Sequoia's Dannie Herzberg and Jess Lee on Building an Enduring Firm | Upfront Summit 2022

Hello everyone. I'm Alex Conrad, I'm a senior editor at Forbes and I'm here to introduce you to a little known venture capital firm probably have never heard of called Sequoia. So awesome. Jess and Danny, thank you for joining. Do you mind introducing yourselves to these LPs who probably have never heard of you?

Hi everyone, I'm Jess. I've been at Sequoia about five years. I do a mix of enterprise, consumer and healthcare investing. And before that I was CEO and co founder of a a social commerce company called Polyvore.

Hi everyone. Really nice to be in person with you today. I'm Danny. I am coming up on my one year anniversary at Sequoia. Officially it's tomorrow. And before joining the firm, I spent the beginning of my career, the first six years at HubSpot mostly in sales, sales leadership and a little bit of product. And then I spent the last four years at at Slack overseeing much of the sales work.

Got it. So obviously I was kidding. The real truth is that upfront asked to have as many Sequoia partners on stage at once to take them out so that they could try to do some deals in the meantime. But we only got two, but I think that's good.

We're all friends here. Who's taking anyone out?

Okay, fair enough. I just meant trying to get that term sheet in. Jess, you have a really interesting story of how you joined Sequoia in terms of how they made the offer and brought you in. Do you mind sharing that with people who maybe haven't heard that before?

Yeah.

I met Roelof Botha, who leads the firm at a conference I was pitching and I thought that when he asked me to meet that he would want to invest in my company. And instead he was like, no, no, no, no, no, we don't want to invest actually, maybe you should leave your company and you should maybe be a vc. And I was like, this is the worst pitch entire life. You not only don't want to invest, you also think I should leave my own company. But it was very memorable and I just, he really stood out to me as someone who was a former operator and just very observant of human nature. And I just found him really interesting. Then two years later after we sold the company, we got back in touch and it sort of happened from there. It went on from there. I think I had a lot of concerns as a former operator. I wasn't sure I wanted to be in a firm. I'd heard a lot of, of things about Sequoia about it being sharp elbowed. But as I got to know the partners, I found that I really liked them. And I think my main concern was, could I do this job my way, sort of be myself? And so I think they really wanted to show that that was possible. And so they knew that I happen to be a big comic book geek. I love to cosplay, so I go to Comic Con in San Diego, dress up all four days as a character that I love. And so when I went to meet them and they were presenting the offer, and actually I didn't know they were presenting the offer that day. They. I walked into this random Pete's coffee shop in Mountain View, and Rulof Botha and Jim Goetz were dressed as Buzz Lightyear and Woody, like full, like Disneyland mascot costumes. And they were like, you can be yourself. Look at us. And yeah, I kind of signed on the spot.

Yeah.

Jess, were you. Before we get to which costumes they wore for Danny, were you thinking about joining other VC firms when you made the commitment or what was sort of the driver to pull the trigger with Sequoia?

No, I was not. Actually. I had not been thinking about Venture. And honestly, no one else reached out to me. Just to be very honest, I was thinking that I would start another company in social commerce or consumer social media. And what drew me to Sequoia was sort of I just, as a. As a female founder working in Polyvore was social commerce, but particularly around women's fashion, I just, I found it really hard to fundraise. I would always go into these rooms and say, women's fashion is a really big market. And people would say to me, is it though really? And then I'd be like, well, women are 150% of humans. 100% of us wear clothes. I would literally take the September issue of Vogue, which was like a thousand pages at the time, and I would throw it down on conference tables and say, that's $100 million in this one issue. Now imagine that on the Internet. And it was just really hard to get traction there. And so I just always had this thought that the people who control capital think about, you know, it's natural to think about your own problems, problems you understand and want to back those problems. And so who is on the investor side of the table really affects what customers problems get solved in the world. And I thought, well, women control 80% of household purchasing power. We make a lot of the medical decisions in the home. You often become the chief medical officer of the home, the primary caregiver. And so I thought maybe if I went to the other side could make a difference from that front. So that was a big driver of why I decided to come into Venture.

Yeah, that's awesome. Danny, what about you? Were you wooed by any cosplay costumes or anything?

