Sequoia’s Roelof Botha on “Crucible Moments” and the state of VC | E1804

When the idea for Yelp was just literally a formation stage, Yelp was thinking about just doing email back and forth. The website hadn't launched. Again, smartphones didn't exist. And Michael said, I imagine in years to come there'll be a Yelp sticker in a restaurant window right next to the Zagat sticker. Wow. He had that vision at the point that the company was being formed.

And the guy's gone. Yeah.

Is that guy's gone? But you do see up stickers everywhere.

I mean, it's amazing.

I mean, he saw the future before of this dip.

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Thank you, Jason. It's great to see you.

Yeah, great to see you as well. I see you're deep in the forest there with the redwoods. So you got the new podcast. That's great. We'll talk about that in a minute. But so much has happened since we last talked. We went through an incredible boom-bust cycle, and maybe here we are 18 months after the cycle ended, maybe things are coming back. I'm curious what you believe the state of the venture capital market is today in the second half of 2023 and then going into 2024. And any thoughts you have on the crazy three or four year peak bubble, if we consider it that, that we went through in 2019 to 2021.

There are a lot of questions embedded in there.

Yes.

I think maybe we started with the craziness, which is the combination of a pandemic global pandemic with incredibly loose monetary policy. Because at the end of the day, we had an era where the cost of capital was essentially zero. And that led to a lot of investment, also a lot of speculation. And honestly, a lot of companies did things that were quite rational. If the cost of capital is zero, there's no difference between something that pays off tomorrow or pays off in five years. So it was quite rational for companies to ramp up their burn rates, ramp up expenses, R&D sales and marketing to build for that future promise. And that obviously changed now that we have a more normalized interest environment and people are thinking much more carefully about payback periods, where should you best spend your R&D dollars, which channels of customer acquisition are the most profitable for you to pursue. So there's just a lot more discipline in the way that people are managing businesses. And one of the things I predicted at the beginning of the year is that we would see many companies outperform expectations on earnings in 2023. And that's exactly what's happened because there was a lot of excess in the system and many companies have found religion around being cost conscious and being efficient. So I think you've seen that play out certainly with the public companies. For this, yeah, yeah.

Well, I was just gonna say on the cost cutting, that did seem to happen very quickly as opposed to the last time you and I went through this in 2008. Sequoia did a famous Rest in Peace Good Times deck and I'm curious what you think informed the very quick reaction from startups and even public companies this time around.

I think the global financial crisis in retrospect was quite short lived. It was very painful in Q4 2008, but the government's reaction both in fiscal and monetary stimulus in that era was swift. And things started to bounce back pretty quickly in 2009. that was different this time because the financial impact is just much broader across many different industries. And you combine that with continued lockdowns in China, the impact of a war in Europe, which slowed down a lot of demand for many of our companies in that region, and then a sell-off that was far more sustained. And candidly, there's no more room. We're going in the opposite direction both in, the government doesn't have that much more room to do fiscal stimulus the way they did during the pandemic. And monetary tightening is happening. You're not having a loosening of monetary policy. So I think all those variables combine to something that is a lot more protracted and people are feeling that pain and the need to adjust.

And what does that do ultimately to the ecosystem? Because we have a delicate ecosystem here in Silicon Valley. You and I have learned this over the last 20 years that we both, or over 20 years, you've been an investor in. Yeah, coming on 13 or 14 years, me being an investor, What is happening to the ecosystem? Because it is very delicate. You have founders creating these companies, you have the employees at the companies, you have LPs, and you have the venture capitalists, arguably three or four different constituents. What is the state today and how do you look at it going forward at Sequoia?

I'd say there was a period in 2022, especially in the second half of the year, where it felt like most of the world was in shock and people were, reassessing, trying to figure out what happens next. Because the sell-off was across every single asset class. It wasn't just tech, it wasn't just equities, it was bonds, it was real estate. It was just so broad based. And many companies basically just froze for a little bit and tried to figure out where do we go from here? Now, as you know, many of the greatest companies are born in these periods of dislocation. because the sort of founders who start businesses or build businesses successfully during times like these are truly missionaries. They're not mercenaries. And so, you know, a lot of the marginal ideas don't work. A lot of the marginal companies are not going to make it. And that's sort of a very healthy natural system that we have in technology in general. And, you know, talented people become redeployed. They start to work on other interesting projects. And so that's part of what we've seen with a renewed enthusiasm around machine learning and then specifically some of the generative AI capabilities that are now creating Another wave of innovation in Silicon Valley. And that's really sort of breathed fresh life into Silicon Valley in a way that I haven't seen for quite a number of years.

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We've talked about it for a number of years. So actually, your comment just now reminded me when I met Don Valentine long time ago when I joined Sequoyah, who was alive. And he took me aside in my first couple of months at Sequoia and he said, Rilov, there's a two by two matrix people we invest in. On the one axis, easy to get along with, not so easy to get along with. On the other axis, exceptional, not so exceptional. We normally make money in one of those four quadrants. Your job is to figure out which.

There it is.

So to your point, you know, founders are people who see, you know, the world as it is and they don't accept it, they change it. they see a vision for the future. I mean, that's just incredible to harness all that energy from founders. So the thing behind crucible moments that we've talked about is there's a tremendous amount of execution that goes into building a successful business. But in truth, there are one or two really important decisions, pivotal decisions that a company faces every year that have an enormous bearing on the ultimate outcome of the company. And we call these crucible moments. And these aren't decisions about, you know, what should we offer in the, you know, for employee lunches? That's not a crucial decision, obviously. You know, there's a crucial decision about international expansion. Do you add this next product? Do you make a bet on this key technology platform? Do you change your business model fundamentally? These are crucible moments. And the challenge is that they didn't announce themselves. They don't come knock on your door and say, Hey, I think you should think about this. Sometimes there's a crisis. So sometimes it is responsive. So if you think about what happened to Airbnb and Eventbrite during the pandemic, both companies lost 80% of their business in a matter of weeks because they both depended on live experiences. That's a crucible moment that hit you in the face. And you better figure out very quickly how to navigate through that, which both companies did, obviously. Some of the other crucible moments are things that you could choose to do. So you think about Netflix having to decide to move from DVD shipment to streaming. that's a crucible decision, right? And getting those decisions right have a huge bearing on your success. And there's a wonderful parallel to one's personal life. Each of us have a couple of key decisions that have a huge bearing on what happens to your professional life.

And do people- Sliding doors theory, right?

Like the sliding doors theory. Your decision to move to Silicon Valley, that was a crucible decision you made a long time ago. Your decision to sell weblogs into AOL. that was a crucial decision.

Yeah.

Some of the key investments you've made in your life, those were crucial decisions. And so, you know, at the end of the day, we want companies to focus on these crucial decisions because they don't always spend enough time thinking about them. And so the danger is that you miss a crucial decision that could really lead you to something wonderful down the road. And then once you've identified them, how do you make the right decision? How do you harness all the best insights and perspectives to help you arrive at a at a great outcome and a great decision. And then there's a third one that I think is often missed. Honestly, it's one that I've made a mistake on quite a few times myself, which is you get the decision right and you don't realize all the consequences of that. If your business is moving in this direction, you've chosen to become a cloud-first company instead of being an open source company. Well, now you're running a service, you're not shipping software. You have the right people. You understand how to manage a marketing funnel. Do you understand how to operate Five9's reliability for customers who depend on you to run that cloud service on their behalf? So there are a lot of knock-on effects to actually how you operate under that new framework.

