How Sequoia Capital’s Roelof Botha is forging the future

Welcome to Goldman Sachs Exchanges Great Investors. I'm Ken Hirsch, Co-Chairman of the Global Technology, Media and Telecom Group and Head of Venture Capital Coverage within Goldman Sachs' Global Banking and Markets business. Today, I have the great pleasure of speaking to Rolfe Botes, the Managing Partner of Sequoia Capital. Born in South Africa, Rolfe has become one of Silicon Valley's most highly respected investors, while Sequoia is perhaps the most storied venture capital firm on earth. Found in 1972, Sequoia-backed companies now make up more than a quarter of the Nasdaq's market capitalization, and Roelof is determined to take Sequoia to new heights, even if it means rewriting the VC playbook. We're going to talk about his career, his investments, and his vision for the future. So let's dive in. Roelof, thanks for being here. It's great to see you.

Thank you very much for hosting me and for inviting me to have this conversation.

So you grew up in South Africa, where you excelled as a student and trained as an actuary. You became the CFO of PayPal at the age of 29, where you helped lead the company through an IPO and then an acquisition. But then you left for Sequoia. What can you share about your journey from South Africa to PayPal, and what led you to transition from pursuing a.

Career as an operator to venture capital investing? So let me take a step back. I finished high school in 1990, which is the year that the ANC was unbanned. and Nelson Mandela was released. And at that time, it was unclear that South Africa would have a peaceful transition of power, and the future of the country just seemed very uncertain. So I decided to study actuarial science because it was a ticket out of the country. I actually became a British qualified actuary. And then McKinsey opened an office in South Africa, and it gave me an opportunity to work for an international firm. South Africa had suffered sanctions from 1985 until the election in 1994. And so the country was starving for international skills and talent and expertise. And so McKinsey seemed like an opportunity that if I worked for them, maybe I'd be able to study or work abroad. And because I'd done a business undergraduate, I didn't aspire to do an MBA, but I worked with a manager, Peter Baird, who encouraged me to apply to business schools. And I was lucky enough to get into Stanford. And I didn't really know the significance of Silicon Valley. There was something about company creation that seemed intuitive, but honestly, I didn't really understand it. So I was lucky enough to get to California in 1998 to start my MBA. And then in 2000, I graduated. I joined PayPal, as you mentioned earlier, partly because I ran out of money. The emerging markets currency crisis hit in 1998, and the rand that I'd saved in South Africa to go to business school lost 30% of its value overnight in August of 1998. And in April of 2000, I didn't have enough money to pay rent. And Elon Musk had given me two prior opportunities to join the company. and in March of 2000, because I had this impending cash crunch, I accepted the third job offer. And I was incredibly grateful for him for having provided me with that opportunity. So that's how I ended up at PayPal. And so obviously PayPal was an incredible experience. EBay acquired the company in 2002, and Sequoia had been an investor in PayPal. And so I got to meet the Sequoia partners, and Michael Moritz was on our board. And after the acquisition was announced in 2002, Michael gave me a call and said, We're looking to hire a new associate. We're looking for somebody who's got a computer science degree, who's done product management at an enterprise software company. And here I was an actuary who was a CFO at a payments company. Perfect. Perfect. Didn't line up against the spec, but I went for interviews and I'll be.

Honest, I left every interview thinking it was the last.

And I was lucky enough to get an opportunity to join Sequoia. Was it an extensive interview process?

Yes.

Excruciating. One-on-one interviews, second interviews with the same partners, two-on-one interviews, which is why I said I really didn't think I didn't meet the spec and I was a bit of an unusual person for the.

Role they were looking for.

And I know it was just incredibly lucky that they gave me the opportunity. I was really pinching myself after I joined, wondering when they were going to figure out that I wasn't the right match for the need. And the reason I interviewed at Sequoia.

Firstly, I didn't interview at any other venture firm.

It was the only firm where I took meetings. But you'd known them through PayPal. It was partly because that experience of seeing the impact that Michael had as a board member at PayPal. The Sequoia partners, him in particular, engaged very differently from anybody else. His ability to help us look around corners was just unrivaled. And then the engagement from the Sequoia partnership with the PayPal management team as we were company building again was distinctive from anything else that I'd seen, including the marketing partner at Sequoia helping us refine our IPO pitch. Our ability to do a rehearsal presentation at the Sequoia partnership before Peter and I launched the IPO Roadshow. And that was just very different from what I'd seen from anybody else. And that was distinctive. There are lots of magical things about the culture, and we can talk about that later maybe. And then for me personally, it was an immense challenge. I didn't seem to have the right qualifications. I literally did not meet the spec they were looking for. It seemed as though it would be an adventure. It seemed as though it would be an incredible learning opportunity. There were so many new industries I knew so little about that I would have to master and learn something about to be a useful partner in a partnership. And then ultimately this idea of impact. Sequoia has this fortunate position of being able to partner with exceptional founders early and helping them on that company building journey. And being part of that and helping shape these companies that have such a profound global impact to me seemed tantalizing.

So let's talk about culture. In particular, what about Sequoia's culture really attracted you as you were evaluating whether to join the firm?

So the two things that I realized at the time and a third one that only dawned on me later on as I spent time in the partnership. The first, as I went to interview, there was a hunger and a underdog mentality at the partnership that wasn't apparent from the outside. And as I met with Doug and Michael and other partners, Don was there, he interviewed me, it was amazing Pierre Lamonde was there. There was this sense of we're only as good as our next investment. Literally, that was what the partners said. We're only as good as our next investment. And was looking through the windshield, not the rearview mirror. You didn't see IPO loose sites and memorabilia of the past were just not visible in the office. Cause all everybody cared about was partnering with future founders and building tomorrow. And that to me was pretty incredible because these people had enough money to never have to work again. And yet they were driven and excited about what they were doing because it was fun and they were shaping the future. So that to me was really magnetic. The other part of it was this notion of stewardship. When Don started Sequoia Capital in 1972, the custom would have been for professional services firms to have the founder's name on the door. And he didn't call it Valentine Ventures. He called it Sequoia Capital. And as somebody who immigrated to California in the US many years later, I didn't grow up with Sequoia trees, but they're the longest living tree in the world. They grow to be over 2,000 years old. It's the most massive tree that exists. But they start from very small seeds. and there was something in Don's desire to call it Sequoia Capital that signaled that he wanted to invest in companies that would stand the test of time and have a partnership that would outlive him. And that had a lot of cascading effects culturally. Don recruited people to work with him, not for him. He recruited people like Michael and Doug who would eventually run the partnership and not just be his employees. And that culture of stewardship continues to this day. So I said those two things. the third one, which really dawned on me much later, is this idea of holding things in tension. So we live in the Bay Area. We've got the Golden Gate Bridge. It's a wonderful landmark, obviously. And as a suspension bridge, it gets its strength from holding opposing forces in tension. And at Sequoia, we celebrate that. So we want innovation and performance. We want individualism and teamwork. We want to be demanding and supportive. Most organizations make a trade-off between those dimensions. It's one or the other. That's the way we want to do both.

