Sequoia Capital's Plan to Back 'Outlier' Founders

So walk us through the vision for Ark and how you think this sets apart what Sequoia is trying to do here.

Thanks for having me, Emily. Ark is Sequoia's new seed stage catalyst for outlier founders. We offer three things. A million dollar investment from Sequoia as well as seven weeks of programming on foundational company building topics. And you're working alongside a cohort, a community of really exceptional people who are at the same stage as you. The reason we're doing this is we know it takes a lot more than just money to create a category defining company. And we know founders want building help. And Sequoia has had the privilege of working for over 50 years with some of the best founders we've tried to do is take all those lessons, all those mistakes, the journey of all the other founders that we've worked with, and boil them down into foundational company building concepts. Everything from product to customer obsession to culture to how to hire. And so that's the seven weeks of jam packed programming for arc.

When you outlier founders, right? Applications are open now until July 22nd.

That's right.

All right, so you've got a few more days. So when you say outlier founders, what exactly do you mean? Sequoia has done a lot of really innovative things in the past. For example your scout program to try to find, you know, unearth new entrepreneurs and new ideas. You know, why do you think you need to do this as well to find those outliers?

You know, the venture market has been continuously evolving over the years and I think there are a lot more founders coming into this space as investors and a lot more product thinking and innovation. What can a firm offer beyond money, which is actually a commodity and a board member? And so we often think about what do founders need? There are customers, how do you work backwards from that and figure out what they need help with? And the number one request we get and the number one thing I think Sequoia delivers is help with actual company building. And so we really tried to boil down everything that we've learned over the years through working with some of the best into the core things that you kind of. For example, when I was a founder, there are things I wish I could have gone back in time and told my younger self about how to run a company. That is a lot of what Ark teaches now.

Every company gets $1 million. What is Sequoia's stake and what is the chance for follow on funding?

So the it varies from company to company. We work, some are precede to People with an idea and then some are actually a little bit further along and we put $1 million into their existing seed round that maybe they've already raised. So it's a little bit of a range, but the focus is really on the how to build an enduring company, a company that lasts for decades, not just, you know, how to get to the next quarter or the next fundraising milestone. So there's a little bit of, of a range.

So given this very tumultuous macro environment that we now find ourselves in, how is that changing what you're looking for, what you're looking to fund at the stage stage or the early stage or the growth stage? I mean, Sequoia really runs the gamut.

Yeah, I would say that we've seen multiple compression and valuations come down. I don't think we've seen earnings compression yet and really I think consumers are feeling poor and that's going to trickle down into the way people spend in the behavior of buyers, both on the consumer side and the enterprise side. That said, Sequoia has been designed to outlast the cycles in the tech industry. The purposes of our firm is to look beyond those short term fluctuations. And so we are looking for the same thing we were looking for before, which is founders that have a unique insight, who have a lot of grit to endure these ups and downs as well as just the difficult journey of starting a company. And we're looking for large markets where you think you can build almost like define a category from scratch, create a new one.

What is Sequoia's read on the macro environment right now and how bad this will be for tech?

I don't have a crystal ball. That said, I do think that, like I said, we just started to see multiple compression and not yet earnings compression. I really think people are.

What do you mean by that?

You know, we basically, the public market has returned to historical valuations, the revenue multiples, but earnings have not. I don't think we've seen the full impact of consumers feeling, wow, gas is really expensive. My company had layoffs, I can't buy as much enterprise software. So I think that may still be coming. That's what we've been forecasting for our founders. We called in All Hands recently where we gathered all of our founders and we walked them through what we were seeing in the market as well as how to think about forecasting, financial planning and how to lead in uncertain times. So that's, that's what we expect. As for how founders should react, that really depends. It's On a case by case basis, some founders are in a great cash position and should be leaning in very aggressively. What we see in these down cycles tends to be that hiring freezes. Everyone sort of pauses and reflects and it actually becomes easier to get a higher concentration of talent versus before you were competing with the faang companies. With every single startup seed stage everyone was hiring. And now I think for the mission driven, for the people who are venturing out of jobs now it's actually possible to, to get a greater concentration of talent. And then some folks are in a not so great cash position and may need to take more drastic action. But it's really case by case and so we walk our founders through all of that.

