Alphabet's Bond Sale Signals AI Confidence

26:05Appreciate your time. Thank you very much indeed. Coming up in the show, Sequoia Partners, Alfred Lin and Pat Grady, the firm's latest leaders, the new titles of co-stewards, join us. We're going to discuss what's changing at the firm, what the tech companies of tomorrow are, and what the future holds. This is Bloomberg Tech.

26:45Welcome back to Bloomberg Tech. Last November, longtime Sequoia partners Alfred Lynn and Pat Grady became the firm's co-stewards. For more than 50 years, the Silicon Valley firm has backed some of the biggest winners in technology, from Apple and Google to NVIDIA. Today, it manages more than$80 billion. But as detailed in Bloomberg Businessweek, it recently raised another$10 billion across its growth and expansion funds. Since then, the Sequoia partners have made a risk-the-franchise investment in Anthropic. They've returned to investing in chips and continue to hold onto one of the firm's greatest investments, SpaceX.

27:20With us now on Bloomberg Tech, Alfred Lin and Pat Grady to discuss what's changing at Sequoia, the technology companies of tomorrow. I want to start with our Sequoia. You published what reads to me as like a mission statement. it outlines principles the firm's held for quite a long time and i think some new ones that you are trying to emphasize alfred is that fair well first of all thank you for having us it's really fun to be here with my co-steward and we get to do this together and it's because it's our sequoia it's not it was never don's sequoia when he named it sequoia capital and it wasn't 54 years ago 54 four years ago.

28:00And so Pat and I wanted to make sure that everybody at Sequoia thought of it as our Sequoia. That's principle number one. Principle number two, if you take care of the founders, they'll do right by our LPs. We do right by LPs. We'll do right by Sequoia. We do right by Sequoia. We can take care of the team and then we can take care of every single person at Sequoia. That is a principle that has been at Sequoia for a long, long period of time. and also we are only as good as our next investment and that is not a risk of your franchise it is what makes us sequoil into the future the smile when i i read out the line we will get into how that manifests i mean they it's a co-steward title you regard yourselves as partners yes as part of a partnership yes you are not managing partners correct correct you um as Sean McGuire outlined to me in a telephone call, you know, he rejects the notion that your boss is, you are partners in a partnership.

28:59So lots of people that are like, how would that work? Well, so we, first off on this boss thing, we had a funny conversation with one of our partners a couple of years ago where he referred to somebody as a supervisor. We're like, your supervisor, what are you talking about? He's like, well, he's my boss. He's my supervisor. We're like, no, no, no, no, no. This is a partnership. The only way that we're going to bring out the best in all of our partners is if it feels like a real partnership. So one of those principles that you mentioned with our Sequoia is this idea that influence should be awarded to expertise and reason and not to tenure and hierarchy.

29:30And what that means practically is in any given conversation, if we're going to make an investment decision, Alfred and I might have less of a say than our other partners, like Sean or Andrew or Sonia or David or Constantine, because they might actually have more expertise on a particular topic than I do. In fact, they have more expertise on most topics than we do. And so this idea that influence should go to the people with the expertise, not the people who happen to have been around for a long time, that's what makes it a partnership, and that's what allows us to play at our best. There's no tiebreaker, essentially, that you two get awarded.

30:00You participate under the same rules as the rest of the partnership. Correct. I mean this with full respect. What does the term co-steward communicate that any other title doesn't? You know, I think you both don't want to get bogged down in administrative duties. You want to participate in the partnership. That's part of the reason why we get to do this together. And part of that is we are partners across the board, and we get to help lead the organization. And part of leading the organization has to do with making sure that we have structure and we sign SEC documents. A lot of it is administrative, and we get to split that so that both of us can stay on the field.

30:40I try to make sure that Alfred signs all the SEC documents. but literally this is the part that is is really good about this because this is a partnership we want to show the value of partnership and we want it to be a team effort and not everybody has to do everything and this idea of stewardship if you go back to the original generational transition which was in don valentine handed the firm off to doug leone and michael moritz in the late 90s yeah the standard at the time was to have the younger partners buy out the departing generation. Don instead gave it to them for free and said, your only job is to leave it better than you got it.