I'm curious how you think about celebrating success, responding to failure in order to encourage people to both perform and innovate, because innovation always comes with an added element of risk and you're in a business where if you are taking enough risk, a certain number of your investments will have to experience failure.

Yes. So we have just Out of interest, we did it recently for an offside. We analyzed our 50 years track record. And in 50 years Sequoia with our fortunately strong historical returns, roughly 50% of every investment we make fails to fully recover capital.

50%.

50%. Now that might mean we recover 90 cents on the dollar. It might be that we return 25 cents on the dollar or nothing. But literally half the time we fail to make a profit on the investments we make. We're in the business of taking risk and managing risk and understanding it. It's not about being reckless, but we're in a parallel business where a relatively small number of investments have a very large bearing on our ultimate outcome. And every now and again, there's a minus one or a minus 0.5 on an investment, but then there's a plus 100 or a plus 500x because we hit a home run and we get the ability to partner with a truly exceptional set of founders and business opportunity. And so culturally, we need to share those stories with our younger team members and help them understand this is the business we're in. and I remember what it felt like when I had my first failure at Sequoia. I'll be honest, I cried. I was in a partner meeting and we'd lost $10 million every single penny on an investment. And I felt so responsible. You know, our limited partners are foundations, endowments, and nonprofits. I feel it's a fiduciary responsibility to them. And I felt guilty that we'd lost the money. And I found a partnership that supported me. And so we do that with younger team members. We make decisions as a team. and we therefore celebrate successes and we suffer defeats as a team.

And so you have a Herculean task of identifying the right founders, identifying the right market opportunities, making the right choices. What makes your investing approach distinctive? And has it stood the test of time in the 20 years that you've been part of Sequoia, 20 plus years, or has it evolved?

So there are elements that are true and consistent all the way through, and obviously we need to innovate and iterate on the fringes. So I'd say the two things that have remained core is we have this preternatural disposition to thinking long term. It is truly distinctive in our business, in my mind, that we- Like a Sequoia. Like a Sequoia. And it infuses a lot of what we do. So when we think about the people we recruit, the operating decisions we make as a business to innovate, like the Sequoia Capital Fund, which we can maybe talk about later, these are decisions we make with a very long term view that our approach to Distributing public stocks, our patience as we company build, being patient for a company to even go public in the first place. How we think about the evolution of technology and markets over time. So there's this incredible long term approach we have at Sequoia, which I think is very distinctive. The ultimate marshmallow test. Will you delay the gratification for a much better future payoff? And so I think that harkens all the way back to Don calling it Sequoia Capital and so many of the decisions that we've made as a partnership through the years, a willingness to take on young associates that are rough like I was, and mold them and shape them into hopefully becoming successful investors. It's part of our business in every dimension. So that's one. The other one is actually not about investing, it's about company building. And that's what I experienced firsthand as a member of the PayPal team, where Sequoia was distinctive in its ability to influence the outcome of our company. And we have one of the terms we use at Sequoia is crucible moments. Yeah. One of the things we do especially is help companies identify and act on crucible moments that have a huge bearing on the ultimate outcome of the company. But it's other things. It's helping a seed stage company with their first three engineering hires. It might be helping a company going public with a critical CFO recruit or a VP of engineering. So it's a lot of the company building we do along the way. We're not just passive investors. And I don't know how many of the people who listen to the podcast are familiar with what we do, but As a venture capital firm, we invest often in seed or venture stage companies where there are three people, 10 people. When we first invested in YouTube, where I was involved, the three founders were in Chad's garage in Menlo Park, two miles from the Sequoia office. And then they moved into our office and they incubated with us for about three or four months before they got their own independent office at that point. Or Palo Alto Networks, where the founder was incubating in our office and working closely with my partner Jim Goetz to refine what has become Palo Alto Networks today, an incredibly successful company. So this is the business we're in, partnering very early with these companies and helping shape them as their business partner. So those are the things that I think that have stayed true. The things we've changed, especially in the last 15 years, is introducing behavioral economics learnings into our decision process.

How so?

Well, I was heavily influenced by the work of Kahneman and Tversky around economics and prospect theory and all the biases we all have. and I'm no better than anybody else. I'm also subject to confirmation bias, recency bias, availability heuristics, all these things we all fall prey to. But when you can name them and identify them as a team, we can help check each other and get better at that. So do we prematurely distribute shares of a public company just because a fund is in a very good position? That's a heuristic that we should combat. Another one was confirmation bias. So often, because we get to meet a lot of companies early, we may say no at the seed stage, but it might be a really good series A investment. Maybe the facts have changed. Maybe you as an investor didn't properly assess the opportunity. But from a confirmation bias point of view, it's very easy to say, I looked at the seed, I don't think we should look at the A because it makes me feel good that I.

Made a good decision then.

So let's keep justifying it, but that's not the business we're in. And so, One of the hardest lessons I had was having missed the seed opportunity in Square, now called Block, I led the Series A for the company. And it was really tough for me to swallow the fact that we could have invested a year prior at a quarter of the price that we invested in the Series A, but it was a fantastic investment. And so overcoming that confirmation bias of your previous decisions was just an incredible thing for us to get better at investing.

Are there other examples of companies where you Missed the investment early on and found a way to work your way back in.

Snowflake is another one.

Snowflake.

My partner Pat, we'd looked at the Series B and, you know, sometimes it's our judgment wasn't quite right. Sometimes the company's facts and circumstances changed. And so, you know, the Series B, we didn't get there as an investment team and he was willing to reintroduce it for the Series C and did incredible work. to show us, in that case, the company's burn rate was actually increasing. But it turned out that if you peel the onion, you realize it's because the unit economics were excellent and they were just doing more of it. And so superficially, the financials looked less attractive, but when you actually did the work, you understood why it was so.

