Doug Leone - Lessons from a Titan - [Invest Like the Best, REPLAY]

26:19And you know who suffers at the end from all this? Founders. If you were 28 today and of similar gumption and interest, do you think you'd be going into venture given what you described as the more mature nature of the business? I think I would go into venture but not out of egregine, it's a nice way to make money. I think I'd go to venture if I had a passion or if I didn't know how to start a company. Because if you think about venture and capital, it's the large supply side. The scarcity side is talented founders. So if I have a choice and if I thought I was a talented founder, a venture versus be a founder.

27:00In fact, I always laugh when these super smart, great people say, I want to go into venture. I said, why do you want to go on the commodity side? Stay where you are and do something great. But at the end of the day, it's a preference as to whether you're a builder, if you will, a player, or if you are a coach. Now, I want to use that coach term because coach implies I know more than a builder. I don't mean it that way. I mean coach as not being in the field on a day-to-day basis. It's not a hierarchy of knowledge, okay? Whether you want to be on the sidelines, maybe it's a better way to say it.

27:32You want to be on the field of being the sidelines. And that's a personal choice. There are people that are inherent builders. Elon Musk, he's a builder. And there's people that just love to help companies go to market. And look, my knowledge has been the go-to-market side. I love helping founders figure out how to sell something from the customer standpoint, and then scale that sales force. Maximum speed. That's my passion. So I'd be a lousy type of builder. So it's not an easy one or the other. What you shouldn't do and say, there's money in venture. I want a cushy life. I want to go into venture.

28:09That would be the wrong choice, both in 1999 and in 2023. Speaking of your passion for go-to-market, describe what you've seen the very best at that do consistently. Is it working from the product towards the customer's need? Is it working backwards from the customer? Are there other things that you've seen and recommend over and over again of the very best at this? So I've actually, I've given a name for this cycle called the merchandising cycle. And I explained this to founders. It starts with product management. What exactly are we building? If truth be known, it starts with vision. But if the vision's wrong, we're all going home.

28:49Assuming we're someplace in a ballpark. It starts with product management. What are we building? To product marketing, how do we position it? How do we tell the story? How do we have the three words for describing what we do? How do we have the 30 seconds, two minutes, and everybody can do the 10 minutes. Very few people can do the three words. And then how do we do the demand gen? How do we do the sales? And wherever that cycle is broken, it looks like a bad salesperson. This guy can't sell. Actually, the truth of the matter is, if you've got product market fit, even shitty salespeople can sell.

29:23When we first invested in ServiceNow, we had the B team prior to Frank Slootman coming in, in sales, and they were selling like crazy. So that was my lesson. And so for me as a board member, I have to debug the merchandising cycle. Product can't sell. Why? There's not enough leads. Oh, well, I know to fix that. Why don't we get some more BDRs? Then you can talk to the BDR guys. Here, you can have five BDRs. Well, then they start festing up. Well, you know, it's not really a BDR account. It's that the message isn't playing right. Aha. Well, I knew that, but it's nice to admit it. Let's go back to product marketing.

29:57What's the message? Is that the right message? Is that the wrong message? And that's based on a product we're building. This is a product management. And so I work very hard at debugging upstream this merchandising cycle so we can figure out what the real problems are. And as I think about it, take these rocks out of the river so that damn water can flow as fast as possible. And once you do that, and once you know that two or three sales reps can sell something and you have your first four or five sales that don't include the CEO, those are tell tell sign that you can start ramping. And so that's what we do.

30:33That's what I do as a board member. The thing I can't do is the black magic. If you don't have the right vision, if you're not close to product market fit, I will tell you, Doug Leone or any other people in venture are not going to help you. Black magic is reserved for founders. Everything else is mere mortal stuff. That's what we can do. And we're probably the very best in the world at Sequoia in doing that. What are the components of great positioning for a product? Simplicity, crystal clearness, something a mere mortal can understand. If you can't describe it and you can't understand it, you're out to lunch.