So first of all, you have to understand if this is a crucible decision. Lunch in the cafeteria obviously doesn't make a difference. Where you locate the company, maybe your work from home policy, these things could be crucible decisions at this moment in time or any moment in time. making the right decision, number two. And then number three, hey, you made the decision, you're going to stop sending DVDs in the mail, what do you do now? And obviously doing Quickstar or whatever that was called was like a bad decision. They reversed it, but they seem to have made the right decision investing in content, right? They didn't just go online. They decided there was a second crucible decision in Netflix case.

That was a huge decision.

Yeah. Do we even make our own IP, do we keep buying IP from Disney? And it sounds like they made a really good decision because that's when the company but massively up in value. And that's something you and I have talked about. You know, you make these investments and as well as they do as private companies, often they go public and they do better. So, you know, Amazon, Netflix and Google as private companies didn't even come close to what they did, I believe, as public companies. I wonder if that remains true today or if we just don't have a long enough arc for, you know, companies like Facebook, Uber, Airbnb, and some of the ones that came out on top, DoorDash, Square in this sort of last cycle of public companies. What are your thoughts on that?

In terms of how much the market value was created post IPO?

Yeah, pre versus post.

You know, apart from companies that went public at the peak of the market in 2021, by and large, the vast majority of market cap accrued after the IPO. So in the case of Google, it's literally 98% of the company's market value today came after the IPO. In the case of MongoDB, the company went public at a share price of, I think, $23 a share. Today, the company is worth roughly $400 a share. So 95% of the company's market cap happened after the IPO. And they only went public, I think, seven years ago, six, seven years ago. So there are many examples of companies that do that now. The funny thing though is that the median company, the average company trades below its lockup expiry price. More than 50% of tech IPOs never recover the price they had six months after the IPO date. And the key is to identify which are the legendary companies, which are the ones that have that breakout potential, which have the management teams that are willing to go through refounding moments to imagine an even better future for the company. And this is one of the phrases I love from Jack Dorsey, who talks at Block, formerly known as Square, about how companies have multiple founding moments. Today, about half the company's revenue comes from Cash App, a service that didn't exist until about year five of the company. That was a brand new idea and they moved from being in the SMB business and they added something completely different, which is individual consumer financial services. And there were lots of questions inside the company, why are we doing this? This is a good test for a crucible moment, by the way, is how controversial is that conversation in your management team? That's actually a really interesting gauge for what is crucible and controversial.

Yeah, certainly creating a consumer app after Square or Block previously Square, everybody knew Square as a way for merchants to take credit cards at flea markets and cafes that previously didn't. an incredible product. I mean, Jack is a really great CEO, huh? He's created two huge businesses, Twitter and Square. You worked with him extensively. What's his gift? Because each founder is a little different, right? What's his zone of excellence? I'm curious since you worked with him.

Creativity, calm, an ability to understand the long term. great at spotting talent, empowering to those he works with. One of the things that I had a lunch with him before we invested in Square as a way to get to know each other. And it was on a Saturday in San Francisco, and he was wearing a short sleeve shirt. And I noticed that he had a tattoo in his one forearm. And it's a tattoo of an integral sign. And the fact that somebody would have a tattoo of a mathematical symbol in my mind sort of neatly summarize so many of his wonderful attributes. Somebody who's technical and has all that prowess yet cares about design and cares about aesthetics and is creative. And it's a wonderful summary in some sense of his personality.

Curious what you think of mistakes, you know, in, you know, within the framework of crucible moments and working with these companies. They also bought like a title that might have been a mistake, music company. you have Facebook trying different things all the time. They copy a lot of people's products. They launch a Snapchat competitor. It fails, it fails, it fails, and they incorporate it into Instagram, et cetera. Where does taking big bold swings and missing fit into the sort of crucible moment and just being successful in general?

Well, I don't think anybody gets crucible moments right the whole time. Yeah, there are many mistakes people make. And I think if you want to build a really successful business or if you want to have a successful career, you want to get more of them right than wrong, but don't expect perfection. And when companies have made mistakes, I mean, I've been part of companies where we have made failed acquisitions, we bungled a business model transition, we thought about going international too early or too late. I mean, I've made my fair share of these mistakes. can you learn from them quickly and can you course correct? And while there are a small number of these decisions, most of the time they're not fatal. But the real question is, can you harness them to really achieve, you know, the scale of your ambition?

Yeah. And.

It'S difficult when you don't realize a decision correctly, but, you know, you know, you recover. I mean, that's, you know, winners never quit. Quitter never wins, right? Yeah. You got to keep it.

It is one of the great things when you, when you're building these businesses is you can make mistakes. But as you pointed out, are you Nimble enough to correct the mistake or even know you're making a mistake? I mean, if we look at Airbnb, Brian went crazy building, like, five or six new products all at once. And then I just had him on the podcast this year, and I think he's one of your leading interviews with the new Crucible Moments series from Sequoia. Go search in your podcast player and subscribe now. He told me he had to get really focused on what got him here. Maybe you can talk a little bit about founders maybe not being ambitious enough, or maybe sometimes they have success and they just decide, you know what? I have the Midas Touch. Let me see if I can do two or three or four things at once. So how do you advise founders? Because we've seen this phenomenon over and over again, right?

The advice into what is the, well.

The advice into not taking enough risk, not launching enough new things, and then maybe launching too many and having to pull back. The focus question, I guess, is how we would talk about it as investors.

Yeah, that's tricky because I think the crucial moments I regret the most are the sins of omission. rather than the sins of commission. But the sins of commission are when you maybe have taken on a little bit more than you should have and you need to digest or maybe you need to divest, take something off your plate. And Brian certainly experienced that. Part of the crucible moment that was the pandemic really got the company to focus and he realized they needed to sort of declutter a lot of what they were doing in order to do that. But I'd say more often than not, people settle. They've achieved a certain level of success and most people are risk averse in that situation. And they don't reach for that next level game that they could be playing. You've built a successful business doing this and there is this adjacency that you can move into your block and you've got the square business and you could go into consumer financial services too, but you've got a great business as it is. You don't need to do this other thing. And I think that's actually where people mostly squander the opportunity is going from good to great. It's much easier to respond to a crisis and identify those crucible moments because humans are just wired to be able to respond in that situation because the alternative looks so dire.

Right. So basically burning the boats or just going for it, you might figure it out. Whereas if you don't even try, man, somebody else is going to pick up that business before you even know it's there.

That's what I worry about most, honestly.

Interesting. And I'm curious what you think about sort of advice for the early stages versus later stages. In the early stages, there's a lot of advice today about, you know, building for a very narrow audience, a very specific group of people. Sometimes people call it the ideal customer profile, a beachhead, just a very narrow focus, build for one person, build for a small group of people, a title at a company. versus, Hey, we gotta build a platform here. And you had a company like Unity, which seems to have opened the aperture of their business widely, but they started very narrowly. So what's your advice there for founders? Are you supposed to start narrow or have a big vision? What's the best practice?

I prefer the start narrow piece, honestly. If your vision, but the vision should be broad, but your launch should be narrow. if your launch is wide, I mean, think about it, you're competing then typically in a large market that is already served. There are big incumbents. They have so many advantages over you. They've got capital and resources that you don't have as a little company. Much better for you to focus on a small audience who you could serve distinctly well. And then the key is, do you have an ability to extend that? So have you built something that can go beyond that to others? So if you think about the democratization of technology, Square started off literally with the merchants at flea markets, as you pointed out. And then they've slowly added more and more software capabilities that today you have merchants that have multiple locations or multiple restaurants that are able to use them because we've added more capability over time. But if we try to serve them initially, that would have been too difficult. So in the same way, Unity started off with indie developers with very lightweight games, and over time they've improved the physics and they've improved the capability of their software. and now people can make triple A titles with Unity. But that's not something we could have done out of the gate. So that'd be my advice. Start small and build. One of the canonical examples is Facebook, honestly, where initially they really satisfied the users who were on college campuses. And in 2006, a lot of people wondering, and Facebook at that time was slowing in its growth and people were saying, wow, I don't think this thing will ever go beyond colleges. I'm not sure there's a value proposition for the middle age demographic, but Facebook made sure that that initial user base had a very high net promoter score, that user base loved the product, and from there you can extend and grow.