Compelling and that was a fabulous investment. Yeah. That was one I had the privilege of working on as well, from Goldman Sachs perspective. And from a process and method perspective, you're famous for I'll use these terms and you may have to clarify what they mean for the audience, but pre-parades and check-ins and blind pre-votes and feedback loops. And there's just a lot of lore around the Sequoia process. How much do those process elements contribute to the approach you take within Sequoia?

I think the pre-parade, pre-mortem we introduced maybe a decade ago. And the idea of that is that as I look at my own failures as an investor, the worst has been My failure to imagine, my inability to imagine some of the great companies I encountered that ended up being massively successful businesses. And I didn't dare and I didn't imagine. And so we introduced this pre-mortem pre-parade to really clarify for every investment opportunity what can go wrong. And if it does go right, what does that look like? Is the race worth the run? If everything goes right, is this a company that'll matter? Is this a company that'll be one of the 500 most valuable technology companies in the world or not? Is it a ho-hum opportunity? By the way, when you write the pre-mortem in the pre-parade, it also helps you and the founder focus on the first order issues as soon as the investment clears. So the pre-mortem pre-parade is literally a fabric of every one of our investment memos. We also use it on ourself. So at Sequoia, we had this, one of the seminal offsites we had in 2019, just before COVID we applied the pre-mortem pre-parade to ourselves. And we asked every member of our investment team, and our investing team is small, it's about two dozen people. We asked every single member to write a pre-mortem pre-parade for Sequoia Capital in 2030. So roughly a decade out, if we've fabulously successful, one of the best venture firms in the world, what does that look like? And conversely, we've lost our way. What happened? And then we anonymized them because the last thing we want is people to look for seniority and experience. It's a bias. It's a bias. Yeah. People might disproportionately listen to my ideas. We don't want that. We want the best ideas to flourish. And so we anonymized them and then we had to read them all. It was a lot of work, by the way, to read two dozen pre-mortem. pre-parades from each of the other team members, but we surface so many great ideas. And so, for example, that's part of why we've doubled down on our seed strategy, why we built a company building program called ARK to help seed stage founders with many of the decades worth of experience we have around company building. It helped us understand how much more we should invest in technology at Sequoia. So today we have more engineers, product managers, and designers at Sequoia than we have investors. Because we made a deliberate decision to invest in those sort of skills to give superhuman capabilities to each of our investing team. because we could either grow the investing team, which comes with lots of challenges in making effective decisions, or can we provide technology solutions to help us just gain superpowers? So a lot of these decisions came from the insights we got at that offsite. Then on investment decision making, since you asked about that, we do an anonymous vote, pre-vote we call it, after the company's being introduced. So we use a software system for that, everybody posts their vote. Obviously, people have read the investment memos over the weekend before. You know, you're prepared, you might listen to the company that day, or maybe you've really listened to the company and now we're have the investment conversation. A partner will introduce the company and lay the groundwork for a conversation. Then we do a pre-vote. And part of the beauty of a pre-vote, and you can't vote five, it's zero to 10, five is not allowed. You can't sit on the fence. You need to make a decision. And that elicits a voting distribution that is just very interesting. And if it's too positive, I'll quietly assign a devil's advocate behind the scenes for somebody to argue the opposite case, to make sure we have rigor in the investment conversation. And sometimes it really exposes that there are many people that are below the line that have good questions. And if we can't answer them in the conversation, maybe we shouldn't make the investment.

It's fascinating. I want to ask you a personal question. You're famous for your drive, dating back to the stories that are publicly available around your childhood and even the decision to study actuarial science and the decision to move to the US and all the things that we talked about earlier. But is there one thing that really motivates you in all that you do? And has that changed over time?

I think the thing that motivates is to have a life of significance. Yeah. To do something that matters.

Right.

The manifestation of that changes over time in terms of where one sets one's goals. I think these things are often not nature versus nurture. It's nature and nurture. And so I think I was probably predisposed this way genetically. And then I had a grandfather who was a prominent politician in the country. He was foreign secretary for South Africa. He served in Nelson Mandela's cabinet after the first democratic election. Amazing. And growing up, there was a book in his library called Marquis who's who. And have you ever seen this book? I have seen it. So pre-internet, this book had, I don't know, 30 to 50,000 names of the important people in the world you should know. And his name was in this book. And I remember I was 12 or 13 and I saw this book and I saw his name in it and I thought, I wonder if I can one day also be in this book. And I think that was a little.

Game of your own.

Exactly. Not because I don't admire and respect my grandfather, my father, and all my other family members for what they've achieved, but I also wanted to achieve something on my own. And so initially, I think one's motivations are very personal and individualistic. It's about personal academic achievement. And then later on, as you become a business person, you realize how much more you can achieve as a team. And so increasingly my focus has become What do we do successfully as a team? How do we make Sequoia flourish as the sort of full manifestation of that ambition?

You mentioned earlier that Don hired people to work alongside him, people who could one day take over the firm. When you joined Sequoia, did you even have the ambition or even the thought that maybe someday you would be the senior steward as you are today?

No. I'll be honest. In the first year, I was waiting for them to realize they made a mistake and to give me a pink slip. And I was wondering, I wonder if I can get a CFO job somewhere.

The imposter syndrome.

Oh, and it'll continue to haunt you. It's so funny, Doug Leone, who was the senior leader for Sequoia roughly the prior decade, he would tell me that he continued to have nightmares that he wasn't good enough to be at Sequoia. And, I mean, it's beautiful and Doug is such a wonderful human and so good at reading people and has brought a wonderful human side to our team and our culture, and yet he felt that insecurity. And so we all do.

A lot of pressure.

A lot of pressure. And I think there's a desire to earn your spot on the team. And one of the concepts we've introduced, generally it's Acquah's VORP. It's a term from sports, which is value over replacement player. And this idea that you field a fixed team in sport. And so that forces you to pick the best possible team. And it doesn't matter if you were the MVP last season, you need to earn your spot on the starting team. It's not a given that you just walk onto the team because of prior achievements. And I think we all feel that at Sequoia, that Every single member of the team needs to show up every single day and prove their worth to be part of the team today. And at some point it may be that you need to make space for somebody else for the sake of the team. Yeah.