You can imagine my disappointment when it was okay. To be fair, I got my offer from Sequoia in the heart of COVID and Pat Grady and Carl Eschenbach met me at the office and they were wearing blazers and jeans. I was eight and a half months pregnant, so I was kind of like waddling in myself. Not sure how to interact with people outside of Zoom, like here on up. But I. Yeah, I don't know. The entire process of meeting the Sequoia team completely changed my opinion of Venture. So my story, like I told you earlier, is that I had been an operator for 14 years. I had gone to business school in between HubSpot and Slack. And after business school, for whatever reason, like I really wanted to be ahead of sales, but I was being recruited for VC and I think it was like the start of the whole operators as investor wave. And I was like, no, VC is for lone wolf, kind of like hunters who are cerebral and like data rooms. And I'm a teams person and I like building, I like high fiving, I'm in sales, so I like, like the momentum and allowed office and so. And Also I was 31 and not done learning how to build and I didn't think I had proper wisdom to share with founders. So I ended up finding this opportunity at Slack, thank goodness, and had four amazing years there. And right as I was kind of like picking my head up to figure out what's next, like what's the next five year chapter, some VCs started reaching out, I think because it was like late 2020. And what was changing in Venture, as I'm told, is that it went from being kind of like a somewhat more reactive, wait till people come to you type of, type of profession to like really appreciating being a salesperson and getting into market and hunting and talking to new people. And so, so I started having these conversations. And then as soon as I met the Sequoia team, I realized that teamwork was absolutely core to the way that the firm operates. Like if Jess sponsors an investment, it's not called Jess's investment, it is full team Sequoia who is supporting the founder. And like that also meant that my very first week before I'd even sponsored an investment, I could actually chip in and help our founders and feel like I'm contributing to this firm. So the second I started interviewing, you know, it was gut decision that also my logic brain could logic myself into and no brainer can.

I just add though, I think we felt like we had a Danny shaped hole inside of our growth team where we really wanted, especially at the growth stage. I think it's gone more from, oh, let me look at the best companies and maybe pick. And it's a really fast pace, just almost as fast as the early stage. And so we knew we wanted someone who could win over founders and we knew that product led growth and bottoms up sales was one of the biggest trends inside of enterprise. And that was what we were looking for. Very, very spec. And that's what Danny's an expert at. And so yeah, we were very desperate to get you.

Thank you. And that. And I came in with, you know, naturally you join Sequoia, there is an imposter in your mind that says, do you really belong here? And what's special about the team is like the way Tat described it to me is it's a team of spiky individuals. So everyone is amazing at something rather than everyone being pretty good at all the things. And so Jess builds community everywhere she goes. Like she helped build and start all raise. She is an extreme connector. I know Kara from Upfront because Jess introduced us as friends and now collaborators and she does this for her founders too. And then Pat, who's a career long investor, has 15 years of seeing every enterprise SaaS company under the sun in extreme pattern recognition. So to come in just wearing this bottoms up, go to market hat felt very comfortable and appreciated because it was like a spike I could add to this whole crew.

So you talked about the imposter syndrome and I'm really interested in kind of that because when I was a junior reporter assigned to help on a cover story forbes did in 2014 on Sequoia or even earlier, the years blend together. We were hearing about how Don Valentine and some of the founders and sort of OG folks at Sequoia would still be sitting in the room sometimes for these meetings. And we were talking then to sort of the new generation at the time about how they felt comfortable speaking up in a partner meeting, how they did kind of find their place so much more recently and most recently with you, Danny, how have you felt comfortable or found your stride to kind of speak up and champion a deal when you think it needs to be championed or something like that?

That's such a good question. I think generational transfer is something that Sequoia has done remarkably well, and I think the firm has done it well by taking ego entirely out of the equation and thinking always about how to reinvent ourselves for the future in terms of creating a safe space for me to feel comfortable speaking up. I mean, one very direct thing is I remember my first partner meeting rule off said, danny, what do you think? And I'm like, wow, my opinion adds value here. And then another partner was encouraging me, you know, whenever there's something on the go to market side, like, I have a differentiated opinion. So frankly, it started with an invitation and then over time just kind of found my voice, realized that, like, each person brings their lens to the table and, and that was that. What about you?