What do you think the right temperament is? Because I've watched you ad partners at Sequoia. I've watched people not be invited back maybe for another fund. Obviously, you have people who stay there for a long time, decades. But you are now responsible for building the next generation of investors. A lot of controversy around what makes or debate, I should say, what makes a great investor? Some people like operators, some people like analysts. What do you think makes for a great venture capitalist in technology?

So to channel one of my partners, there's this element of being driven and having a heart of gold. And that's a recipe for success at Sequoia. And being driven means that you have the drive for excellence, the relentless pursuit of excellence. And that comes in two flavors. There's an element where drive means you show up every single day and you do the work every day because you love it. But you also have an extra gear and you have a killer instinct because you need to know that on this given Wednesday, you've just met an absolutely fascinating company. and you need to drop everything else and you need to prioritize. So, and that's an important difference, right? There's certain people who can show up every day, but they never have that extra gear to know when to go for the kill, so to speak. You know, how can you win the, you know, who's the person you want to pass the ball to, to score the winning goal in a game?

Yeah. Right.

That's killer instinct.

Right.

And you need to have a harder goal because we work as a team at Sequoia. So it's absolutely crucial for us that this person needs to play well as a team. That may not be necessary at other venture firms. So it's just the style that works for us at Sequoia. So we want people that are great partners to each other because we believe we win as a team. Now there are a bunch of other things, you know, intellectual curiosity, breadth. I mean, I'd say intellectual curiosity is one of the most important ones. Our business changes so much. The sort of companies that you and I first invested in, 10-15 years ago, those aren't around anymore, right?

No.

Mobile and cloud are now much more mature spaces, and it's much harder for companies to find a foothold in those. And so you have to keep moving, and you have to explore new types of entrepreneurs, new types of industries, new technology waves. And if you don't have that curiosity to learn and to grow and to repot yourself, then you go stale very, very quickly.

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I'd say the one thing that they share is True technology. And the sort of people that were involved in the creation of either of these companies, and actually part of what you see now is some people who were in crypto now move into machine learning and AI because they often have very common, deeply technical skill sets. So I think that's one thing in common for both of them. The promise of crypto around decentralization is still incredibly powerful. Just in concept.

Why? Why do you think that?

Because it removes centralized power structures, the ability for censorship or freedom of speech, freedom of movement of money, I mean, all those sort of things. Ultimately, crypto is just fully decentralized. But if you think about a value proposition of Bitcoin today, it's actually quite powerful for people who live in countries where they don't trust their reserve banks. You think about what's happening in Argentina at the moment, where they have rampant inflation and the peso is just losing value. very, very quickly. There's so many countries around the world where Bitcoin is a way better alternative than the local currency where you're subject to all the political dynamics of your country.

Yeah. Right.

So that has a real value proposition. So some of the other projects had value propositions that weren't maybe quite as striking. And I think there was still some technology that needed to be figured out because they weren't as easy to use. So when I'd use some of the early crypto wallets or identity systems, honestly, they were a little clunky.

They just went pretty gracious.

They were easy to embrace. But I think, so many of those teams are still endeavoring on that. And so I think that's actually one of the things, I'd not be too early to declare judgment on that category, because I know of some of the teams that are working on solutions, and if those solutions do work, It may be truly transformational. Interesting. And part of the promise of crypto is an alternative distribution mechanism. Far more peer to peer and riding a different set of rails. And distribution at the end of the day is one of the biggest stumbling blocks to business success. So I think there's still some promise there. I would say that many of the crypto founders that I'd met over the years would describe the technical innovation without necessarily connecting that to a customer problem. And that's the contrast for me with what I've seen with many of the machine learning applications. Many of the people who listen to you, many of the team members here at Sequoia have been studying statistics and machine learning for decades. These are not new concepts. Part of what's new over the last few years is just massive amounts of data thanks to the cloud and massive compute capability and some new model innovations that have enabled us to do things that were hard to imagine even a couple of years ago. I would also say that what AI is keeps shifting. Because if I showed you a computer that could recognize objects five years ago, you would have called it AI. And now we relegate it and we call it computer vision.

Yeah.

At one point, a self-driving car was considered AI. Now it's just a self-driving car. So humans will keep changing the definition of what we call AI.

We habituate pretty quickly to incredible experiences. It's like, We know what's in this photo. Now it's like, we know what's in the photo. How would you like to change it? Here's some incredible generative AI solution. But I think your point's well made. It is the use case that was missing in much of crypto. And you're saying, hey, listen, these are smart teams. Maybe they will actually connect the promise of this very complicated technology. And AI just seems to instantly become It just instantly becomes useful. Almost every pitch I hear, I'm like, yeah, that would be useful to this customer. And there was never a customer really, I would say in four to five pitches in crypto, the customer was never mentioned. Who would buy the tokens was mentioned a whole lot. So I'm curious what you, we'll go deeper in AI. Last question on crypto. What should the United States do in terms of a framework? You and I in the venture space, and with the Sequoia Fund, you know, in the public space, we are subject to a lot of rules and regulations. The SEC is very, very clear, very detail oriented, and, you know, takes enforcement seriously about what we do for a living. I'm raising a fund right now. It's work. And there's a lot of paperwork and you gotta, you know, dot every I cross every T. And then crypto and public markets, obviously, we all know they have a lot of regulation. Crypto kind of was like, yeah, these don't apply to us. And now they're kind of finding out, SEC begs to differ and some court begs to differ. What should the United States do here? Because you want to protect consumers, but there was a lot of fraud going on.

I think you need the right frameworks for this. You need the right foundations and a regulatory system. Otherwise, it will not flourish. If it's too much to the wild west, Bad takes over. I mean, this is talk about a crucible moment. Early in the life of our investment in YouTube, literally, I mean, there were three founders in Chad's garage. They moved into the Sequoia office right after the investment because they didn't have their first office. And we faced a crucible decision early on. What were we going to do with pornographic material that was being uploaded to the site? And the conclusion we had is it was likely to be like a cancer. if left unchecked, it would completely take over. And so we just made a very early, very clear decision. We needed to make sure that that kind of content didn't make it onto YouTube. And we built all these moderation systems to make sure that those sort of videos got flagged and taken down immediately. Things that were violent or, you know, pornographic or offensive, those things just had to go. So I think there's a similar dynamic when you think about building financial systems. If you don't make it safe for the average person, Inevitably, the bad actors take over. And a lot of why the US has thrived as an economy, why has the US economy grown so much? Why has the US GDP per capita grown so much faster than many other industrialized countries? It's because of the institutions and frameworks in America that encourage wealth creation and business. But for that, you need the right frameworks, you need property rights, you need an efficient bankruptcy process. All these sort of things go into building an efficient market system. And so I think you need the same for crypto. The risk, of course, is if the regulation is too early and too heavy handed, then you may end up stifling that innovation. But I just can't see a world where it flourishes without proper guardrails.