I hadn't appreciated this fully before today's conversation, but we have a lot of shared values and cultures between our two firms. I'm going to go back a little bit to the dynamic of your relationship with founders, your lens into their experience. And I guess I would say it this way, you've been involved both personally and directly and then as a firm, which you're leading with so many of the most successful companies in Silicon Valley. And I'm sure you get asked all the time, what's the key to that success? But is there a key? And is there really something that's replicable across the different markets you're investing in that founders can try to replicate?

I think there's some shared characteristics that we can draw from that, but it's not simple and you can't reduce it to an algorithm.

Yeah.

There's certain processes and statistics that are called non-stationary that are very hard to model precisely because they're dynamic in nature. And business is that. Economics is that. The nature of technology and competition keeps shifting over time. So even if you had a formula that might work in a back tested fashion, it is unlikely to work in the future. And so there's certain commonalities that you can extract, but I don't think you can boil the essence of decision making in venture investing down to an algorithm, unfortunately. I'd say some of the things that I've thought about as being common characteristics from my point of view, and this is not an exhaustive list, obviously. I think about authenticity of the founder. Yeah. And the term that we've used that Sequoia is founder problem fit rather than.

Founder market fit is, how does this.

Founder understand this problem? Why you? How did you come up with this idea and why is it so personal to you? Why is it so visceral? Right.

And if- why are you the one to solve it?

Yes. And what experiences have led you to this insight? And I think about Fred Luddy, who started ServiceNow, and had been part of building prior generations of companies in around service management. He had first hand account of the problems and saw an opportunity to build a new platform for new infrastructure. I think about what Eric Guan did at Zoom. At Zoom. Based on the experience he had at Webex and the frustrations he had at Webex that it wasn't built for a modern era with all the modern tools and technologies. And that's part of what inspired him to build Zoom, but he had such detailed Not first order, second order, third order understanding of the issues at hand that enabled him to build such a distinctive product that, you know, we all used obviously today and acutely during COVID So, Found a Problem Fit, I think, is a very important one for me. The other one, which is crucial throughout a company's life, is velocity. And this is something that Frank Slootman, who led ServiceNow, and- I know well.

Yes.

And let Snowflake is something that Frank talks about a lot, but we see this as a characteristic in the earliest seed stage companies too. Which is the company where you show up at a board meeting a month later and they've exceeded the expectations of what you thought they might accomplish in the last month? Or is this a company where ideas percolate and six months later you're still talking about the same ideas, but nothing has happened.

Right.

Velocity, it's just so crucial.

You just- Frank would say amp it up.

Amp it up, move, move, move. What are you waiting for? There's no time like now. Right. No postponement, no procrastination.

You know, I'm thinking about What's more important, market or founder? Warren Buffett's always said, Give me a good market. But in venture, is it far and away the founder that's more important?

I think the founder is the most important variable. And I think market size is often a function of the founder's imagination. And this gets to another question we often ask companies is, what's the scale of your ambition? And so I think about Block, formerly known as Square, where I'm still on the board. It started off as being a merchant payment provider, and four or five years into the company's existence, Jack and Brian GrescAdonia came up with the idea for Cash App, which is a consumer product. And there are lots of conversations in the company about whether or not we should be in the consumer business. That was not why the company was founded in the first place. It's supposed to be a merchant processing service. And I often say that when companies face these decisions, their future is more at risk of infanticide than homicide. It's more likely that the company kills its own good ideas for new products and services rather than it being killed by competition. And in this case, fortunately, Jack was able to shield enough of the development of Cash Up, which is now half the company's business. Half the company's gross profits now come from a product that didn't exist when we first invested because the founder had incredible imagination. And so for us at least, founders are crucial. Now they have to pick the right markets, obviously. A brilliant founder who doesn't navigate towards both. You need both. Yeah. But it starts with the founder and their imagination. And these markets are very dynamic.

What happens when a founder seems promising but doesn't succeed? Is it missing those crucible moments? Are there lessons today's founders can learn from those experiences?

They can and they should come speak to us because we made all of the mistakes. Yeah. We have, there's one slide we often show people and it's unfortunately has many words on this slide and it's all the mistakes we've made. because we've made them alongside those founders. We were their business partners and we got it wrong along with them. And so we tried to learn from those mistakes. We tried to share those with founders. Sometimes we'll make new ones and we'll add to this list. But what is criminal is to repeat mistakes that you've learned. So when I think about lessons for founders, in the early days, product market fit is so important. Elon Musk was at one of our founder events last year and he said something so simple but yet important, which is make something useful. Just simply make something useful and it starts with that value delivery piece. Before you worry about value capture and building a business, just value delivery. What are you doing from a product market fit point of view that is distinctive? That is a solution to somebody's problem. And sometimes we get it wrong, that the market is better served than we thought, and the solution isn't sufficiently compelling to dislodge an incumbent. Sometimes it's a new market and we all believe that there'll be a new market in AR/VR might be an example that five years ago we thought it might be an interesting new market opportunity, but it's been slower in the development.

Right.

Autonomous vehicles, again, also, it's inevitable, but because something's inevitable doesn't mean it's imminent. And so sometimes we get our timing wrong and the market is too early, sometimes we're too late. And so we've seen those. Now, later on in a company's development, I think crucible moments really play a much bigger role. You have a business and do you understand a new technology wave? Sort of desktop internet business that failed to transition to mobile. Were you an on-prem software company and failed to transition to the cloud? Were you a company that didn't now fully embrace AI? to ensure that you are ahead of your competition rather than falling behind. These are very important crucial decisions. Other ones might be product line extensions, geographic expansions, business model transitions. So getting those right is very important.

Let's shift gears. I want to get your view on the tech landscape. We're at a seminal moment with AI, and Sequoia is playing a leading role in the AI revolution. It's been a big priority for you publicly, but how are you thinking about AI as an opportunity for Sequoia. Where to begin?

Where to begin? We actually began in 1993 with a million dollar seed investment in Nvidia. I wish the Sequoia Capital fund had existed earlier because I think those shares would be worth something in the order of $170 billion today if we'd held on. Lesson learned. So we have a very long history of investing in around what I call machine learning. And what we see today is generative AIs is at a very important step function change, but it's really a continuation of what we've seen with machine learning and neural nets for many years. I studied neural nets as an undergraduate in South Africa in the early 90s. And it's now fortunately, because of what we've done with cloud infrastructure and with data, that we now have an ability to turn these models into things that really make a difference. But these models become incredibly powerful. But for us, it's really a continuation of so many of the investments we've made over the decades. So we see maybe two buckets. There's a set of opportunities for Sequoia to invest in, and then there's a set of opportunities for us to improve ourselves. Yes. And incidentally, I was on a call this morning with our team. We have a weekly check-in of about 45 minutes with investing and operating team members across Sequoia. And we spent about a third of today's meeting talking about all the new tools that we've rolled out internally at Sequoia. And we're using many of our own portfolio companies to do so.