Sequoia is famous for its RIP Good Times message which you gave to entrepreneurs in 2008, the height of the financial crisis. What's the headline of the presentation today or what would it be today?

It was called Adapting to Endure. It was about how to build those long term enduring companies, how to outlive the cycle. The founder of Sequoia, Don Valentine, he, he had a license plate that said Verrucked on it, which is the German word for crazy or insane. And he, you know, some of the wisdom that gets passed down from him as well as to every throughout the partnership has been that tech moves in these cy. There are four phases. The first, well, the one we were just in was called Verrucked. It is the hype, the excess, the, the high multiples like parties, you know, when lambo. And then there's a correction, quite sharp correction where people tend, tend to freeze and then, you know, correction and then it slowly comes back and then it happens all over again. That's sort of what we've been seeing play out over, over decades. It is compressed in certain industries like crypto. I would say the 12 year bull market becomes a four year bull market are often formed in that correction phase. It's the founders who really are mission driven. They want to start their company no matter what. They're courageous, they're brave, they have the grit to allies that they can get that concentration of great talent and they have fewer competitors. So we believe at Sequoia that now is a great time to start a company. And that's why we launched now.

Last year, Sequoia made a big break with tradition to do away with traditional venture capital timelines and in some cases keep money invested longer in companies, your portfolio companies going public. Some of these companies have had a tough time in the public markets. Airbnb doordash Robinhood. Is that strategy evolving at all given these tumultuous chimes? And are LPs reacting at all, are asking for their money back or out sooner?

So the purpose of the Sequoia Capital Fund was actually to look beyond those short term fluctuations. It allows us to be the long term partner, the, the shareholder, the long term partner, the, you know, we don't have to immediately distribute after the IPO to lock in some return for our LPs. It also actually lets us generate superior returns for our LPs. We get to capture the compounding value. Some of the best companies, Google, Cisco, Airbnb, the companies we've had the privilege of working with for, for a long time, we have a lot of information about how well they're doing and the real like, what those founders are truly like. And so we think we're in a better position to manage some of the distributions for LPs. And the founders really love that, that we are that long term partner. So the strategy has not changed.

Okay. Now I have to ask you, you're on the board of All Raise, you mentioned you're a founder yourself. There's been a lot of concerns about women backsliding in the pandemic and I wonder if those concerns continue, if there's concern about women backsliding in a downturn. What are you seeing out there? Are you concerned or, you know, do you see a bright future?

Yeah. This is a deeply personal issue for me. I was a female founder. I was working on a product targeted at women and it was very hard to fundraise. I never pitched a single woman investor and I made the connection. I realized that the complexion of who makes funding decisions affects what problems and what customers get served in the world by the tech industry. That's part of what motivated me to move to Venture and to Co Found all raise alongside 30 other amazing women in venture and female founders. I think in some ways we've moved forward. Certainly the percentage of women check writers at VC firms has gone up. I think it's moved from 9% to 14% in the last four years. I'm very proud that at Sequoia, over 25% of our investing team is women, which is high for our industry. There are some steps forward. However, there are also some steps back overall for women in this country. I think, you know, the overturning of Roe v. Wade is a tragic step backwards. I think a lot is going to fall on private, on the tech industry, on innovative founders, on employers to help move the ball forward for women. I'm very proud that Sequoia is a backer of Maven Clinic. Maven is the leading women's family health telemedicine platform. It does everything from pregnancy counseling to IVF and egg freezing on the fertility side to maternity. And I've used it through pediatrics. I asked a lot of new baby questions. I just texted them to a pediatrician. It's a wonderful service, and it does offer a wallet option that allows employers to pay for for travel out of state, as well as to cover things like like fertility benefits. So I think a lot is going to fall on the hopefully some of the tech issue, some of the female founders. And so we just need to keep moving. I'm overall, I'm optimistic in the long term, but it's always, you know, multiple steps forward, a few back, and then we continue to make progress.