I probably said a lot of really dumb things my first few months at partner meetings. I'd never done a single angel investment before, but we have sort of a training culture. And so you shadow a lot of people, you go to meetings with folks and then debrief that 15 minutes afterwards where you just talk through why Alfred Lynn thought this was a good marketplace and why this one wasn't incredibly helpful for learning. And so I went from unconsciously incompetent to consciously incompetent and then hopefully have reached somewhere hopefully competent. But that's, I mean, genuinely how I think it works. Yeah.

Jess is extremely humble. Yeah. And part of what's helped me ramp up is being an apprentice to someone like Jess and all of our other partners and just kind of absorbing how each person approaches the trade and approaches this career. And then you figure out what your kind of your own style is. I was warned when I joined Sequoia too, about, like, I think it's called Baker Scholar syndrome. Basically, like, don't feel pressured to join Sequoia and then be the loudest person in the room and prove that you have something to say by talking like, less is more. And so that has also given me some confidence in what I don't say and what I perceive with the pace.

Of, of investing that we see today, how would you, where would you put Sequoia on the spectrum of sort of consensus investing versus non consensus investing? Where we've seen some firms basically empower partners to do deals completely autonomously and then kind of reconcile that later. It's my understanding that it's not the way that Sequoia operates, but how do you explain how you guys do reach consensus and how you're able to do that at the pace that is required in this environment?

We have a unanimous voting Model, which is a little bit unusual. We do believe in sponsor conviction though, so you don't have to. Not everyone has to love the investment, but anybody can block an investment. And so that does require a certain level of diligence and thoroughness. A memo that explains it. We try to go into those partner meetings and debates with the spirit of we are all here to just make the right decision. Let's not let ego get in the way or, you know, and let's actually, you know, tear this thing apart. And then we come out of it the bet, you know, with the commitment. All right, we're all in. Now it doesn't matter if you didn't like it. You, you. If I need Bottoms up sales support for Ironclad. I literally just introduced Danny like last week to talk to the VP of product. Right. And it would have, it would have been the same amount of help regardless of whether you'd agreed with the original investment or not. Yeah.

I would also say that there's a lot of trust building. This was a really pleasant surprise when I joined. There's a lot of trust building that happens even outside a partner meeting that really encourages extreme dissent and really direct conversation during partner meeting. So consensus may be a misleading word. There's not, you know, everyone's not just like placating one another's ego and saying, yes, there's real debate. But then in off sites we do these personal check ins and people share their whole selves and who they are as a parent and who they are as a partner. And Jess and I will go on one on one walks and we know each other's children. You build these really deep relationships so that when you're at partner meeting around the table, you can have a fiery conversation and then agree to make a decision and go with it.

So if someone vetoes a deal, you all just move on to. There's no hard feelings, basically, because I feel like I would have hard feelings.

Yeah, I mean, it's hard not to be worried about it. But it's so funny. We often reflect back. We're very data driven. We go back and look at our decisions regularly. We track them all. And so sometimes we go back and I know I have been blocked on things and I'm very grateful. Especially when I was new to venture and I wanted to basically give away money to everybody genuinely. And so we do that, we go back, we write long post mortems on Mrs. We're pretty diligent about re examining the judgment.

Got it. So another thing I want to ask you both about is the non investing stuff you do inside Sequoia. Because from the outside it definitely looks like Sequoia is building out an organization, kind of becoming a little bit more of a company in some ways with engineers with go to market expertise. We've sort of seen this macro trend with VC firms either staying pretty small or perhaps adding services and other ways to support their portfolio. Could you each maybe talk a little bit about how you're fitting into that strategy within Sequoia and how you see that as a benefit. So maybe we can start with you, Jess.

I think it's clear the pace of investing has gone up so much and I think to keep up with the pace of seed, even at the growth stage, like I said, it's going so much faster. You need to figure out what your moats are, what your strategy is. Some firms are throwing people at the problem, some are throwing money at the problem. I think we are trying to think like a company, like the same way that we would ask our founders, you're in a competitive market, what are you going to do? What's your sustainable competitive advantage? What are your moats? We ask ourselves that same question all the time. And so I think our answer is it's a bunch of different moats that we're trying to create, whether it's the Sequoia Capital Fund, which is something Roelof in particular innovated on. So it's a sort of a financial structural moat. We're trying to supercharge our investors with an engineering team. We actually build our own product with a software team that's like almost series a stage size. And so if we can take each investor and make them more efficient, have a hive mind across all the companies that we ever intersect with, have data science signals to know that something is trending positively or not. So there's that and there are moats like community and sort of curriculum, like the tribal knowledge of working with great founders and how do we connect them to each other, how do we have a network advantage? And so we just think about all those things all the time. I play a role on the product and engineering side. I help oversee some of those efforts. I help teach our seed curriculum program. Danny helps teach a lot of the go to market stuff inside of that program as well. And then I think Dani's also leading a lot of our network advantage programs. She has a great network. And so just thinking through how do we involve folks from across the ecosystem to help companies.