Is there an AI focused investment that you've made recently that you're most excited about?

The one I'm most excited about personally is a company called XBO, or Crossbow. I think the founder pronounces it XBO. The founder is originally a Dutchman. His name is Uche Demoor. And so given my Afrikaans heritage, I can pronounce his name. Yeah, yeah. He was a computer science professor, I think at Oxford University, started a company called Semel, which is a code analysis tool that was used by Google and Microsoft. Yeah, it was bought by GitHub, and he and a small team built Copilot inside GitHub. and he saw the power of that. And he started this company, Expo. We got into business with them earlier this year, and they're going after the penetration testing market. So the penetration testing market, as it's known in cybersecurity, is a couple of billion dollars a year services business, largely services business. It's been very hard to automate that particular industry. And his insight is that you can use some of these modern technologies to transform that. And so there's a category right now where for the prior decade, we were investing in software as a service. taking ShrinkWrap on-prem software to running it as a cloud operating, as a cloud service. Now it services a software. So does the modern generation of software get so good that you can actually do jobs or services? And so that's what Expo is doing. So they announced that Black Hat, I think two weeks ago, three weeks ago, now that the product's available. They did a side by side comparison against five human penetration testers. They beat all of them except one, who's a 20 year veteran in the industry where their software was as good as that veteran. but it also accomplished the work in about 1/8 the amount of time that it took the veteran to complete the task. And this is within eight months of founding the company, they're already at that level of achievement. Now imagine for a second, I'm sure Goldman Sachs uses penetration testing services. Instead of doing it a couple of times a year, imagine you could do it continuously. Because now it's software, it's not people. And you have a much better sense of where your security posture stands and you can remedy things much, much faster. that to me is just totally transformational. And so we see this in co-development, we're starting to see examples in healthcare. It seems unbounded. Legal services is another one. We're investors in Ironclad and Harvey. One services the GCs inside corporations, the other one services law firms. And both of them are having phenomenal success with their AI tools.

Yeah, you started by saying we talk about AI internally, we talk about AI from an investing perspective. I do want to make sure we come back to hearing a bit about how you think AI as an investing opportunity will define Sequoia in the next 50 years?

Well, there's a Stanford computer scientist, Roy Amara, who is credited with the phrase, we tend to overestimate things in the short run and underestimate them in the long run. And I think we're going through a little bit of that cycle right now where there seems to be a little bit more concerned that we haven't quite lived up to the promise of AI yet. But I remember this, I was in Silicon Valley in the previous generation of the internet, and I remember in 2001, there was a bit of despondency and It was the Valley of Despair. I remember an article that was written called Earth to Palo Alto, and it made fun of us at PayPal at the time, not knowing that we'd already built a profitable business, saying that we would never amount to anything. And the truth was it took a little longer to build out that infrastructure and for that future that we can imagine so readily to become a reality. And the same is going to happen with AI. And so I have no doubt that it'll be a profound in its impact on the US economy. And I'm absolutely delighted that the US is leading in this field. I think it's one of the most important changes in my mind that can really catapult US productivity and therefore US GDP growth over the coming decades across a range of industries.

We agree.

And I think the thing is a little bit different about some of the previous iterations. The internet and mobile were both dramatically different means of distribution. And you could argue cloud as well because it took away what used to be more of a sales driven approach with on-prem deployment and services for implementation to software being delivered as a service with a lot of what is known as PLG, product-led growth motions, where a company can just start to use software and experience and experiment with it on their own. I think AI disproportionately favors incumbents because it's not fundamentally a different disruption mode. And so I think a lot of incumbents, a bank like yourselves, can benefit. I mean, I don't think AI will enable the creation of a new global investment bank. What it could do is help you be a lot more productive and a lot more profitable maybe than you are, or for you to redeploy those profits into other interesting new ideas and ventures as you expand your own footprint. And to the extent you do that better than the other banks, it'll put you at a meaningful advantage. But for that reason, AI, I think, can have a tremendous benefit to incumbents across a range of industries, but it'll also give us opportunities. And as we think about it, and I realize this is a gross oversimplification, but there's a foundational model layer, as we think of it, an infrastructure software and developer tools layer, and then the application layer. so on the foundation models, there are a large number of them. There are several language models.

Yep.

And we're investors in some of those. I think they have a phenomenal business opportunity. I think they'll be oligopolistic in nature at the end of the day. I think the public cloud service providers are probably the best proxy for how I think that market looks longer term.

Given the capital intensity.

Given the capital intensity, which makes it a little bit incompatible for us to be meaningful later stage investors in those businesses. You know, Sequoia invests. We have a seed fund, a venture fund, and a growth fund. But across everything we do, we invest roughly one and a half billion dollars a year. Some of the financings in the foundation model companies is tens of billions per year. Per year. Per company. Per company. So we just don't have the balance sheet. We don't have the resources to be able to fund that, which doesn't mean.

We don't think that there's promise. It just it's incompatible with what we're able to do. But is it just a matter of phasing, timing in that the infrastructure layers will come first and then the applications will come on top later.

Yes. And this is precisely what happened in the internet era too. Most of the money that was quote unquote lost in the dot com era was not on the consumer internet businesses. It was on infrastructure. It was all the networking and the dark fiber that was laid. And it lay fallow for a while. But honestly, if you think about the boom that was web 2.0, as it was called in 2005-2006, when YouTube and Facebook and Twitter all exploded, they benefited from that legacy infrastructure that was pre-built. Now, I think the same is happening here where we have phenomenal capacity that's being built, but now you see the emergence of this infrastructure software and developer tools layer. And if you want a good proxy in my mind, think about MongoDB or Confluent. Even though the cloud service providers have a lot of other interesting software that they offer, third-party vendors really have helped accelerate those marketplaces. Snowflake and Data Warehousing is another example. Right. you see a similar phenomenon happening in AI. So we're invested in a company called LangChain, for example, or a company like Fireworks that is helping with inference. Because ultimately, you're going to go from mostly training to mostly inference. Inference is when you actually make AI calls in the use of an application. So Fireworks is making that far cheaper.