31:17And so that's become a very core part of the Sequoia culture. You continue that tradition. Yes, this idea that we're stewarding it for the next generation, as opposed to, there's no concept of ownership at Sequoia. All of the partners own the partnership together. Our job is to make it great. We're sitting here talking, but you're eight months in, essentially, as co-stewards. But in that time, quite a lot of things have happened. I want to get to what you've enacted or changed that's different in that eight-month period to the history of the firm. And one of the things outlined in the Business Week article is if you are a partner that is interested in an investment, you can propose at any time through a various means of mechanism.

31:58So traditionally in Silicon Valley venture firms, you have your Monday morning meetings. You guys have said basically seven days a week, any time. Let's talk about it. Let's talk about being customer obsessed. Who are your customers? Exactly. It's founders. And so we should work on the founder's time frame. If the founder wants to make a raise, a fundraising, they have a timeline. We should abide by their timeline, not the other way around. Right. And this notion that we get to have every decision happen on a Monday is kind of a little backwards. Are we the customer to the founders or the founders are customers?

32:36And for us, we want to make sure and we want to send a clear message that the founders are our customers and we're customer obsessed. And there's a second concept here, which is outlier founders want to work with outlier people. And so our partner, Ravi, has this idea of playing free. You know, everybody should play free. And we don't want Luciano or Andrew or Constantine or Sean or David or Sonia. We don't want them to become another Alfred or to become another Pat. We want them to be the best version of themselves. and the only way we can do that is if they feel like they can play free like they have rope to just go at 100 velocity all the time and then our job is to help enable them not to get in the way and so we are we are tight on principles and we are tight on values we're very flexible on process so some people that might sound chaotic just literally how does it work mechanically it is somebody will send a whatsapp to the rest of the partners saying guys got a great op we have to meet now and talk about it and what happens a couple days ago an email came out recommending an investment controversial investment we go into a document there's a lot of commentary in the document here's what's good here's what's bad here's what i like here's what i don't like what are we going to do we had six people on red eyes to new york a couple nights ago we went and spent this week this this calendar week but tuesday night back tuesday night we had six people on red eyes to new york randomly around five different planes i don't know why we took five different planes to get to new york but it was a spur of the moment decision it was a spur of the moment thing we spent two hours at the company yesterday morning yesterday afternoon we signed a term sheet so gang tackle get everybody in front of you see found to ask you which company oh i know i'm sure you would but yeah and the answer is on comment for now company company t probably a monster probably one that's going to be huge was it a big check as in the the stakes were high come on now hang on our job we're going to get the smallest possible dollars for the largest possible owner Our job is to put small dollars to work and make them large dollars.

34:27There is some case studies we're going to get to later in this conversation that would say slightly otherwise. Let me ask you this. Let me ask you this. We can do the big dollars if we have to. Conviction over consensus. So in lots of partnerships, be they're a venture firm or a law firm, you vote. Your structure is very different. Things are not achieved by consensus. How does it work? We vote, but the point about conviction is that you need conviction to be committed for a company for a long period of time. We love building companies and helping founders build companies. We want to be an early believer and compound with them into the future.

35:09And that requires real conviction by the person who has the most expertise. And so when we debate, we are trying to sort of get to truth. We are a truth-seeking organization. and there's much better conversation when there's a debate than when everybody is oh yeah i agree and then it's a it's usually a investment and let me give you an example on that so it's 2019 okay 2019 sean mcguire joined sequoia capital yes he joins the early stage team okay 2019 zoom had just gone public we just got into business with dylan field of figma who i know you guys just had on, the combined market caps of Tesla and NVIDIA were approximately the same as the market cap of Salesforce.