Danny, how much of your time do you spend kind of Would you guess you spend with the portfolio helping them with your expertise from the startups you worked at versus meeting with founders or thinking about those future investments?

A lot.

A lot.

Okay, well, I want to go back to the, to Jess's role because to me, she is creating an unfair advantage for the rest of us. Like, Jess is full time investor and leader at Sequoia and she is our Chief Product officer. So she like. And for anyone here who knows Jess, like, it's very on brand. She is building at Sequoia like the founder hat is still there while being an investor, which I think gives her amazing empathy. And what it enables for me and for the rest of us is an ability to focus on finding the right founders, building deep connections with them, standing out and being able to partner at the right time. So I'm very grateful for, for Jess as my partner and for the innovation that we've had within the firm. Okay. And then my time. So I realized this in the beginning. I was like, I'm not sure how to spend my time. I have this blank canvas. I went from managing a big team to managing nobody. So I'm like, okay, how is my day gonna be spent? And what I realized was I get the most mojo when I'm with founders. Like I'm just prancing around after I talk to a founder cause we're brainstorming on something or I'm connecting them to this awesome person in my network who would be perfect for their company. And so I'm not like tracking on some AI tracking thing about like how much time am I spending sourcing versus company building. But it all feeds one another. And you need that sense of positive energy when you're meeting with founders and you need those stories of like, what other founders are looking for help with to be able to share what I might be able to add to a prospective founder we've not yet partnered with. So I don't know. 60. 60 a lot.

Okay, that's a cheating answer for sure. So when you do have the power of a brand like Sequoia behind you, does that create any misconceptions or do founders maybe have a notion of Sequoia that you then need to revise or kind of reassess? Because obviously you have a lot of benefit, I'm sure, from the power of that brand. But that brand also has a long history that may or may not be current to what you guys are doing today. So when you're kind of telling people about Sequoia today, what would be sort of the first thing that you would re educate them on or want them to know.

I can start and then take it off. Well, part of it is show, don't tell. I put myself in a founder's shoes. Like if I were pitching a Sequoia, I would be sweating and nervous and I would be looking to see if anyone's nodding or seeing whether they're like taking notes somewhere else. So one thing that I and all of our partners trying to do is just show extreme respect, admiration, undivided attention. And you can see it even on zoom, whether someone is all in on the conversation and try to show a lot of warmth and positivity and like someone just stuck their neck out to build the thing and they've gotten to X million in ARR. No matter what your questions are in market size, like you congratulate them and you ask them how they did it and why they're motivated. So like I think that's, that's the big one where I just kind of want to show warmth and support and gratitude that someone is letting us in to take a look at their baby and this thing that they've built and hopefully like leave them feeling really, really good about themselves after the conversation. Regardless of whether we invest or not.

Yeah, I think that's the. Maybe we're very, I don't know, scary or something. That is sometimes something I hear. I don't think I'm that scary and Danny isn't. I think maybe also we hear sometimes like, oh, you guys are later stage right. Like you don't do things. Seed investing. I mean we've actually done more seeds in the last year than A's. Sometimes we hear we don't do crypto. You know, we just announced crypto fund and then just for the token piece and 20% of our investments were crypto. So maybe those are some of the misconceptions.

Yeah, got it. It's obviously an age old question, but how do you navigate potential signal risk where people see some of those big Sequoia wins being, you know, eventually really big positions that were maybe early stage and growth and they're thinking, oh well, if they're not trying to preempt every single round, we're not going to be known as that signature company.

We like to think of it as a signaling advantage actually. I mean really. Yeah, there is a little bit of that. But if you work with us, I think our data shows you're like 4x more likely to raise your next round from C to A.