31:14Singularity of purpose. When I go to the store, I buy a pencil because I want to write. I don't buy a pencil because I want to write. I scratch my back with a tip. It doesn't work like that. Singularity of vertical market early on because you want to be narrow. you have no resources. You've got to be narrow. Oh, we're chasing these four vertical markets. It sounds good. But in order to do that, you have to have marketing that talks four different languages for four markets. And maybe you have to have engineering that develops different features from a little company can't do that. So be at the bullseye as sharp as you can, and then starts to expand in consensual circles when you get your legs under you in that vertical market.

31:54That's what I look for in position. If you think about what I'll call mediocre positioning, you'll know if there's amazing positioning because you'll just see the thing flying off the shelves. And you'll know if there's terrible positioning and that the danger is somewhere in the middle, like it's kind of working. What have you done historically when you see that and you see founders start to build upstream the demand gen and the sales orgs on top of mediocre positioning? That seems like a very dangerous spot for a company to be in. So keep in mind that we as board members, our job is to make these founders very capable and successful.

32:32You lose the founder, you lose the soul of a company. There's no question about that. And telling the founders cuts a little bit of the pinky. And you want a founder with 10 fingers and 10 toes. But there are certain times where the thing is so off the rails that it's worth a small piece of the pinky to get back in the right direction. First, what I try to do instead of telling, I like showing. So let me give you an example. Your VP of marketing stinks. If I say that, it means nothing to a founder. But if I say, I'd like you to meet these three VP of marketing from other companies, let me tell you what happens nine times out of 10.

33:12They come back and they say, holy shit, the guy we have or the guy we have is nothing like this guy. Duh. So try to show, not tell. Build trust, which doesn't get billed day one. It really gets billed the first time the CEO founder is in a pinch and he understands you're there to help him out. So once you have trust, which is really the foundational layer, it's the grease that makes all business runs. And once the founder understands maybe you have a little of experience that complements his incredible talent. and once you show the founder without telling the founder, and once in a while you have to tell because maybe you don't have the time to show, but you better do that once a year.

33:50It's very rare. That's what you do. Those are the actions that you take. And you want to come out of that in a win-win. You want to come out of that with an enlightened founder who's extremely happy and better in his role rather than having achieved your goal of a new VP of marketing where the founder feels like his knees were cut off. Assuming we've got a company that has a fantastic positioning story, the next stop upstream is demand generation, which I assume by which you mean the proliferation or the propagation of that message through a bunch of different channels. Leads, getting leads. Getting leads.

34:26What are the great components of demand generation? Well, the first thing to understand, is it a broad product? Is it a widget? If you have a widget, it's simplicity. If you have a widget, you do less account-based management. because you've got 10 ,000 accounts that you can call. So that becomes a volume play. You build something a little more complex with a little more of a solution cell versus a widget cell. A pencil is a widget. A solution is you've got to tell a story. Fewer accounts, you better have your story right per account. So you have to understand what that is. You have to make a guesstimate of what percentage of leads comes from BDR versus salespeople.

35:08I will tell you that early on, it's a Rolodex of the salesperson. First, you got to make those decisions. Then you have to find the optimal curve with the optimal leads. You don't have too few because the greatest sacrilege is to hire an expensive sales rep. If you go the direct sales route, if you go PLG, it's a whole different game because the worst case is to hire expensive people with not enough leads. And so to find that balance, to figure out where that slope curve is in the ability to close account, you overinvest and you have too many people, word gets around your salespeople cannot make money in your company.

35:42Nobody's going to want to join you. So you have to make them very successful. If you will overpay because word gets around, this is a place to make money. And then at some point, figure out the optimal curve and be fearless in that growth. You also have to understand for each product you sell, how much drag is it on the back of the company? If I sell you a pencil, there's no drag in the back of the company. If I sell you a solution that everyone requires, six months implementation plan, three features for each one, then you can go as fast as you can because your bottleneck is no longer the front end, it's the back end, which sometimes goes back to cash because now it's a lot of people.