Have you thought about what might work in terms of these token offerings and utility tokens? They serve a purpose, but if people are speculating on them, that's not the purpose or that's the sort of anti-definition of it. Is there a way to actually do this in a space that is largely permissionless? I'm just curious if you've given that thought of what a framework might look like. You have to register your crypto project. Maybe it can only be a certain size, just like certain venture funds can only be a certain size before they become hedge funds or other devices.

Or you have- oh, sorry to interrupt. Maybe you have this requirement for those who are permitted onto the platform to limit speculation for people who may not know what they're doing. I mean, that to me is the The sin is that you end up taking advantage of people who are not fully informed. And so, is there a minimum requirement to make sure that you're not taking somebody's retirement savings, that they're betting on some crypto token and they don't actually know what they're doing, and then they left destitute? I mean, that is incredibly sad when stuff like that happens.

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For sure. Some of it is know your customer, but then also some of it is, as you know, to invest in funds, you need to have a certain minimum income level. minimum education level to know that, you know, do you understand the risks of these products that you're speculating on or investing in? So I think that has to be an element of tokens as well. In general, the fact that you're able to monetize your business without even shipping the product to me is probably not a good thing.

Why?

Most of the time when we invest in companies, they actually have to build a thriving business. And then at some point, you know, six months after an IPO even, you have a lockup period before insiders can sell shares.

Right?

Because you've built value for others first. And I think part of what got twisted in some of the crypto projects was that you would have people cash out on tokens based on an idea when nothing had yet been built. And that to me is almost perverse and uses some adverse signaling in of itself.

And then what, I mean, why would the founder come back to work tomorrow if they just cleared $100 million in six months? And what does that do to a founder's brain? I gave an idea, I got $100 million. okay, what should I do next? Come up with another idea and don't execute on it. Whereas if you got rewarded for execution and we have a milestone based reward system in venture capital, you make it to the next milestone. You have friends and family, accelerator seed, series A, series B. That system has been refined over decades here and it seems high functioning, yes?

High functioning, not perfect. There's always room for improvement in any of these systems, but I think it works for a reason.

The one criticism, I think maybe it's what you were alluding to is, hey, people can mark things up, or maybe people who couldn't get in on Series A's because they can't compete with a Sequoia, a Benchmark, you know, whatever top firms there are in the world. You guys get sometimes the pick of the litter. People want to have Sequoia on their cap table. And people do frisky things in the Series B. frisky things in the series C. I remember when I was coming up in the industry, there were one or two venture firms whose stated position was to follow Kleiner and to follow Sequoia into deals. So I'm curious how you think about that. And was that the sort of challenge in terms of the milestone-based system you're referring to, or was it something else? Well, I think if a founder or.

A management team sells some shares in a financing like that, at least the buyer is a sophisticated buyer. so they know the risk that they're getting into. So that to me is a good system. And then I was on the other side of that. At PayPal, we actually did a secondary in 2001.

Wow.

You know, a lot of people make it as though it's a very recent innovation. It existed back then and it was a relatively modest amount. I went from being a person who still had student debt to repay and I had thirty thousand dollars in my bank account because we did the small secondary in the summer of 2001.

Yum, yum.

I felt so rich. It was an incredible feeling to not have student debt anymore.

You just paid it all down at once.

I was done. And I can go on a vacation for the first time. It was pretty liberating. But the other thing it did was when eBay came knocking in August that year offering an acquisition, it gave us more of a backbone. Because we'd all taken a little bit of money off the table and we weren't desperate. and so I've been a big fan of companies. Now, at that point, PayPal was approaching profitability. We probably had on the order of 50, 60 million in revenue at that point, annualized. And so we were building a real business and then just gave us the confidence to keep going. And for that reason, I've been supportive of Founders being able to take some secondaries, because I just think it's unfair for them, you know, to wait 12 years before they take a penny off the table. In the meantime, they want to buy a house or. you know, pay for the family's, you know, well-being and things like that.

Yeah, that's, you know, they're, they're taking a small salary. Yeah.

That makes total sense. That's completely reasonable in my mind. And then it better aligns our interests because it'll probably make them think a little bit long term because they don't.

Have all their eggs in one basket anymore. Yeah. I mean, I'm totally cool with that. I was the, I mean, when I came up as an entrepreneur and we got offered 30 million for weblogs Inc. And it was 18 months old, it really wasn't secondary as a concept. And so for me, being negative like 20 or 30,000 in my bank account at the time. It was a no-brainer to become a millionaire, right? Like you had no choice and that was 2005 or so, like, just a different era.

Was that a crucible moment for you?

I think it was a crucible moment because I hadn't sold my first business, the magazine, which I had been offered 20 million bucks for, and I owned 80% of it, and I didn't sell, and then the dot-com crash happened. So when Weblogs Inc. happened, I said, you know what? We good. yeah, being a millionaire and not having to worry again. And I can always build another business and have since then. So, yeah, these are challenging decisions to make, but sometimes they're pretty obvious. Right. Let's talk a little bit more about Sequoia and you taking over the, the stewardship of it. This has been 20 years in the making about.

Yeah, I've been a 20.5 years.

20.5. And so you took over after two decades. I told you about five years into us being friends that you would. Pretty clear that you were gonna take over at some point. What did you learn from the previous stewards? What was the training and why did they pick you?

Thank you. Let me just say one other thing that's important is things are a lot more gradual on the inside that may appear from the outside. So Jim Gates and I started to take responsibility for the management of our venture business here in the United States in 2010.

Yeah, I remember. Yeah.

Then in 2017, I actually became responsible for the overall management of the US and then Europe business. And Doug Leone was our senior steward at that point. And I became the steward of the US business, US Europe business. And So there's a lot more gradual transition on the inside than some sort of sudden change in leadership. And that's actually one of the big advantages we have at Sequoia. As I mentioned earlier, when I joined, Don was still coming to partner meetings, even though he had stepped back, I think, seven or eight years before that. And he was an advisor. He was the founder of the firm, and he would offer advice when called on. but wouldn't interfere with the younger generation. You'd maybe quietly give them some perspective, but respected them to run the business. But we had this overlapping generations at the partnership. And so even, you know, now Doug continues to come to meetings. I speak to Jim Gates from time to time. We have this ability to draw on the experiences of people who've seen different cycles, seen different waves. And it's a wonderful partnership where, you know, you're not hiring a fresh team from scratch. We benefit from each other's experience. the other thing is, you know, and it all harkens back to Don not calling it Valentine Capital in the first place. He called it Sequoia because he wanted to build a partnership that would outlive him. Nothing better than to call it this tree that lives for over 2000 years, you know, here in California, a tree that's only native in California along the US West Coast. And so a lot of that comes down to what sort of people do you recruit and how do you manage and Mentor them? because when I look at some of our younger team members, they're not yet to work for me. I look at them and I think, do you have the potential to inherit this wonderful business? And will you treat it with a sort of respect where you in turn will be a steward and turn it into a great partnership for future generations that will serve future generations of founders and serve our limited partners who, you know, their foundations, endowments, nonprofits, Will you be in that responsibility? And I want to mentor you and teach you and empower you to develop into that role over time. And that's a kind of mentality that we have at Sequoia. That's what it means to be a steward.

How old is Sequoia now? Is it 400 at 77 or something? 72. 72, wow. I didn't realize it was that old.

51 years.

51 years. So now you have your own crucible moments, all this, effort you put into working with founders and trying to understand their business. Sequoia is a business. You guys added a ton of products over the years. Venture changed a lot over the years. Lots of, you know, people raising funds quicker, having multiple funds. You made a bunch of decisions, I think, over the last couple years. I don't know if they were yours or Collective or Steward moments, but you had your own Crucible moments. So let's go through them. Heritage fund was one, and then I guess the shuddering or rebranding of Sequoia India and China. Those are the ones that are in the news a lot. How did Sequoia come to those decisions? And I guess they would be crucial moments, yeah?