35:50So to set the stage in 2019, the thing on the menu was software. Yes. Software was consensus. We love software. Everybody loves software. Sean, a brand new early stage investor, shows up and says, I think we should invest in a rocket company at 20 billion. We thought that was insane. But Sean had conviction. He had done the work. He painted the picture. This is pre-StarLink. This is when it was a launch company and the main customer was the government. Sean painted the picture of what this thing had a chance to become. And it's become one of the best investments we've ever made. We were talking about SpaceX.

36:22And so that was SpaceX. So that was conviction at work. That was 2019. What I'm trying to get to is the idea that in any number of voting partners, the majority might say, I have a lower conviction. I have a four. You guys do it on a scale of zero to ten. You don't count five. But just two might say, we are eights or we are nines. We love those kinds of investments. And you do go with the investments. We've been recording the data since 2014. So we now have 12, 13 years of data on this. And we thought that contentious investments would actually be the best investments. And it turns out it actually doesn't matter whether it's contentious or consensus.

36:56All that matters is presence of conviction. I want to get to Sean because it's outlined in the Business Week article. And Sean has been on this program and I've spoken to him somewhat regularly, right? The idea is that Sean has made, let's call it say incendiary posts on social media. He has said things that are divisive, but you regard him as being unique, right? He has a unique background and set of interests that you believe put Sequoia into opportunities that you would not otherwise have. I don't want to speak on your behalf, but let's talk about that. I think we should just talk about the balance sheet of Sean.

37:38The balance sheet of Sean? The positives and negatives. I see. You just talked about a bunch of negatives. And I just want to make sure that people understand the positives. The guy was one of the top 10 Counter-Strike gamers when he was in high school. He was a day trader in high school. He then went and got a PhD in physics, in quantum theory. If you regard physics as hard, quantum theory is one of the hardest. When he joined Sequoia, he put together a hardware manifesto. He led us into hardware. He led us into SpaceX with a lot of conviction and a lot of courage because there was votes by GPs that was a 1 on a scale of 10.

38:20It was a 1. And he kept pushing and pushing and pushing. Was he a 10 out of interest? He was a 10 out of 10. 10 tends to be either a 0 or a 10. Okay. Fairly binary. Very binary person. And so, you know, in terms of conviction, he has strong conviction. He's been right a lot. He helped led us into crypto. And I don't want to talk just about the negatives because I think people need to understand the process. And SpaceX is one of the biggest returns that this firm will see in its history. And I also go back to the thing we were talking about earlier. We want everybody to become the best version of themselves.

38:50Now, again, we are strict on values and principles. And so we need to believe that when people behave, they're doing so with the best possible intentions. And they're doing so with a standard of excellence that we expect of all of our partners. If they are doing that, and if we happen to agree or disagree with the output, the agreement or the disagreement doesn't necessarily matter. It's the inputs that we tend to focus on. I would say for the record that Sean told me that he would not work anywhere else. And he believes in the principles that you outlined, also that his belief is that his intentions were never to have a net harmful effect on the firm.

39:24His intentions are pure. His intentions are always pure. And that's another thing I was going to mention. But he also has great courage. There's conviction. There are people with conviction and they don't have courage. And yeah, you can talk all day long and then you don't sort of make the investment. What does courage look like? What's the action that you're looking for the partners to take? If you have a GP and you're not a GP and there's a vote of a one by a GP, but you still keep pushing forward, that is courage. You're willing to get fired for something that you believe is going to be a great investment.

39:55And that turns out to be one of the best investments in Sequoia history. We have a list that we keep of all the different failure modes that we can run into on investments. There are 40 or 50 of them, one of which is called a wimpy sponsor. Wimpy sponsor is you say you love something and then you get a no and you just go away. You just won't. You probably didn't love it if you got one no and you went away. If you actually love it, you're going to keep pushing and keep pushing and keep pushing and keep pushing and keep pushing. And that's what courage looks like. I want to get some of the investments you have made.

40:22So what we're going to do is take a quick break. We'll be right back with Sequoia Partners, Alfred Lynn and Pat Grady. and we'll talk about the big one, which was Anthropic. This is Bloomberg Tech.

