have, they're not really gonna, they're not really gonna be stopped by having higher interest rates. They're not really gonna be stopped because access to capital is just a little harder than before. And then during good times, are there more company formation? Yeah, but maybe the company formation is formed by tourists. So the real number of real founders who are going to stick it through thick and thin. Not sure that changes all that much. And if it does change based on market conditions, realize that if you're building something for the long term, and you're thinking in decades, you're going to face some level of hard times, some level of crazy times. You're going to have to dig yourselves through both the super hot hot times and the super cold, cold times, and you're gonna have to figure it out. And so might as well start whenever you want to get started.

Yeah, I heard this sort of complaint in terms of, for people who want to be, you know, diligent, the challenging and restrained. And the challenging part is basically like right before the bubble, you, you make the most money. And so if you pull back too soon, you're going to miss out on this opportunity to, to, to, to make a lot. And so timing matter. You know, too early is just as bad as being too late in terms of sort of being restrained or pulling back.

But if you can't call it, call when it's too hot or it's too cold or if it's, you know, too early or too late, then just consistently invest each and every year, which is, has been Sequoia's strategy. And the shocking thing is always to people, oh, Airbnb was founded out of the global financial crisis or this company was started out of the dot com bust. Well, Google was started in 1998, 99. It was a hot time. So there are always good times to start a company. So just be careful about that. Both from a fund launching fund, a sort of investing perspective and on the, on the side for founders. Just, just go when you're ready.

Totally. I remember many years ago we, we held a dinner discussing the, the next great platform. And it's, it's always, it's been interesting to me to think about as we enter a sort of a new platform shift, how certain platform shifts. You know, a lot of value accrues to, to startups. You know, in the Internet era there's multiple trillion company dollar companies that emerged from it. And in some platform shifts, you know, it's split between incumbents or startups and startups or some even go more to incumbents like in mobile we've got some great companies like the ones you've, you know, you've invested in like, like DoorDash, Instacart and others like Snap and, and Uber. But these aren't, these aren't trillion dollar companies yet. It, it doesn't appear in the same sort of value creation as the Internet era. I'm curious if you would agree with that characterization. And then as we think about the, the next platform shifts.

AI I'm an optimist, so I think there's always, for every decade there's always going to be companies that are created that are going to be tremendous companies. By the way, you use the trillion dollar number as if it was like, you know, it's expected now, but we weren't talking about a trillion dollar company a decade ago. Right. So I don't think anybody thought that a trillion dollar company was possible back then. So one way to think about this is maybe that the market has positive drift. Things just naturally get bigger and bigger and bigger. And so when we thought 100 billion was a large number, then a trillion was the number to break. And now that we've broken a trillion, there are A few companies that are trillion dollar companies and all the hundred billion and the $10 billion companies are be like yeah, well that's possible. So I'm going to keep building. I think back to the sort of comment about focus on the enduring. It's partly the founders and the management team and their scale of ambition. My partner Roelof likes to talk about what is your scale of ambition? Are you going to be happy when you get to a $10 billion company or $100 billion company? Well if you are, then the company starts to level out. Or do you, every time you sort of get to a certain milestone, do you broaden your scale of ambition? And they think the difference between the companies that were, that are today considered trillion dollar companies, they just kept evolving their, their vision, their mission and their scale of ambition. And it's not like it's not as if one product carried that company all the way to that trillion dollar number. They had to keep reinventing. But don't forget that Nvidia started with the with a game card and then it was called a gpu. And then for a long time we didn't know what GPUs are good for besides graphics and maybe special effects. And then it got used for a different type of computing. Jensen is talking about accelerated compute, not about graphics. So he's reinvented the company a few times. The same is true for Google, the same is true for Microsoft. The same is true for Apple. Remember it was called Apple Computers. They dropped the computers part.

Yeah. Good overview in terms of. Yeah, it's like almost a four minute mile once someone hits that trillion dollar mark. Now a whole generation of companies thinks something else is possible.