And faster than others.

More efficient. Far more efficient. Yeah. So that's a very interesting layer where we've traditionally invested and made money and we're very enthusiastic about that. And then ultimately it's about the application layer. And that's where it's Bret Taylor's company, Sierra, which is doing this in customer service, Expo, which we talked about in penetration testing, a company called Factory that's doing this for co-development. We have a stealth company that's doing this in robotics.

It's just such a plethora of opportunities. Are there technologies or ideas that you.

Think are underestimated right now? I think a couple that I think about immediately, one is that I don't think people properly appreciates what happens to the opportunity in space when you reduce the cost of moving mass to orbit by another order of magnitude with the new Starship that's coming online by SpaceX. And generally when new capacity becomes available at disruptive price points, humans have somehow innovated pretty dramatically. But there's the famous quote about from Dick saying, why would people need computers in their households? Or what are we going to do with all this broadband that we're being served with, right? Somehow we figured out ways to fill those pipes with interesting content. I think the same is going to happen around space. I'm very eager to see the ideas people come up with and then realize what's possible. Another one that my partner Sean McGuire has been talking about is the hardware opportunity with new data centers and the move towards AI. The sort of data centers that were built in the past decade in a cloud infrastructure were very different from what we built in the late 1990s. It's commodity servers, not Sun servers. It's, commodity network switches, not Cisco routers necessarily.

Right.

It's just very different architecture. Well, scale out. Scale out versus scale up. And so what happens in this future state as we move towards AI? Obviously, with GPUs, that's fundamentally changing the proportion of CPU, GPU in the data center. But what are the other things inside there? We were an investor early on in a company called Mellanox that NVIDIA acquired. Right. And that's proven to be a critical company to make sure that you do all the interconnects inside a data center. But What are the other knock-on effects that we haven't thought about yet for what that modern data center needs are? Right. And all of the cloud service providers have announced massive deployments of new architecture, billions per year each of building out new data center capacity. So what is that going to look like? Yeah.

So that's interesting to me. And of course, all the knock-on effects on energy efficiency and therefore climate efficiency and so on.

Yeah, talk about that for a second, by the way. We just had somebody as a guest on our podcast called Training Data And this person worked inside Google's data center effort and they used some of these AI techniques and reduced the power footprint of Google's data centers by 40% by using AI to help solve problems that were hard for humans to really dissect. It was just dramatic. I mean, that's the number one cost variable in these data centers is energy.

And in one of the largest data center complexes on the planet. Fascinating.

Yeah, talk about real world examples. Whenever I hear people say like, Where is it really having an impact? We can come up with a long list.

Let's talk about trends affecting the venture capital space, but there's a perception that higher rates and maybe more skepticism from the public markets have really changed the calculus for VCs and the fundraising environment for companies. That the days of easy money are over. Do you think that's accurate?

The funding landscape has changed dramatically in 2021. The amount of money invested just in the United States venture capital was $322 billion in one year. Now it's come down by 60% and it was $132 billion last year. So it's a dramatic change. I mean, they're not making as much money.

And a much greater concentration in the largest investments, I expect as well.

You're correct because a lot of that money has gone to some of the foundation model companies in AI.

Right.

And the return of corporate venture capital is part of that. Actually, the majority of money that has been invested in the foundation model companies has come from the balance sheets of the existing large tech companies. And it's a very different type of corporate venture capital than you've ever seen because the money that is invested often finds its way back as cloud service revenue for them. And the jest I made about this is that they're transmogrifying their balance sheets into income statements. They take cash and they invest it in things that turn into revenue. So we can't compete with that. But that's a big change. But you've seen a 60% reduction in the market for venture capital in the United States. The level we saw last year, the 132 billion, is comparable to what you saw in 2019 before all the fiscal and monetary stimulus that was COVID induced. I'd argue that level is still too much. There are a small number of companies that disproportionately drive returns. And from the outside, I think venture just looked too easy. It isn't. It is very difficult. If you think about the typical 2 and 20 fee structure that a typical venture firm might have, and let's assume that 132 billion invested now per annum compounds for, say, seven years until a liquidity event at 12% a year, which is the Nasdaq's average performance over the last 20 years. If you did that, the 132 billion would turn into, I think, about a half a trillion. And then you adjust for how much the VCs own of these companies. So let's just make the math simple. The VCs own about two thirds of the company just to make the math simple. That would mean you need $750 billion per annum of liquidity to generate a 12% return under these assumptions. So if you think about that from a scale point of view, a snowflake, a DoorDash, a Block, these companies are worth 40, 50, 60 billion dollars maybe. So you need to create 15 companies of that scale every single year. You need to create 75 Decacorns. It just doesn't happen. So the only conclusion of this is that the return assumption of 12% is not going to be realized, which means that you're going to end up with what is known as a return free risk. if you invest in venture capital.

As it follows to the risk-free return.

Now, the truth is that I've never met a founder who started a company because interest rates were low.

Right.

And you go back through our history, whether it was investing in Cisco in 1987 right after the stock market crash, the investment in Google and PayPal in 1999 when interest rates were actually higher than they are today, or the investments we made in Airbnb or the time in Stripe, these sort of companies, interest rates were higher than they are today. So I don't think that is a governor on innovation and new company formation.

Maybe only pacing. when rates are low and cost of capital is low and TAM is large and product market fit is great, you run. As you said, is it worth the run?

Yes.

Is the run worth the risk? Let's talk about liquidity if we can, and the absence of it for the most part in the broader market. Sequoia has done a phenomenal job, frankly, providing liquidity to its LPs over the last five years, and that's well reported, but we're in the midst, as we all know, of a slow IPO market. There's been nine year to date, up from three last year.

It's tripling. Just keep compounding.

Growth rates are extraordinary, very low base, and we're in a highly regulated M&A market. Companies are opting to stay private longer. Of course, the best companies can raise money pretty easily in the private market still, but even Sequoia recently, I thought, did a very creative move with Stripe to facilitate liquidity. How are you thinking more broadly about this piece of the equation for LPs, for the founders, for employees of your portfolio companies, even if you have a mindset that you want to hold the shares?