41:13We're back with Sequoia Partners and Co-Stewards, Alfred Lynn and Pat Grady. I'd like to talk about the Anthropic Investment. It's detailed in the Business Week article, but essentially it was something a bit new. it was an example of risk or franchise risk or risking the franchise where should we start with what happened i mean you were uh along with uh sonia right at the sponsor on on that opportunity so um so there have been multiple sponsors of this we work as a team there are multiple sponsors on on the company uh ravi had sponsored it for a period uh one round sonia had sponsored it with him for another round.

41:54And then we kept passing. Part of it was because we wanted to sort of, we were early investors in OpenAI and we thought, well, we can invest in both. And for a period of time, that was our mode until we checked with all of our founders and they were using both companies. And they were using the technologies of both. And they'd use them for different things. Exactly. And so obviously OpenAI started with the consumer app and finding information, and Anthropic had cloud code, and it was much more focused on coding. And so over time, we got greater and greater conviction. Our own engineering team was telling us how good the cloud code product was working.

42:38Right. So we gained more and more conviction over time that we should make an investment in Anthropic. on this billion dollar round, this last round that we made an investment. It came together because we had just been following the company. And three months before, we had made an investment in the company. That was January of this year. Yes. Yeah. It was actually November and then it closed in January. Disclosed then, yeah. And so we've been following the company. The revenue ramp continues to go up. And we decided that we're going to make a fairly large investment in this round. A fairly large investment initially was a billion.

43:14That was the original recommendation by Sonia and I that we invest a billion. And we were like, where are we going to get the money? Well, we have plenty of places we can invest from. Right. And I was pleasantly surprised, first with a call from Sean and then a call from Pat. And then in the room, we started with a number that I thought was like, huh, interesting. where are we going to get that number from? And the number started at$5 billion. And then you worked backwards then? Yes, to$2.5 billion. Pat, come in and explain your take on the events that transpired. Well, I mean, the simple explanation for the investment is this is the tectonic shift of our lifetime.

44:00In a perfect world, we would have backed Anthropic many years ago. We didn't. And so the best thing we can do now is to come in at the most scale that we can muster. And so$5 billion was kind of a theoretical number mentioned to be provocative. We ended up at$2.5 because we can't really do$5 billion across all of our different funds. And so$2.5 is kind of the most we can do. And that's sort of how we ended up with that number. Is it fair to go as far as to say, how much money can we deploy without putting the firm at risk? That was part of the conversation. $2.5 or$5 would be comfortable numbers as far as that goes.

44:30But one thing, we've never done SPVs. We're not in this SPV business where you speak for something. I think we have not time today to talk about SPVs. Yeah, so we don't do that stuff. And so$2.5 billion was what we could do out of the core fund's committed capital. Yeah. Let me ask you this. I'll give some background. Growth, early stage. Since 2017, you've led the growth, co-led. You've co-led early stage. But you, SaaS, consumer. But there's a lot of overlap, right? You have made significant growth stage investments and joined boards. You've made early stage investments, particularly in AI. Just talk a little bit about how the two of you see that progressing.

45:07you know, forward-looking? I think it's very, very simple, which is like, if you've been in this business a long period of time, you know what a good early-stage investment looks like. You know what a good growth investment looks like. So, Pat has been traditionally a growth investor. He made the early investment in Harvey. I've seen how early-stage companies grow and advocated for growth investments in Airbnb and DoorDash when they grew up. And over time, I think if you've been in this business long enough, you'll make both early investments and growth investments. We have Constantine that championed Citadel Securities and Waymo.

45:43We talked about Sean. We have David that has invested in a neolab that's relatively early. We have Sonia who recently flew with me to London to advocate for the investment in ETHIBLE. so our team is much more fluid and we don't, just going back to like most of our partners don't like being put in a box none of us want to be put in a box you also regard the partners, sorry Pat to interrupt you to say that these partners, if you stack them up against any venture firm in the world they would be in the top 10 of the list of partners all the time I genuinely believe that we have the best partners in the world if Alfred and I got hit by a bus, we'd be fine If whoever came next got hit by a bus, we'd still be fine.