The other thing I point out is at least when I was growing up most Companies only had ack1. They had one business that was going really well and they struggle with Act 2. And before Act 2 began was discovered shareholders would tell them stop working on Act 2. They listened to the shareholders of the public markets a little too much because they were too focused on short term profitability. And then they only had Act 1. They stopped investing in Act 2. For whatever reason we decided and I give credit to the founders that decided that, that that wasn't going to be true in technology. And so you think about Amazon, what I've been a student of because I worked at Zappos, they started with books and for a long time people still thought of them as a books business but they were in every, they were, they were constantly increasing their categories. But it was a decade later that people were talking about the everything store. They were everything. They were building the everything store as soon as they started expanding categories. And there are some people who didn't think that was the right strategy, but that, that's, that's a category expansion play. And then they discovered AWS along the way because they needed that product for themselves. And they decided, wait a minute, let's sell that to not just within, internally to Amazon, but also outside of Amazon. And so they had a clear out too. And many companies that have gotten to where they gotten today in technology they have multiple acts and that is the difference between an ability to be a one trick pony or to eventually become a trillion dollar company.

Well, but I want to Give the last 10 minutes or so on leadership and how you show up for founders. I was talking to partner Danny in advance of this interview to prepare and one of the things she mentioned that's underrated about you is in addition to being a great investor is that you're also a great people leader and that your style is very gracious. You're proactive about giving other people credit, putting the spotlight on others, while also exceeding the expectations that you hold for other people. It's impossible to outwork you. I'm curious how you think about your leadership style and how you've cultivated and how it perhaps has evolved over time.

My leadership style is not that complicated and it's also the leadership style of a lot of people at Sequoia. The leader of Sequoia is called the senior steward. You're tasked with making sure that this place is better off when you leave than when you found it. That just is very, very simple. And so my job here is to make other people successful. My job here is to make other people have the best track record that they can have. So I just fundamentally believe in servant leadership. I believe that's the best way to lead. I lead by example. And most people at Sequoia love that because they also lead that way. This is the culture that we've built. And rollof is a servant leader. Pat's a servant leader. I don't think we're that. I think everybody in the leadership role at Sequoia has always felt that way about their role of leadership. And then I find that especially helpful for interacting with founders because it is their company. I'm there as a board meeting and maybe I know more about this particular problem, but most of the time they know more about the problem than I do. It's rare that I will know more than, than a founder because they're working on it every single day. They think about it 24 7. And so the way I can help is by asking them good questions, by being their sparring partner, helping them get to clarity, making introductions. But at the end of the day, they made it happen. And so it's just natural to give them credit for what they've accomplished. I didn't do anything.

Yeah. As you're speaking, I'm struck by comparing perhaps the two greatest firms of recent history, perhaps are Sequoia and Founders Fund. It seems that the style is so different. Where Founders Fund, we had Trey come on and others coming on, too. And you'll have people like Delian and Mike Solana and Trey sort of argue in public or disagree in public about certain things, and that seems like unconceivable for Sequoia partners to do the same. And I think that speaks to, At Founders Fund just like a big emphasis on sort of people doing their. Their own thing and. And celebrating that. Whereas Sequoia, it feels like it's a much more unified sort of, you know, message communication style. And, you know, everyone's got their own skill sets and what they're bringing to the table, but it just seems much more unified. I'm curious if you think that distinction, characterization of the distinction resonates with you. Is it just a stylistic difference or is there some just, you know, difference in terms of organizational design, you know, in that that's worth noting. How do you think about that?

It's just being authentic to who we are. And part of this is that the brand that you have attracts the type of people that you want to recruit. And if you select for the people who fit your brand and your culture, you're just gonna get people who reinforce that part of it. And we have to specifically decide when we just. We want to look for someone who is culture ad slightly different than what we have today or a skills ad. We don't have this skill. We need to go find someone with that skill. And so at Sequoia, we're very deliberate about some of these things because I think it's important. And I just wanted to make it clear it's not a Kumbaya place, because everybody.

No, you guys are killers.