36:20So getting that soup right, getting that right and figuring out that optimal point and doing it in the linear growth so you can readjust, re-forecast every quarter and not hire your 32 people in Q1 and then no one for the rest of the year. So the CEO has room to maneuver along a backup plan of what if I don't do X, I do 0.7X. It is back pocket from the CFO that I always ask him, please arm the CEO with that, should give the chief executive officer and the knowledge of everything I just told you that in many cases, I have to tell you, it's the first time they hear this. You should give them the armament to begin to learn how this thing is done.

37:01If you think back to your early days, you mentioned earlier, a lot of investing in highly technical companies and founders. And maybe as Sequoia has grown and as the world has grown, more founders who are less technical, but nonetheless can still build huge technology businesses. How does that change over your career manifest in the way that you interact with companies early on? Is it a different set of people that you're looking for? Is it a different set of attributes or characteristics? Talk about that shift. So as usual, what happens outside the building dictates what happens inside the building.

37:38So if you do a marketing strategy, don't just talk to me about a marketing trend. Talk to me about the dynamics in a market first. That's the reality you can't change. And then you apply the strategy based on those. Same thing to the question you answered. So when we're building technology, and now with AI, we may be building tech again. There are these cycles. But I think of technology as semiconductor systems, software. The founders were older because you didn't want first-time founders. You wanted people that had done it before. Suddenly, the internet connects us all. Mobile connects us all with, as we move around, new business model.

38:19It turned out people who were 20 who had never seen a business model were more creative. And they're the ones that did that. And it also happened that you can build a prototype, whether it's open systems or whether it's hosted services or low cost of computing coming down. You could build a prototype in 90 days, thus the advent of seed investing. Seed investing didn't happen. We're building chips because what would a million do? It wouldn't do anything. and now you have this competitive nature, a whole bunch of seed funds, try to get in front of you, try to position Sequoias, go to them later.

38:55I.e., we want our own 20 % and you let Sequoia own 10 % for working for the next 10 years, just so you know. It changes everything. It changes your strategy. You better have a seed fund. You better get there as early as you can because you also get to affect the DNA of the company in what I believe to be the right way because you've had 30, 40 years of experience. And the DNA is set in the first 30, 60 days. So everything changes. Your approach to the market changes. Your ability to move changes. You have to create a spec for what is a seed investment. Is it really the same type of due diligence as you do in a series A?

39:31Or is it just a spiky, super talented founders? Here's a million dollars. Everything changes. Your strategy changes. And when that happened, we did a few things. We did three things, actually. We vertically integrated. from 100K, 50K investment to our biggest investments are billion dollars. We have written twice a billion dollar investment. Second, we have gone across geos. Why? Because all companies in the U.S. go to Europe, all your companies go to the U.S. We know the world, irrespective of everything you're reading, is more globalized now than it's ever been. India, India founders in the U.S., there are certain companies we can't tell if they're in the US.

40:10We went into China, as you know. Now, China has to build their own tech stacks, which is a smart thing, and we have to build our own. So there's some issues there, for sure. We went into Israel. So we went across geos because companies want to go across geos, we vertically integrated. And the last thing we did, we threw technology at our business. We can't run like a law firm structure. We can't have five, six partners, quote, looking for deals, same way the lawyers do. Technology in every aspect of the business to help us look, to help companies assess, not just for us, but for our founders. And we know we have to be at tech companies.

40:47And that is the transformation that we've done over the last three, four years. All of it to look for, win, and then help. Those are the three goals. It sounds like in that description, one of the things that, whether this was the goal or not, I guess doesn't really matter. But one thing that's happened is that Sequoia itself has built serious enterprise value. It's a private company, but unquestionably, if you were to float it in the public or go to a firm that wanted to buy, Goldman wanted to buy a piece of it, the price would be really high. And that's probably quite distinctive from the older school law firm like Cottage Industry Partnership.