So yeah, also like the X operator in me, if I were job hunting and I wanted to go to an early stage company, I haven't had time to scour the entire landscape of companies and know which ones have the most remarkable founders who have cracked the nut on a market. So, like, I'm looking for shortcuts. And what Sequoia provides, you know, at the seed is basically a shortcut to say, like, something good is probably happening here. And so what that empowers a founder to do, I hope, is be able to hire people that are almost like out of their league in terms of the stage at which they would be bringing on really, really senior employees. And so I think that's a counter to the signal risk.

Well, so we learned from Twitter that Y Combinator and Stripe are mafias. So is Sequoia a mafia in your mind?

No comment on that. That was crazy, actually.

Yeah, but I mean, the power of presumably is a big part of the draw, right? The access to other Sequoia founders that founders.

Yeah, yeah.

I mean, the community is really helpful. You know, they DM each other all the time, they chat, we host regular events. Not unlike Upfront is doing with tomorrow, with all the founders coming here. I mean, those are some of the best times. And we kick ourselves out of the room for part of that conference so they can just get together and talk and maybe talk about us, I don't know. But just to hang out and really feel safe and comfortable, you know. And a lot of our really late stage founders, like Brian Chesky at Airbnb or Tony at Doordash, they still come, you know, give back.

Got it. When you all think internally about how you avoid becoming less relevant or sort of, you know, having the best days of Sequoia be in the past as opposed to the future, what has been the biggest takeaway from sort of recent trends in venture or in the startup world that you are leaning into to kind of keep Sequoia mobile and kind of looking ahead that way I can answer.

This is another, like, fresh eyes, surprised about Sequoia culture thing. I thought when something's going well, stick with the thing that's going well, you know, do more of that. And what I've been very pleasantly surprised by is, you know, in every off site, it's like looking ahead, we're only as good as our last investment. What are we doing differently? What should we change completely? Sequoia Capital Fund was a perfect example of that. So, you know, I don't think we sit and think this is irrelevant. We're, we're at Risk of being irrelevant. But we are pushing ourselves the way that we would push our founders to think, which is like how do you constantly innovate, reinvent, never rest on your laurels and like a, especially when times are good, how do you insert some pressure into the system? And I think part of us doing that is bringing in fresh perspectives consistently. Yeah.

I mean obviously the pace is going up, the capital is flowing in, but I think one of the most interesting trends is actually the founders are coming into venture. A lot of people are solo capitalists starting their own funds, some are even doing it with while still running their own companies. And I mean we've had a scouts program for a while, but it's just becoming people who use tech. Like their whole day job is to use technology to disrupt their own industry. They're all coming into venture now. Right. And so I think we're in a great high margin business. Right. And it has been a cottage industry until. I mean, sure, it's always been changing. Softbank, there's always something new, but I really think there needs to be more fundamental innovation and that's what keeps us up at night. I remember our 2020 off site was what is our 2030 strategy? And everybody pitched something and we read through all each other's memos and we just talked about that. So we really try to think like a company.

Got it. So in a sentence each tell me what is going to be the thing that you're most excited about for the rest of the year?

Like investing theme wise, Is that what you mean?

Or internally at Sequoia that you guys can share?

I don't think I can share the internal stuff. I'm just really excited about some of the product stuff we're working on for the founders. So there's that. And then from an investing theme perspective, I think I'm spending a lot of time thinking about the journey of the caregiver. So whether, you know, we've got, I've been looking at elder care right now, that's a tough, very tough space. But I've been, you know, over the last five years I've been really thinking about the journey, the path to parenthood, the path to becoming like childcare, all of that. And so just the journey of the caregiver. And then the other thing I'm spending a lot of time on is the crater economy which obviously has been around for a while. But I think there's really a shift now where there's such a backlash against the social platforms for taking the cut of all the revenue and the creators, there's like 50 million of them want to go full time want to own their audiences and so I think things are shifting and then I actually think there's a window for the next consumer social thing which I feel like that window's been closed for a while but maybe, maybe opening it up. It might be anonymous, it might be pseudonymous but I think people are searching for something different in this culture where it feels like you could be canceled at any moment and you have to be really careful about what you say whether you're a college student or a VC or whatever. And some people clearly don't care and just say whatever they want which is fantastic but most people don't feel comfortable and so how do you react to that? How do you get to know someone really when you feel like you can't say what you really think?

Danny, final word. You want to get canceled with anything?

My answer is I'm so excited to meet.