Think the same way. We don't think the same way. We have conflicts and we talk about them. But once we decide and we're very decisive, once we make a decision, it is, if you had to use the Amazon phrase, it's disagree and commit. The commitment part at Sequoia is very, very high.

Well, and Doug famously said on podcast, invest like the best. Him and Mike butted heads a lot. You know, they're not, not best friends. Right. They, they make each other better.

Yeah, but you'll have Mike and Doug say the pretty much the same thing externally when they've decided what they're going to do. And that's, that's just been true for every generation of Sequoia. In some sense. You can decide maybe a good way of represent that is if you want to air the sausage making or do you not? Maybe that's the cultural difference between Sequoia and others. We don't really, the sausage making, the half baked ideas, we don't really talk about those things externally. We talk about them internally all the time. We debate them all the time. That's how we sharpen our own ideas on what we're going to launch. And the, in this cultural that we put all. We're going to debate it until we decide we're going to launch something. And we don't launch that many new things. We don't make a lot of new investments. But when we do, when we make an investment, when we decide to invest in a program like ARK or the Support Capital Fund or the Black Swan memo, we put all of our wood behind that particular arrow. And you'll have examples of that every year, every week where we come up with new ideas and new innovation.

Yeah, well said. I want to end on a couple kind of Alfredisms or sort of ideas that you've been thinking about. One is the time span of discretion. That was sort of a memo you shared with some founders. Why don't you talk about what's behind that idea?

The time span of discretion is something I've been thinking about. If you look in an organization, you have people who have different time spans of discretion. Some people are focused on what they need to accomplish this week. Managers. Then if you, if you're an individual contributor, you're focusing on things that you need to accomplish today or this week. If you're a manager, you're thinking about the next quarter because you have quarterly review. If you're a leader, you're a senior VP or your CEO, you're yes, you're going to have to think about the quarter, but you're mostly thinking about the year. Am I going to make the year? And then multi year. But one thing that I learned was that if you sort of increase your time of discretion, you can imagine what the world can be in a much longer time frame. It is very, very helpful to Think to help you think and be patient and focus on the long run. And that's why it's very, very consistent for me to be at Sequoia because the place always thinks about the long run and what will endure. And we're trying to help our founders think not about the next day or the next quarter. Yes, those things are always important to make your quarterly results and execute, but they need to think about what they're going to create over the next decade.

Let's talk about another memo you had which is the roles of the founder and how they evolve over time. Why don't you unpack that?

My favorite part about what founders have to do is that they play many, many different roles. One, it's them and the idea they're a creator. They're trying to create something out of that didn't exist before. And then they create this thing and then they have to become an operator and then from there they become a manager and then another, then they become a leader and over time they switch through these roles. A founder that I sent this write up about, so I have this weekly thing that I decided to put together which is Sunday thoughts, what's on my mind. You think about what founders do. They span between creator, operator, manager and leader and they keep going back and forth. So in the early days they focus on tweaking the product and to find product market fit. And then they focus on what the customer needs are and when the product market fit is found, that all their energy is figuring out how to go to market, what's the wedge. So in that stage they're just thinking about customer needs and being a creator that creates something that didn't exist before. Then they have to become world class operators. Once they have a product that's working, they're trying to sell, they're trying to optimize for all the things that are in the product as well as their go to market. How many salespeople should we have? What's the payback period? How do I increase conversion on my product? And so they're just technicians across a bunch of different functions. And most of the time they have to start by doing the job themselves because there's no one else around. Then they'll hire someone to replace them to do that. But they have to do the operator job themselves for some period of time. They get that right. They realize the only way they can scale is to be a really good manager, which involves how fast are we going to move, where are we going to invest and what does excellence look like. All of that is about managing and getting the right people and the time and the energy and the effort into producing the outputs that they're looking for. And then finally, when that's sort of underway, they're going to decide, hey, this is working, but I need to break things. I need to be a leader again and break things and figure out the next level, create another vision or a mission that sort of allows people to sort of increase their scale of their ambition. And they rotate through this. And a founder wrote back and said to me that that's really fascinating because they actually have to decide which different hats that they're going to put on before they go into a meeting. So if they're going to a product brainstorming meeting, they're putting on their creator hat. If they're going to a weekly business review meeting, they're putting on their operator hat. If they're going in and talking about talent strategy, they're putting on their manager hat. How many people do we need for the next and how do, how do we make sure we get the most out of our people? How do we make sure that they learn and they develop into the best possible people at their company? And then when they're at all hands and they're talking about the vision and inspiring, they're putting on their leader hat. And then another founder mentioned that, you know, I'm a leader, I have to be a leader all the time, which is probably true. And some of the roles I've decided that I'm not good at, so I have to go higher for those roles. It's fascinating all the roles that a founder has to go through.