46:33But this idea of being able to go beyond early into growth, growth into early, consumer into enterprise, enterprise into consumer, I think one of the things you realize over time is that there are two core primitives in our business. It's people and markets. And if you develop a good understanding of what outlier potential looks like in a person, and if you develop a good understanding of where a market has a chance to go over time, Those two ingredients kind of transcend the stage at which you happen to intersect that company. And so that's what we see out of the folks at Sequoia. As they progress, they can kind of go across stages.

47:06I have to ask you both. Bloomberg reported this week that Sequoia was one of the firms approached by situational awareness as they tried in the reporting to offload some private stakes. We've seen what's happened in public markets. An opportunity to comment on that and how you see the situation. We'd be delighted to comment on that. We were aware of that situation.

47:30And it has been reported that we were talking with them about the anthropic stake. You know, King Griffin showed up with what was a better solution for Leopold at that moment in time. And he went with the better solution. I think that our observation is that there is this game on the field over the last couple of years investing in the AI supply chain. Leopold was one of the first people to recognize that that was the game on the field. And on balance, he played it pretty darn well. And so our suspicion is that he's going to be a fixture in Silicon Valley for a long time to come. I wanted to get to the Valar case study.

48:03We've talked a bit about Sean. Please, go ahead. On situation awareness, he did just wire$400 million to a company that we invested in. Oh, we actually reported on the$400 million, but I haven't got a clue who the company is. Yeah, no comment on that. But he's not... Tell you what, though. It's a good one. He's not... He's going to be... He's really good. He's going to be around. We just have, sadly, two and a half minutes. I found what happened with Valor Atomics really interesting. Again, we're going over history, but would you just kind of explain how that happened? Sean was the sponsor. He made a really big proposal.

48:36Then what happened? Well, we have a partner named Liam Corgan who joined us just six months or so ago. Yes, and you. Liam, physics undergrad at Harvard, happens to be an Olympic gold medalist, but he actually came from the nuclear industry before joining Sequoia. And so we have this person in Liam who understands the market to a great degree of detail. Yes. And then we have this partner in Sean, physics PhD, as Alfred mentioned, who deeply, deeply, deeply understands the technology. So the two of them together were working on this investment. And generally speaking, things that have multiple layers of technical risk remaining with a business model that is many years in the future, those are scary investments.

49:15Right. And so we're happy to take risk, but usually we do so with smaller check sizes. And so when the recommendation came out for a$300 million investment, some eyes popped out of some skulls. And we said, boy, that seems like a lot of money for a company with this much risk in it. But Sean and Liam made the case. We decided to get on a plane. You got on a plane. Alfred, you were in New York, right? I was in a civil security board meeting. Yeah, a few of us got on a plane. We went to visit them. We spent the whole day with them. We got to know Isaiah and his team. Isaiah is truly a one-of-one force of nature, exceptional founder, who we're now delighted to be in business with.

49:49I think we started to appreciate exactly how many of the different pieces they've put together, how novel their approach is, and how well they're executing. And at the end of the day, like Sean and Liam, we think they are right, and we rode with their conviction. We have literally 30 seconds, and I'm sorry to do this to you, but let's end it with your White Swan memo. What would the title be if you did a White Swan? I just think that there is a lot of negativity around AI, and it's really just misplaced. I think we have a tectonic shift in AI. We have a tectonic shift in hardware, tectonic shift in semis.

50:21We have a tectonic shift in industrialization of America. The future is very bright. And if I had to write a memo today, it would be a white swan memo, not a black swan memo. Sequoia Partners, Alfred Lin, Pat Brady, thank you both very much. Thank you. The extended conversation. That's it for this edition of Bloomberg Tech. One last look at shares of Google. Alphabet drew about$115 billion of orders for a$25 billion debt offering. There's also the background of those departures we covered 24 hours ago. Recap all of that on the podcast. You know where to find it. Beautiful day here in San Francisco.

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