41:24Do you think that's the right orientation for new entrants into the venture space that they should be trying to build a firm that has enterprise value? I think that is the kiss of death. Let me explain. One, you want to be competitive. You want to pay well. You want to get the best people. The moment you build enterprise value, what you're really asking, you're not asking about enterprise value. What you're asking is to monetize the enterprise value. That's what you really are asking. Boy, now we can sell Sequoia. Selling a piece of that firm means that the people in the building today are getting richer, but the pie to be shared for the next generation is smaller.

42:05We looked around, Mike Moritz and Al in early 2000, we looked around and we wanted to see what the enduring firms did and how they worked it. And our favorite was the capital group. They managed a trillion dollars, public vehicles. I think the founders are 1%. And they have a way to have the people in the building enjoy, maybe have a little tail on the way out. But the bulk of the ownership, the money that returns is the people that are working. in the next generation. Sequoia was given to us by Don Valentine. Given, I want to use the word given. Mike and I didn't write a check to Don Valentine.

42:44Zero. We were the founders. Our job is really to make it a better place. How do you do that? By being helpful to founders, by understanding founders are first, our limited partners, which are mostly nonprofits. Second, our clients, 70 % are mostly charities. I want to make sure you know that. And we are third. It's not because we're Boy Scouts, because we know if we do right by founders, right by clients, of course, we'll do right by ourselves. But we can't put ourselves first and leave it a better place for the next generation. So I created a constitution with Mike Moritz that said I had to leave at 65 on my sixth birthday.

43:20I left. I'm not a partner in a new fund. I have zero carry in new funds. If I make an investment, I'll get some carry. It's in the hands of the generation who We're extremely motivated because they're the owners. They think creatively. They can move. It is their partnership. I have no management, no ownership in a management company, zero. And I ran Sequoia, co-ran it with Mike since 1996. And I ran it since 2012 on my own. And I have zero ownership in a management company. I'm a partner in 28 funds. That's plenty. and the pride, at least in my case, of knowing that the next generation, young, they want it the same way I wanted it.

44:02They can make money the same way I made money and have a right to greatness. If they execute, it's the biggest thrill for me. Maybe to sum that up, I would say stewardship over ownership. You got it. You got it. And what I'm sure is this incredibly fruitful and colorful partnership with Mike Moritz all these years. When have you and he most disagreed on something? We disagreed a lot. Keep in mind, Mike is a very introspective Brit, strategic, and I am a gregarious Italian, and I am more let's take the hill. When Mike and I were in business, while we were peers, it was effective CEO, and I was effective COO.

44:49And Mike might point to hills and not go execute. Now, China and India were my ideas too, so it wasn't black and white. And I would tell you honestly that 70 % of the time we did what Mike did, but there were 20, 30 % of the time that I said no freaking way. And Mike might say, with retrospect, Doug held me back. And with retrospect, I'd say I kept Mike out of trouble for some things. And I think the truth is somewhere in between. But we were very different cats and we survived and we excelled. We made it up as we went along. We had guts the like of which you've never seen. We were killers. I want to make sure you know that.

45:29We were killers, not killers to make the most money, killers to get the job done with one another from 96 to 2012. And so it worked. Mike and I are friendly, but we're not friends. I don't go to have dinner with Mike. If I see Mike, you know, hey, Mike, what's going on? We'll have a drink together kind of thing. But we're not buds. We're just two different characters. And that's just the honest assessment. I respect them a great deal. How do you suss out the killer gene in somebody? You look what they've done. Have they taken risks in life early on? Have they put their guts on the line? I tell candidates or children that it's okay if you choose a parallel track life, i.e.

46:17you want to become a banker or consultant, and it's okay if you want to take risks. What's not okay is do one and always spend your life thinking you did the other. And the killer gene for me is stay away from the parallel tracks. Just put yourself out there with no net. And usually people that are a little desperate in life that only have one way to go and that's up or forward, they tend to have the killer G. And I've also come to learn that I call American competitors. I'm an immigrant. I didn't know about this athletic go to college. Schools in Europe don't work like that. But these American kids that have this inbred competitiveness, sometimes brought to sports, sometimes brought by family reasons, that I never knew existed with my Italian brain.