That's a great question. As you mentioned, we've been in a position where we distributed over $40 billion to our investors over the last five years, and we distributed $10 billion last year alone. At a period where I think- It's really extraordinary. Our LP is really We're starved for liquidity from many different sources. So I think we've done that consistently. We've actually been a net source of money for our LPs over the last 20 years. If you were an investor in Sequoia over this timeframe, we would have called less capital than we distributed to you, which is a wonderful position to be in. We don't take it for granted. We're only as good as our next investment. That humility runs deep. I think the one thing we want to think about is when we make an investment, we don't want to be constrained by the thought of a liquidity event, because I think that shackles the mind and shackles creativity to ultimately build as valuable a business as you can. So we need to disassociate liquidity needs from doing what's right for the business long term. Now when it comes to employees, when we work our way up from that part, in 2001, we did a small liquidity event at PayPal. I know it's talked about these days as though it's a recent innovation. It's not. We did one 20, what, three years ago at PayPal. And I went from being in student debt to having, I think, $30,000 or $40,000 to my name. And I felt rich. and it was fantastic. And I could go on vacation and move into a better apartment. And honestly, I think for us as a team at PayPal, it meant getting that little bit of liquidity meant that when eBay approached us with an offer late in 2001, it was much easier for us to play long because we weren't stuck with all our net worth in one single illiquid security.

Right.

And that's really informed a lot of my thinking as well. It's a way where I welcome us. providing secondary liquidity opportunities for founders and for employees so that we're much better aligned for the long term. And especially when companies stay private for longer, you join a company when you're 27, you're a part of the company for the next decade, now you're in your late thirties, maybe you already have a family, you can't afford a mortgage because it's all tied up in one stock. I just don't think it's fair. And so I think it's totally appropriate for employees to be able to benefit from liquidity in that situation. And so we encourage that, whether or not we're the investor involved, I think that's totally appropriate. the challenge I think comes with LPs and how to make sure that you tailor to the needs of different people's liquidity because you all invest for the same reason. When we co-invest in something, we're both excited about the future of the company. But when it comes time to sell, you and I both have very different needs. And one LP has a bit of a cash flow management challenge, another one does not. And that nuance I think is very difficult to get right. And that's part of what led to the formation of the Sequoia Capital Fund is We wanted to move to a system that wasn't this binary where we had to distribute the shares all or none. It gave us a much better ability to tailor it.

It's a good time to go to the Sequoia Capital Fund. And maybe for the benefit of some who may not be as familiar with what you did, you could start with just the short version of what made the Sequoia Capital Fund as a permanent fund so different from the typical 10-year model and why that was so important.

So the traditional fund structure for the venture capital industry was invented in the late 60s, early 70s. It's quite dated when you think about it. Yeah. And it was designed with a default 10 year fund life. Because in those days, most of the time, companies would either go public, fail, or get acquired within that type of time window. And technology honestly wasn't as big a part of the world as it is now. And you couldn't build these gargantuan companies that we're able to build today. And so it seemed that the fund structure was dated for the nature of the business we're in. And there were a couple of things that we observed. First, our LPs were being short changed. we didn't help them hold on to some of the best companies longer term. Because the instinct for any given LP and LPs in our universe are the investors in our funds. It's the shorthand is an LP. And as I mentioned earlier, LPs are predominantly foundations, endowments, and nonprofits. And what they do when they receive a distribution by and large is sell pretty quickly. And it's understandable. They don't know this company. They're managing a multi-asset class endowment. They're trying to manage cash flows for their university or their nonprofit, they don't want to be or need to be experts on each of these individual technology companies. But then when you look at the data, if you'd bought every single Sequoia IPO at the IPO and held till today, you would have made more money than if you bought when we did and sold at the IPO. Some of these enduring companies have just compounded in incredible ways. And so we thought we could do better by LPs honestly, by holding on to some of the best companies after the IPO. longer. So that was one constraint. The other one is our relationships with these companies endure. They don't end at the IPO. The IPO is not the destination of our relationship. I've been involved with many companies since their formation.

Square block is a great example.

Square, Mongo, a company called Natero, which is a bioinformatics company. Don was on the board of Cisco for 17 years. My partner, Alfred, is still on the board of DoorDash. These are just some examples of we got involved early, we continued to be the business partner, and the founders want us on the board. It's actually one of the interesting things of these. Sometimes people say, you,'re a venture investor, how can you help this late stage public company that's got billions in revenue? And part of it is that we have this long term orientation, as I talked about earlier, and that we keep on pushing these founders, we're demanding and supportive, and keep on pushing them on what are the next horizons to conquer? What are the further ideas that we can exploit to turn this into a wonderful long term business? So founder relationships endure, so that made sense. with this fund structure. And then it provided enormous administrative simplification for us because we have a single master fund, the Sequoia Capital Fund, that is the LP in each of our underlying seed venture and growth funds. So it's a big administrative simplification for us. Now, the advantage is we became an SEC registered entity, which gives us more freedom around secondary transactions and holding public securities. And so now in the Sequoia Capital Fund, a company like DoorDash, we fully distributed from the underlying fund that originally invested. It was Sequoia 14. It was an investment, I think, from 2012 or 2013. 2013, it's more than a decade since we made the initial investment. At the point that we distribute those shares, some of the LPs can choose to receive some of their shares, or they can roll their shares into the Sequoia Capital Fund, where we can now hold the public shares for longer. And you'll manage it. And we manage it, and we benefit from the sustained compounding of that. Now, I love one of Charlie Munger's quotes, which is, Show me the incentive and I'll show you the outcome. So we've structured the Sequoia Capital Fund that we only earn an incentive fee if we can outperform the NASDAQ. over a rolling three year period. And to us that felt like a wonderful design constraint, which is if we can't outperform, then we need to minimize the size of that fund and benefit from the administrative simplification and other benefits, but it needs to be performance driven. The last thing we want to do is be a partnership that focuses on asset gathering and fee income. That's just not what motivates us. Now part of the benefit of the Sequoia Capital Fund is at that point of rolling shares into the fund, LPs can take distributions directly. They don't have to roll at all. So that means that they have a tailored liquidity preference. You might be a fund that is flush in cash, you roll everything, I might not be, and I roll 50%. The fund itself also allows redemptions. So if you're an LP that's in a pickle, and this is what's happened with some of our LPs over the last year or so, that their particular institution had cash flow constraints, they can literally tap their balance in the Sequoia Capital Fund. And so again, it just, instead of having this all or nothing approach, it's more tailored. and that's part of what enabled us to execute the Stripe transaction that you referenced, which is we originally partnered with Stripe when literally it was the two founders and one other person who joined the company. The company was called Dev Payments. So it was 15 years ago and those funds are well beyond the original 10 year fund life cycle. And so now we have an opportunity where the Sequoia Capital Fund is able to purchase shares from those funds at those LPs option. They can choose to sell or they can choose to just hold their shares. It's their choice. But again, it gives flexibility based on each entity's individual cash flow constraints.