Yeah, there are crucial moments. I'd say if I recount a couple of the other ones, it was a decision to build an integrated growth business alongside our venture business. That was a decision we made in the 2006-7 timeframe. to actually build a dedicated team. When I arrived, we had no dedicated team members focused on the growth business. It was an afterthought for the venture team. Wow.

So after making investments in the Series A, Series B, there are going to be Series D, E, F, you know, bridges before things go public. That's a different style of investing and it's two different teams that Sequoia, yeah, and two different funds.

Two different teams. Now we're one team and we, you know, we share one office, we share one space. there's a tremendous amount of handover between the two teams and non-sharing. So it's very important for me that actually one of the offsites we had in 2017, the jackets I had made for us for the event said Team US. This was before we had opened up in Europe and it was an intended double meeting of Team United States and Team US because we were one team. But there's a different skill set and when you have a spec, so to speak, for how to make growth investing is distinct from making venture investing. And you want to be careful to not blur those lines, because otherwise you're a little bit too forgiving, a little bit too risk taking, but just with larger check sizes and you think you're a growth investor, just because it's a $50 million investment doesn't mean it really is a good growth investment. It's maybe just a larger venture investment. And so we- what's the difference?

What's the difference if you summarize it for folks?

So our mission is to help the daring build legendary companies from idea to IPO and beyond. And so we invest from the idea stage, and this is part of why another crucible moment, we launched this catalyst program called Arc to teach company building right from seed and pre-seed stage businesses. We have a venture fund, we have a growth fund. And then on the two IPO and beyond, we built and launched the Sequoia Capital Fund last year to enable us to continue to hold on to great companies many years after the IPO, whereas we discussed earlier, a lot of tremendous value creation can accrue. And so we've structured our business around sort of living up to the mission that we have.

And you still have scouts in there too, I believe, right?

And then we have scouts, so we have an ecosystem fund as well, where we have the scouts program so that we have, you know, this is the idea that we came up with in 2009, 2010, where, you know, all these people who don't yet have liquidity, are in the midst of really interesting deal flow, why don't we empower them and provide them with an ability to make small investments, be advisors to these companies because they're on the field playing today in their own companies. They don't yet have liquidity. Let's empower them to make small investments. So we have that program as well. So we sort of have a... And that's really to double down on our network because at the end of the day, we're in a people business. I mean, our name says Sequoia Capital, but it's really Sequoia people. I mean, the people who work here, the entrepreneurs we work with, the builders and the operators, the executives that help make these companies successful, that's the centerpiece of our business, to be completely honest. So you asked about the different specs. So when we make a seed investment, we're looking for outlier founders. And by outlier, I don't mean one standard deviation or two standard deviations, probably three standard deviations. And it doesn't just mean IQ, by the way. It's not in that context. Just people who are exceptional, people who will knock down walls to build their businesses, people with grit and perseverance. So we want outlier founders. We want positive market dynamics. It doesn't mean a big market. It's what we think will be a big market tomorrow. Are you on the right side of history? That's, you know, those sort of questions, the space that you're in. And then for a seed stage investment, We want to have a novel insight. You can't just be great people. You need to have looked at a problem space and you have an insight on something, but you don't yet need to have built anything. You may just articulate it. And we listened to a company this morning. We decided to invest in them. They were two people, great experience. They could clearly articulate some of the problems they want to go address, even though they haven't written a line of code yet. We actually committed to do their financing before they technically incorporated the business. And that's the fourth time this year, four times this year, we found teams who we liked their ideas and we committed to investing before the company was incorporated.

That's incredible.

We had to wait a week or two for them to find the right law firm and get everything set up. I mean, we want to be there at the idea stage. We love working with companies from the ground up.

And just keep like a briefcase with some money in it, just so you can give them cash before they get their bank account and their number.

Did we talk about regulations earlier?

Yeah, exactly. If you compare that to growth, it's a different lens. And it's a different type of management team, isn't it?

Not necessarily. You need more of a complete management team by then, obviously. I mean, at an idea stage, you were two people with an idea. Sometimes there's a prototype and that might be a seed stage investment. But by the time it's a venture investment, that may be six, seven million or 12, 13 million in that order of magnitude. usually there's some evidence. And by evidence, it might be that, you know, when we invested in LinkedIn, that 21,000 registered users and there were seven people in the company. When we invested in YouTube, there were three people in the team and they had 9,000 registered users. That was it. Yeah, see, sometimes people think Sequoia does.

Series A only, and I think you have to like keep correcting that in the market that although you've been legendary for doing Series A's, the amount of a Series A has changed dramatically. You know, today's Series A is like yesterday's or today's seed is like double. We were talking about this, like, actually it was Brian from Airbnb and I was talking to Travis from Uber. The valuations back then were 3 to 6 million and that was 15 years ago or so. Maybe slightly more. So you guys do the earliest possible, so founders are clear.

We love that. But we don't always get it right. Sometimes we just don't see the company. Well, maybe sometimes we make the wrong decision or maybe sometimes the company really evolves. And that's part of the beauty of having seed venture and growth is, you know, sometimes we meet them at the seed and we didn't quite understand it and we're lucky enough to partner with them at the venture stage. There's a company we backed earlier this year where we met them at seed and venture and shame on us in some level, we didn't quite understand how interesting the company was, but we kept on thinking about the company, we kept on meeting with them and then we made a growth investment in the company. And so, When we make growth investments beyond evidence, we would like to see it translated into what is likely a sustainable advantage. And do we believe this company will be the leader of its category?

Because it's going to be number one. And is it defensible in some way?

It needs to be number one.

It doesn't have a network effect, as we see with Airbnb, Uber. Yeah. I mean, I think of who else is in the space.

We invested in Palo Alto Networks and they- Wow. They're one of the most important security companies.

That was the same guy I just had in the pod.

He's incredible, yeah. So we made a $1,000,000 seed investment in Nir Zuk, the founder of Palo Alto Networks back in 2005 or 2006. Wow. But we wanted to be in the leader. You know, MongoDB is a leader in the database space. YouTube became a leader in the video space. It's, you know, Google is the leader in the search space. Leaders accumulate power and power enables you to do really interesting things and profits are a source of power. And for all the audience members out there, I realize that turning your idea into financials isn't maybe the first thing that comes to your mind, but when you turn your idea into a great business with thriving financials, that gives you the freedom to do more, to explore other ideas, to strengthen your product and your value proposition, and to conquer more.

Yeah, I mean, look at Tesla now. It went through its own J-curve. like they were just investing in that business, investing in it, and then it turned a corner and my Lord, he's just throwing off cash flow with that business. Airbnb started their cash flow last year.

And test, I mean, I think I read this this weekend. Tesla's worth about as much as the next 10 car companies are worth combined.

Yeah. For good reason, I think. Yeah. I mean, the, the, that's called the leader. That's, that's a leader with Airbnb and B now. They're throwing off, you know, they're throwing.

Off tons of cash.

Yeah. And they just, they just got admitted to the S&P 500 today. Fantastic. And Uber's right behind them. I think they might get, they need, what, what is it, three quarters, four quarters you need of, I can't remember.

What the requirements are.

Something, you need some amount of profitability there to get there. Okay, other crucible moments for you. Creating the Heritage Fund and then disconnecting from China, which seems like we're all being forced to do right now. That's a separate jump off point for us. And then disconnecting from India, which people seem to be rushing to. So, take those three crucial moments in whatever order you like.