47:03But I've certainly learned to appreciate with my American brain. You were 10 or 11 when you came to the States, is that right? I was 11. What was high school like for you? I'm on record. It was abusive. Keep in mind that I didn't go to a high school. Oh, don't use that word. It was the high school that it would not be unusual for someone to pick you up in lunch and throw you upside down into a garbage can. And you certainly didn't go complaining to a teacher. And I happened to have to high school that had knives and guns. We were ahead of our time. And that really teach you to survive. It teaches you respect.

47:36It teaches you what you shouldn't. It teaches you street smarts because you are surviving every day in high school. It was that kind of experience, but it was formative. It was formative. It was, you know, oh, oh, mommy, some guy did that. There was none of that. You just went back the very next day and survived and hope and zigged and zagged. If there was a big red button on your desk that if you pressed it, you would have gone to a pristine, super nice school instead of the one you went to, you wouldn't press it? No chance. Not a chance. In fact, I worry about my grandkids. I do worry about my grandkids.

48:11I hate to say it, but there's too much comfort. There's the semi-year birthday party. It's a half birthday. I want to shoot myself. And my kids know that. My kids know I want to shoot myself on that. In fact, I refuse to attend those. I actually refuse. I fight my own battles. I love my kids. I love my grandkids. They're doing a fabulous job as parents. I want to make sure I'm on record to say they're terrific parents with terrific children. But, you know, all the soft things, it takes hard times to make strong people. Strong people don't make it from easy times. How can successful people with means that have kids and love them and want the best for them take heed of that advice and do something with it?

48:55I think you expect a lot and you don't let the kids. You know, kids are smart. They start blackmailing you at the age of six months. Just understand that loving them sometimes means not catering, letting them struggle. I told my kids, how do you inject some misery? because it's not about the kids. Yeah, if you want, quote, very happy kids, that's fine. But I'm not sure you want very happy kids. I think you want kids that are happy and they want to do something. I think doing something, achieving something in life is a key to later happiness. Those are the conversations we have. To expect a lot, give jobs, give reward, a lot of love, but know that something has to be delivered.

49:42and tell them the truth. Oh, nice try when he shoots a basket and you're four feet from the rim. One of the things I never did, I never bullshitted my kids. I always told them that was a crap shot. Try it again. I remember my son playing basketball. I told him, I will never let you in and I will never be happier than the day that you beat me because you'll have earned it. And he's beaten me and he knows I meant it. The other thing you should know, there are many ways to have it. There's not just one way to happen. I'm quoting my partner, Sharlendra, in India, that tends to be a philosophical man.

50:18There are many ways to happen. There are many ways to do it right. I don't think catering and making things easy all the time is one of them. The corollary is probably that there are many ways to hell, too. What are the most common failure modes that you've seen for investors? So investors that either you've employed and worked with at Sequoia or seen and observed that just do a bad job. What are the most common reasons why? The careers and investors at stake, the founders has no idea of that. And they do certain things that are contrary to the founders' best interest. They are wonderful analysts, but can't seem to make an investment.

50:56They get enthralled by the technology, never asking, where's the beef? Where's the business? Who's the buyer? It has to be a simple solution. It's so wonderful, I can't really explain it. Then you run the other way. It comes down to a human being issuing a purchase order for something that he or she understands to which they have to convince their managers and their peers to go by with single use. Oh, that is really cool. Cool is the enemy of reality. Those are the failure modes. Fibbing, lack of business sense. When one of our partners or associates, they describe a company or the issues facing a company.