And you're now two years into the Sequoia Capital Fund.

Just over two years, yes.

Just over two years. Now that you're two years in, I'm.

Just curious how you think about it. We have the benefit that we generate relatively high multiples of money on relatively small amounts of money that we deploy. Let's suppose you're investing $4 billion a year and the size of your fund is eight. You'll deplete the capital in two years. This type of a fund structure doesn't actually make sense. We have the benefit that our fund scale is many multiples, 10x at least, of what we deploy per annum. And so we're not constrained in that way. So we can, again, we can think very long term about the structure because we're investing at a relatively low rate relative to the asset base that we have. I think probably the Stripe transaction was an example of something that we didn't envision when we conceived of the fund and created it. But when you create something that has so much flexibility, it opens up opportunities for you to do other things down the road. And I think that's the flexibility that maybe was unanticipated, but I think we really benefit from today. And mostly because we just love Stripe. It's a phenomenal business. We've known them since the beginning. They processed, I think it took PayPal 23 years to get to a trillion dollars in payment volume, and it took Stripe 15 years to nice milestones.

It was pretty remarkable what the company has achieved. I just want to shift gears last couple of questions. Just for a moment, now that you are senior steward, of Sequoia, what would you like the future to look like for Sequoia? And what are your aspirations for the firm from here?

There's one part of it which remains true, which is we want to partner with outlier founders as early as possible in their company building journey. And we want to help them build enduring businesses. And that was true when Don started Sequoia Capital. It's true today. The companies that we've backed over the years today account for more than 25% of the total market value of the NASDAQ. That is astounding what we've achieved. And, but we need to keep finding those outlier founders. You know, my early days when I joined Sequoia, Don actually pulled me aside one day and he said, Roloff, you have to realize there's a two by two matrix of potential founders we get to invest in. Exceptional, not exceptional, easy to get along with, not so easy to get along with. Your job is to figure out in which quadrant we usually make money. And it was wise words because, and he didn't mean it sort of, these aren't difficult people.

They're just the sort of person who.

Wants to take on the world and build a company. They're not conventional. They're not conventional. These are unusual people. Right. And finding them and dreaming with them to build a beautiful business is part of what gets us going. So that really is our most important goal. And that's the flame that we need to keep going. And Kindle at Sequoia, it was true before I got there. It'll be true after I hand over to a future generation. So that we need to hold true is to help founders build these companies. In doing so, we want to fuel what we call great causes. So we're very fortunate that we get to choose the LPs that we have at Sequoia Capital. Mm-. And when you come visit our office, by the way, the names are on our conference room doors, because it's a daily reminder of who we work for. So when you walk around the Sequoia office, you'll see the Mayo Clinic, the Welcome Trust, the Dana Farber Institute, Ford Foundation, Memorial Sloan Kettering, Stanford University. These are the people we work for, and we need to stay grounded that funding medical research, poverty alleviation, these are the sort of things that really have an impact on the world. Now, in terms of some of the other things that I need to do, it starts with team and culture. We don't have hard assets. We have a brand that's valuable, but at the end of the day, we have a team. And we want to keep a very small operating team and investing team. Sequoia Capital has fielded in 200 people. We're no bigger now than we were five years ago. And we have this kernel of a team and a culture we need to treasure. And those are the things I spend a lot of my time thinking about is how do we hone that? How do we harness that? How do we make this an incredible place to work? that has a bedrock of intellectual honesty and kindness.

Back to that culture.

And teamwork. I mean, these are the things we have to value. And then I think we have to make sure we get crucial moments right for ourselves. What are our strategic decisions that we need to get right? Our decision to open an office in London, you know, whether or not to do global separation, our decision to launch the Sequoia Capital Fund, to double down on seed investing, to invest as much we are doing in technology. These are all crucial decisions for us as a business. We have to get those right. And then we have to execute them. And execution is worth a lot of strategy. One of my partners, Colin Buch, used to say that execution eats strategy for breakfast. So you have to make sure you execute every single day.

And then- you- decided to go back to executing.

He's at work there now as the CEO, and he continues to be one.

Of our venture partners, and he's a great ally on the team. Amazing. Great guy, very talented. You've publicly spoken about the importance you place, the value you place on leading a life with purpose. When you look at the companies that Sequoia has backed, these are companies that have not only created new technologies, but have had really profound effects on the lives of billions of people. Does that create an extra sense of responsibility for Sequoia and for you personally? One of the books we often hand.

Out to our founders, you'll actually find it in our lobby. We have a book section, you visit Sequoia, we have a variety of books that's available. You just take one off the shelf and read them, and we've handed this out at Some of our founder events is Viktor Frankl's Man's Search for Meaning. And it is important because I don't believe we're hedonists and I don't believe the Adler view in psychology that we seek power. I think we seek meaning in life. And for us at Sequoia, there's meaning in helping founders realize their ambitions. That's a privilege we have to do what we do and an obligation to not fall short on their expectations. The companies we've backed directly have created over a million jobs in America. And probably tens of millions if you think about the knock on effects of the ecosystems that they've helped drive. The companies that we've invested in today are used by half the people on the planet every single day. Natera, the bioinformatics company I got involved with, with a seed investment of a million dollars in 2007, about half the pregnancies in America today benefit from their prenatal technology to help give mothers confidence that the unborn child would be healthy.

Right.

These are just amazing technologies and innovations that we're part of, and we have to take that responsibility seriously to live up to the founders, deliver great returns for our LPs, and ultimately to make sure that we nurture Sequoia as this magic puzzle piece in the middle that.

Makes all of this flywheel work. I can't think of a better place to leave it. Roelof, I'm incredibly grateful for the time you've spent with us today. Thank you so much for sharing your wisdom with us, and we'll leave it there. Thank you. Thank you all for listening to this episode of Goldman Sachs Exchanges: Great Investors. I'm Ken Hirsch. This podcast was recorded on August 20th, 2024. If you enjoyed the show, we hope you'll follow us on Apple Podcasts, Spotify, or wherever you listen to your podcasts and leave us a rating and comment.

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