Well, it's actually in 2009, we decided to build two new businesses, Square Capital Global Equities and Square Capital Heritage Fund. And both of them had early setbacks, by the way. We lost some key initial hires and there was an easy reason to give up at that point. And we didn't, and we kept on building. And those are two thriving independent businesses. And then to get to the obviously getting into those businesses were crucial moments as launching in India and China, where we built thriving businesses. And earlier this year, the different business leaders got together and we just realized it'd be better for each of us if we acted independently. There's a certain amount of overhead associated with trying to be a single global firm with a single global name, and each business is a leader in its own category. And we just thought we would do better just truly embracing that independence. Because we were independently owned, each business unit made independent decisions anyway. And so we're largely disentangling sort of back office operations and finance and administration and things like that, and some of the technology pieces so each business can thrive on its own. And that was a crucial decision. These are people that I've worked with in some cases for 17 years, people who I admire. you know, people who've built incredible businesses.

Yeah. I mean, at certain point, you things can get too big and be unwieldy and they might be better as verticalized. I think Gary Tan, our friend from Posters and now running Y Combinator, I think the first thing he did was shut off the growth fund. Or the continuity fund.

I think that's cool.

Yeah. And so I was like, well, that's an interesting decision. And yeah, listen, if you want to compete with the people you're providing an inventory of startups to, that seemed weird to me and. Also, you gotta focus on something, right? It's kind of hard to do both of those things. It seems like a reasonable decision.

It lightens the load and you see this in many of the companies in industry as well. There was a period of excess and I think it was a Jim Collins phrase, the Undisciplined Pursuit of More.

That's a good phrase.

We've done this, let's add this, let's add this, let's add all these things. And a lot of the companies that I see right now, part of the reason they're able to make these fabulous earnings that you're seeing this year is, many of them have realized, you know, it seemed sensible to do these five things. You know, let's prioritize the three that are the most important and needle moving. And maybe we'll come back to the other two later, but we just can't dilute our attention this much. Yeah.

We've got to focus.

The world is so competitive.

What do you think's going to happen with China-U.S. relations? It's kind of depressing, I think, to watch this, you know, wonderful engagement we had for a couple of decades. Imperfect as it was, to now sort of being, feels like we're being driven apart. And that seems like geopolitically not a great thing and not great for either group of citizens. What are your thoughts on China-U.S. relations?

I hope we can stem the tide. I think you're right that it's going in a certain direction right now. It seems to be the one thing that politicians in this country agree on, on both sides of the aisle. I don't think it's in everybody's best interest. Obviously, you want to create certain rules for engagement around protection of intellectual property rights and trade and subsidies and everything else to make sure that it's a fair game. But it clearly is to everybody's collective benefit if we can find solutions. Right now, it doesn't look as though that's on the cards.

Yeah, it's really depressing. Just as imperfect as it was, it feels That imperfection, imbalances and all, IP theft feels a lot better than the alternative, clearly. Crucible moment with heritage. I'm sorry, Sequoia Fund, not heritage. Sequoia Fund, that crucible moment, you decide, hey, 98% of the market cap of Google is post these things going public and you help LPs, the best ones in the world, you know, get to know these companies, invest in them at the earliest stages. Why wouldn't you stick with those companies when they go public and capture that 98%? And, you have pretty good insight into those companies. So walk us through that decision. Obviously timing wasn't perfect because you built it like maybe the year or two before the market, had a correction. So how's it going? And how did you make that crucial decision? And you mentioned before, hey, sometimes crucial decisions get headwinds. So explain.

As we've talked about, the idea stemmed from first and foremost, could we generate better returns for our LPs? Because when we distribute shares to LPs, they run an endowment with many different asset classes. They invariably sell the shares that are distributed to them because they have needs. It's a university endowment or a foundation that's giving away money, and so they sell the shares. So if we have a very strong point of view that this company could compound long term, In some sense, they're not benefiting from that when we distribute too early. But we don't have a mechanism for it because, you know, 50 years ago when the industry got going, they created this idea of a 10 year fund life in venture capital. And we've been operating under this, I mean, how many industries are still operating with the same rules that were designed 50 years ago?

Very few.

I mean, even look at sports, we keep changing the rules slightly so the games become more entertaining and there's dynamism to it, but no one had done that for the venture industry. the idea behind this equity capital fund was to revisit this idea that there should be a fixed lifetime of a fund because I'm on the board of a company called Natero. We first made a million dollar seed investment in 2007. It's a $5 billion public company today and I'm still on the board and it's 16 years later. And so why would we put an expiration date on our relationship with a great founder and a great company? So that was part of the ideas. Can we generate better returns?

And you might have owned five or 10% of that company. I mean, that's not an insignificant position.

And we should keep holding that position for the long term when it's a winner. But how do we create a structure to do that? Because the old fund construct just didn't allow for that because it had this natural expiration date, if you will. There's a Quay Capital fund would enable, at the point that we make an initial distribution decision of a company, that those LPs who wanted to take their shares because they needed to fund their operations or their great cause do so, But those who didn't could roll them into the Sequoia Capital Fund and we would hold those shares longer and benefit from that continued appreciation. And we'd obviously maintain our relationship with these legendary founders and their companies. It also offered enormous administrative simplification for us in terms of Sequoia. It just makes fundraising and all the logistics around operating our business simpler. So that was a lot of the motivation for it. Now, we had a record year for distributions in 2021. Even though we knew the Sequoia Capital fund was on the horizon, we did make wonderful distributions for LPs. And then when the fund launched in early 2022, we did start to move some of our better companies into the fund. And obviously the fund had a rough year in 2022, as every single asset class on the planet seemed to drop precipitously. Overall, the fund is doing very well. Year to date, the fund is up very strongly. We've outperformed the Nasdaq Composite so far this year, which is the benchmark that we have for performance for the fund. And we're very happy with it. But it's still very, very early days. I mean, it's just over a year that we've been operating this new structure.

Yeah. It's good to have some things face headwinds, I find, because it makes you better at what you do.

Well, it tests your resolve.

Yeah.

Certainly tests your resolve. And one of the things, we have this lovely framework that one of our teammates here at Sequoia came up with, which is four eyes. which is idea, initiative, iterate, impact. So because a lot of times I hear people say, well, but I had this idea two years ago. Yeah, okay, but did anybody actually take initiative and do something with that great idea? It's not enough to have an idea. You also need to take initiative. Then you need to iterate because it's never going to be right the first time. If you worry about being perfect in the first time, you'll never launch.

Right.

So be willing to accept those initial imperfections, get it out there, but understand that you're gonna have to iterate. You're gonna have to make adjustments and changes and refine it as you learn. And eventually you'll have impact. And so right now we're in that iteration phase. So we had the idea, we took the initiative to launch it. We thought of a lot of things, but we didn't think of everything. And we keep on refining and learning and making it better.

Wall Park, how much has the venture business deployed during this last cycle? And then what did your return? I've heard some pretty outstanding numbers, couple of billion.

Sequoia or for the industry?

For Sequoia. Yeah. I think you guys have deployed like 2 billion in the venture business.

Well, for the, I think the standard you're talking about was, with the 2 billion that we had deployed, we had generated 34 in value.

That's extraordinary.

34 billion. So that's an enormous gain. And those are realized gains, by the way. So that number excludes all the value of shares that we still hold and all the wonderful private companies that we still own.

Yeah, it could go up. Almost certainly well, yes.

But I will say one thing, the motto we have, we're only as good as our next investment. Nothing wilts as fast as laurels that have been rested on.

Yeah.

And so while we're proud of what we've done in the past, We are obsessed at Sequoia with what's next and the need to maintain our edge.