Yeah, it's a, it's a little bit of, you know, what got you here won't get you there in terms of you have to change how you've operated at a certain stage and realize when it's the right time to, to, to change that mindset.

Yeah, yeah. What got you here won't get you there. Is a, is, is a great line. I think the, the better line is that you need to create, create yourself continuously. You're going to have to constantly change the founder. The line that I think says it best is from Richard Feynman, who says you. Who said that you're under no obligation to remain the same person that you were a year ago or a month ago or even a day ago. And you have to constantly, you have to, you're here to constantly create yourself or create yourself continuously.

I like that phrase a lot. Let's close on this one. Decision making under uncertainty. What do you advise?

Decision making under uncertainty was one of my favorite classes in, in college. I was, I was a, I was going to be a pure math major, then I became an applied math major. One of the reasons I, I liked Applied Math was, was this class I took about decision making under uncertainty. And the concepts that I was learning were quite interesting. And one day I just got up and walked to my thesis advisor and asked him, we're learning all this stuff. Does this actually get used? And it turns out that it is used all the time in many different ways. Some of the things that I was learning about are somewhat used in AI today. Some of the things that we use that people express in spreadsheets. But however you decide to make decisions under uncertainty, you have to understand that life is path dependent and the decisions you make today will affect your future. So it's important to make the best decisions that you can and take it seriously. And then there are people who are frozen by uncertainties, that they can never get to the right model and they can't decide. And so it's one of those important things that you have to balance trying to make the best decision possible, but also making it and executing on it. And you can be right about your decision framework and not execute on it. And it doesn't really matter that you were right in your analysis. And the fascinating thing about decision making under uncertainty is it can be broken down into very simple things. What's the probability of success? What's the size of the prize? What's the risk that you're taking? And if you just break things down into those three things, it's very simple. And an AI algorithm, we talk about generative AI all the time now. And all that algorithm is doing is trying to predict the next character. Because if you can predict the next character, then you can predict the next word. If you can predict the next word, you can predict the next sentence, you can predict the next sentence, you could predict the next paragraph. And so there are decision making frameworks under uncertainty that are in AI algorithms. A very simple one is a GPS algorithm as well. If you veer off the road, it recalculates their decision making under uncertainty algorithms in our models and our spreadsheets, a lot of them in business are in spreadsheets. My fascination with this was that Alex Hummel, who free climbs his decision under uncertainty, he senses through his hands, how risky is it? Should I go slower now? If there's not as much risk, can I go faster? Because he thinks about things of trying to reduce the probability that he's going to fall because if he falls, the consequences are high.

Yeah, the movie Free Zolo captured that. Well, maybe that's a good place to wrap on your mind for your time and decision making. Under certain certainty is so much of what we do as entrepreneurs and and investors. Alfred, this has been a great overview of the of the DNA of Sequoia, some culture, some advice on how you guys operate, you know, work with entrepreneurs. Thanks so much for sharing your hard earned wisdom and lessons with us.

Well, thank you for having me on on the show. It's been, it's been fun answering your questions, but it's fun to get to know you over time and I'm glad that you're doing this podcast to help others in the industry.

Thank you.

Take care. See you soon.

Turpentine VC is a podcast from Turpentine, the network behind Moment of Zen and Econ102. If you like the episode, please leave a review in the Apple Store or rate us on Spotify.