Yeah, it is amazing how this industry changes so dynamically, like you're saying, and how you have some storied firm that just absolutely collapses just in their next fund after having some extraordinary performance. It's hard to be consistent, isn't it, in life and in venture? hard to be consistent.

It requires energy. It requires a lot of energy, it requires a lot of discipline. And I think you need to have a truly unique culture and team. And that's part of the magic we have at Sugoi. And honestly, part of it comes back to the point we made earlier about stewardship. And I don't judge people for doing this. If I'd built a firm under my own name, for example, the rational thing would be at some point probably to pull up the tent and accept you know, that was a good run and move on and go do something else and retire or whatever the case is. But over here, we have a different view and a different responsibility. The burden on my shoulders is to leave Sequoia in a better place than I found it. And to set up the next generation for success. That is my mission right now.

The previous two stewards, they lasted 60, 65, till they were maybe 60 or so. I had Doug on the pod. I'm not sure, I think it was 60 at the time. what's the right age for a venture capitalist to pack it in? Vinod Khosla seems like he's sharp as ever. He's not leaving the building. I think they said they got to drag Vinod out. Well, I think, how do you think about yourself? You've done pretty well. You ever think about retiring? And then what do you think? Is there like an age cap here? We got presidents and, you know, center, we have politicians right now who are having a hard time with the retirement concept.

So I think that the thing that you benefit from with age slash experience is that you can teach. And ours is a business where there is a lot of teaching to be done around how to build great companies that younger generations can benefit from. And so that's part of the reason you wouldn't pack up too young because you don't have the benefit of being able to teach to that next generation. I also think there's a difference between whether you're in the leadership position, whether you're a part of the team. And so what Doug has done is he's moved from being the lead to playing an individual role where he continues to serve on many of our boards. He continues to be an advisor to me and to younger team members, but he's given room to next generation. And so I think there's a point at which my responsibility will be to create room for a new generation to take over and to innovate and to do things that I wouldn't have done. And hopefully they'll do a lot of things better. And, you know, maybe they'll make one or two mistakes in the same way that I'm probably making one or two mistakes now that, you know, a previous generation looks at and wonders about. But you need that breath of fresh air, that new innovation and reinvigoration of the business with the next generation. So I think that happens before one retires is the handing over of leadership responsibilities.

Yeah, it's such a good process and it's, like, you know, the, the press, you know, especially in tech, which is kind of sad. It went from being like too, too cheerleader in the eighties and nineties to being, you know, too bitter now. It's got to be something in between the two. But they report on everything happening at Sequoia under your tenure as if, like, these decisions were not 10-year processes. And I think hearing directly from you and, and just, you know, listen, I come down and I'm in the building sometimes and. I see Doug hanging out there. It's pretty vibrant. You got everybody back to the office. You believe in people being in the office, yeah? Yes.

We're in the office by default probably four days a week. Our business is a little bit flexible because you might be out at a board meeting. I won't be in the office tomorrow and Thursday because I'm actually at companies, joining board meetings, engaging with management teams, or I'll have to go visit companies. So being desk-bound as an investor is probably not the recipe for success. But there's so much to benefit from being together in person. I mean, last week we had our annual offsite for the investor team and spending two days together in an intense environment and just talking through some of the issues and brainstorming on things that you could do and all the cues you get from non-verbal communication just makes you so much more effective.

You do it, you got any like offsite tips, anything you like to do at the offsites now that you're in charge of approving them and running them? Do you get people in a drum circle? guys going to sweat lodge? How do you make these decisions? I think they pickleball.

We did that last year. That was actually the first time I played. It was a lot of fun, but we didn't have time for it this year. We do, usually we like to do at least one team building event that is physical in nature, and we do one team building event that's a little bit more cerebral in nature. And so at our offsite last week, we had to change tires.

Ah.

And so we were in small teams of four or five people and we were with like a sports car, a NASCAR race car. You know, we had those big drills and the wheels- yeah, you have the wheels.

-And you do like a time. You lift it up and you- it's a timed run. Yeah.

And different teams have to compete. And, you know, the instructor at the end of it said, now, isn't it funny? You guys think you've just had fun for two hours, but all you did was change tires. Yeah.

Pretty exciting, so something you normally think.

Is a chore and then, you know, and you see how you improve over time. There are lots of lessons about are you experimenting, are you getting up, are you doing the rehearsal, are you doing it over and over and learning how to do better, or are you just sitting there thinking about it? Because thinking about it's not gonna make you better. You actually want reps, which is an analogy in our business. You want reps, you wanna meet companies.

You wanna write investment memos, you wanna get through the reps. I have taken so many notes from you over the years. Here now that I'm running my own firm, we're doing like, we're on track to do like 3000 meetings. And I have taught a whole another generation of researchers, analysts and associates now at our tiny little firm how to write these deal memos and, you know, how to take the meetings and staying positive. I always have to say, like, you know, having worked with you, you've always taken a very positive collaborative approach. And, you know, I work with other investors who are very anxious and they seem to operate out of fear, this fear of failure. You have always been composed and I always took that with me as a, I'm a pretty passionate guy, but your composure is always something that rubbed off on me. You've always been very positive and you've remained had that composure. I think it's like very laudable skill, as we say. It doesn't exist in many other places.

Thank you. I think the investors, we can all think about all the things that can go wrong. And we can all think about all the reasons you shouldn't make every single investment opportunity that comes across your desk.

Yeah.

Right. The gift is understanding what can go right.

Yep.

And imagining, you know, if it does, what can this company turn into? And dreaming with an entrepreneur.

Yeah, that really is the skill. It's staying positive. I was just. I was hanging out with Travis last week, and we were talking about Uber and Cloud kitchens and these amazing things he's done. I just was remembering, because I knew him through the two companies before that. I just remember 19 of 22 people who I introduced the company to saying no. And the varied reasons they gave were all the reasons that made it special. And it was just very weird for me to have people say like, this operates in the real world. We can't do it. I was like, but it's not the opportunity to operate in the real world because people are not doing that. Oh, you should just sell software. They literally, it was some VC who said, just convince Travis to make it enterprise software for cab companies. I just thought, wow, you don't understand how much more efficient it is when you take out the cab company. It's taking 55% tax. You just missed the entire point. But yeah, that is the, so I.

Hear in that, but I think some of the most beautiful businesses, most successful businesses were non-obvious and right.

Which was the biggest miss then for you? Bigest miss and the one you're so proud you got. I guess YouTube, getting YouTube right was really good.

That was really good.

Well, I'll tell you why. Because at the time, the concept of using storage and bandwidth for free was the stupidest thing. Mark Cuban came out and he's as smart as it gets, you know, and he did broadcast.com and he said, this can't work. It economically cannot work.

And that's the danger of expertise, by the way. Sometimes, yeah. Sometimes you, you know, there was a movie once with like the man who knew too much.

Yeah.

Like sometimes there's a risk that you know too much about a particular sector, but, but your knowledge may be dated. I knew a lot about financial services at one point because I was in the industry, but I can't transpose what I knew 20 years ago to what the industry is today. And so that's, I've often seen this people who knew a lot about security who missed the next security wave. people who knew a lot about broadband infrastructure costs who missed this, who missed YouTube. So I think one has to be really careful to think that your expertise sometimes is a curse when it comes to making investment decisions, where you need a little bit of naivete, because you need to find founders. Yes, the founders too. And so anyway, so you have to dream.

I'm also a bit of a optimist, and then what's the biggest... Well, I'll tell you how. Joy you would say take from a non-consent, non consensus bet?

Well, this company that I mentioned, Natera, which was a tobacco informatics company that provides genetic diagnostic testing. And when we first invested, it was a million dollar seed in 2007. It was the person I'd known in high school in South Africa. Yeah, I know.

Very talented.

Matt, yeah. He's, you know, Stanford PhD, you know, switched to electrical engineering. And then he went back to learn about biology and genetics, started this company. They deliver over 2 million tests a year in America. They've branched from doing non-invasive prenatal testing to oncology testing, to organ transplant rejection testing. It's just a phenomenal business that really impacts the lives of people. And it started with such a small idea in a small market. They were only addressing the IVF market initially. Back to your earlier point about the ICP, they had a very small market initially, which is the 150,000 IVF cycles in America every year. oh, at the time that was the number. And eventually they were able to get to broad-based prenatal testing and they're about 4 million births in America a year. So that was, you know, orders of magnitude more market opportunity. Now they've opened up the aperture and they've added oncology screening, right? So they've, they took an initial market, they were very successful in that market, and then they leveraged their technology expertise to broaden into adjacencies. And so they TAM kept growing.

So anyway, so that's the story we were talking about before. Yeah, that's a great one to be. to be proud of, biggest miss, you had to have missed some things. I know people don't like to talk about their anti-portfolio, but you gotta have one that just still burns.

You introduced me in 2007 to a little company called Twitter. It was your introduction. Thank you very much.

This is what got me the job as a scout, by the way. I think this was the origin of the scout program. Was my long email to you and Merit saying, I think these guys figured something out. It's really cool.

And I know the date because I looked up the day, you know, when did I sign up for Twitter originally? And it actually has your original sign up date and Kevin introduced me. And that was 2007. The iPhone hadn't yet been released. So it was SMS. It was SMS. I remember getting SMS updates because you were on the service and we'd tell 'em, you know, you'd write something about, I'm having a cappuccino somewhere.

Like, is this kind of weird? I don't get the job.

You're a cappuccino. Shut up, Jake. Still talking.

So.

And I didn't quite get it. And I'd met Jack at that point, and it was there. It was the person giving the presentation, and we had an opportunity to invest early on, and. And I didn't quite get it. And I. I kept on thinking about that and trying to learn from, you know, my failure to imagine what Twitter could become at that time. I think it was more obvious by the series C, I'd say in early 2009.

Bama had gotten on at some point, and it went beyond like me and Robert's Goldbll.

Yes. It was the Arab Sring that happened, and so I think it became much.

More obvious and a ting piccher I.

Got on, I think.. Yes. We tried to engage, but at that point the ship had sailed and we missed the opportunity. And so that to me is a bigg regret. But obviously I was able to partner.

With Jack on the next company, so Well, say, it's such a long game here, you know. It's one of the things I like about this industry is like we all get to see each other over and over and over again It's very, I think it's more collegial than maybe people think, you know, like it's, you remember these sharp elbow moments, but there's so much great collaboration. I remember, I don't know if it was, I think it was Michael Moritz who said it to me at some point. He said, well, you know, no conflict, no interest.

And I was like, also honor amongst thieves, I don't know.

Yeah. What would you learn? I'll just rap a fire. What'd you learn from Michael Moritz? What made him great?

His ability to imagine.

Big thinker.

We met with Jeremy Stoppelman and Max Levchin when the idea for Yelp was just literally a formation stage. Yelp was thinking about just doing email back and forth. The website hadn't launched. Again, smartphones didn't exist. And Michael said, I imagine in years to come there'll be a Yelp sticker in a restaurant window. right next to the Zagat sticker.

Wow.

He had that vision at the point that the company was being formed.

And Zagat's gone. Yeah.

Was that guy's gone? But you do see Yelp stickers everywhere.

I mean, it's the number one, I.

Mean, he saw the future before others did.

Your three compatriots at PayPal, Elon, Peter, and Sachs, also Stanford colleagues, Give me the one liner on what makes each of those individuals so extraordinary at what they do.

For Elon, I'd say it's first principles thinking and the ability to break things down, first order issues, thinking ground up.

The work ethic too, huh? I mean, that's something you only see over time.

That's a given.

But that's extraordinary. I mean, his ability to work You know, having hung out with him.

Peter works, David works, Max works. True. I mean, his work ethic is so important. I mean, I'm sorry, I feel like at some point that's a necessary condition for success. Yeah, it's a baseline.

Not sufficient, but it's necessary.

All right, give me the next guy. Peter is a strategist. I mean, part of what I thought was, and talking about crucible moments, it's actually one of the things that started me thinking about crucible moments was there were days where Peter might not be at the office on a given Thursday morning. and so what's Peter doing today? And I started to chat with him about what he was doing. And he would take time to think about what was going to happen. What were the chess pieces? And obviously he was a chess player. Is a chess player. Thinking about what happens as the games evolve between us and Visa MasterCard or us and eBay or us and, you know, other financial services, you know, big banks that were trying to kill us at the time. And Peter would take time think, not scurry around doing busy work, running from meeting to meeting, just clear your mind and think about what are the key decisions we need to make. And so Peter's ability to really hone in on key questions to answer and prioritizing those is phenomenal. I really admire that.

He's such a strategist.

Such a clear thinker about these issues.

Yeah, I agree with that.

For David, the thing I admired most was his sensibility for for great product and design.

Interesting. Because he was an ops guy.

Well, he ran product before he became COO. And I remember when I was interviewing at PayPal, David was one of my interviewers. And part of what we did is he put up a mock of how he imagined the pages might look like for PayPal. And he and I would brainstorm on, what if the flow was this? What would the next button do? What did you ask for next? What makes for good design? and flow. And David was also just so open-minded at continuously thinking about what makes for a great user experience and end user experience. And I think that's informed a lot of his success as an investor as well, now that he runs his own investment firm and with other companies that he started was that empathy with customer first and what is the customer's experience.

Fantastic. Yeah. All right, listen, I kept you for over an hour. I get you every five years. So I'll see you in a, I'll see you in 2028. I'll have you, I'll see you before that. We'll, we'll do another pot then. And, just, thanks for sharing, being so honest and wisdom and the support over the years, not just for myself, but countless founders and also countless investors. I mean, if you look at that Sequoia Scouts program, I think there's been like hundreds of scouts over the years. Yeah. Yep. And it's one of the best performing funds. And just remember those first meetings at the Rosewood. And it was like Sam Altman, me, Brian Sugar, trying to think who else was in that early cohort. Matt Rubinowitz. I mean, it was a really fun, crazy concept to just give a bunch of lunatics, you know, 25, 50, 100K checks and say, go have fun. Really was, and it really launched my career. No conflict, no interest. I mean, it's really the great thing about the network in this industry. You know, if you, if you, the Goodwill in this industry is so underrated. Hey, people are so negative on tech and business and entrepreneurship right now, which is so weird compared to how we grew up. We celebrated entrepreneurs up until like 2000. Now we just want to take them all down, but the truth is, who else is going to innovate in the world and create all these amazing product services that push humanity forward? And everybody is so genuinely supportive here in Silicon Valley. Somebody comes in and needs advice or needs an introduction. It's almost like the whole place mobilizes.

We're serving a greater good.

I agree. I agree. All right, everybody, back to work. Rule off botha. the now, the, the steward, the steward. I'll take an iced tea if you got it there. Different types of tea. Yes, sir. Yes, sir. Anything for our founders. We'll see you all next time on this week's starts. Make sure you stop right now. You listen to this great interview. Get more rule of in your podcast player. You're in the podcast player right now. So search for Sequoia Crucible moments and subscribe now to their new podcast.

Continued success.

We'll see you next time, everybody. Bye bye.