51:36And the founder comes in the next Monday. And what we heard the week before has nothing to do with what the founder says. That's a huge warning sign. There are many, many things. At the end of the day, you got to have this spidey sense. You have this amorphous early stage, five, six people. Would you really go and spend the next 10 years with them? Not understanding or investing somebody else's capital and playing the laws of percentages. You know, if I just make 20 investments, two will work. really not giving a shit about your investors, founders, and so on. Those are the failure modes. As you're building Sequoia and as you've watched founders build companies, do you think that competitive advantage can be architected ahead of time?

52:20Or is it something that emerges and then gets fostered after the fact? I've seen it both ways. Think of Google. Competitive advantage was architected in a product. Think of many companies. Think of ServiceNow. It was simple workflow. You asked me to do something that you need a PC. It goes to someone. I fill that workflow. I give you a PC. Couldn't be any simpler. Clarity of thought of what the easiest way to do workflow. But that got built upon, built upon, built upon. And there's a history of the simple utilities becoming platform because the founder has a vision how to do that. So I've seen it both ways.

53:01Look, sometimes you build a utility and you're stuck there. There's just no way to go. But these little seemingly simple utility for which you get purchase orders for, which allows you to now have a two-way conversation with a customer. What else do you need? These bottom-up things tend to be, for me, way more interesting than these top-down, monolithic, big solution for a million dollars. I like these 25, 30K, quick and solve a point product. Now we've got 100 customers. I love those the best. Has your view on competitive advantage changed or evolved a lot over the years? I remember in the days of the consumer type internet, a competitive advantage was a 30-day head start.

53:46Competitive advantage was a founder who can run like crazy. So yeah, it's change. It's not always technology. Sometimes it's the first one in. Sometimes there's many late market entrants that have come in and have said, I've seen all the mistakes. So all these rules, you've got to be first. You better write in pencil. All your principles, ethics, careful due diligence, those get written in pen. But all these other things, competitive advantage, should you build an imperfect product and get to market early? Sure. Or should you build a perfect product that takes longer? Sure. If you look at what Steve Jobs did, everything you put in your hands, that was not some Rev 1 cheap shit.

54:27So there's many ways to heaven. There's many ways. The trick is to understand where you are and break it down to first principle. If I'm selling a hardware, software product with a cost of goods to millions of people, I probably don't want a very shitty first product. If I'm selling a simple utility and I need customer feedback, I want to get that out there, especially in a consumer marketplace, piece of software. I want to get that out as quick as possible, as imperfect as possible, knowing that Rev1 is the wrong product, but at least we're talking. So don't have a textbook. Something in the history of Sequoia that sounds incredibly stressful was the early 2000s and the word clawback comes to mind.

55:09Can you talk about that story and coming to terms with what that term meant in the fund docs and what you did to work through it? Don turned Sequoia in his own way to Mike Ritz and me. We have never managed a fund. Everything is up and to the right. Suddenly, these non-companies go public, 1999. There is the stocks that we either hold on or we distribute, that we hold personally. Everything else goes to zero. These gains are not real. But in the meantime, we have paid ourselves stocks that at some point had value. Value that was real, the millions of dollars. Well, those go to zero. There's no money in the bank.

55:50And because we distributed money at some point, now we have money back into the funds. So I remember looking one night and I said, I am in a hole from a net worth standpoint to real money in the many millions of dollars. Meaning I was negative. I was broke. So were all the other folks. We didn't panic. we started to have evening things and we said, what's the right thing? And the right thing is to completely cut our carry, completely cut our fees, writing checks, personal checks to the individual investors, because we had to now recycle fees, but the individual investors weren't paying fees. There was no money for them to recycle.

56:25How do you make them whole, even if you make future investment? They can't participate. So we wrote checks and we made everybody, can you believe it? We wrote like a hundred checks. Nobody was going to lose money account from our personal accounts. And then we took what little gains we were going to have and all the fees. And we said, those fees are not ours anymore. We're going to reinvest them and reinvest them and reinvest them on behalf of our nonprofits, limited partners. And we turned 0.3X funds, 0.3, meaning if a fund is 300 million, it's not worth 90 million. And we turned them to 1.9X and 1.5X fund because we refused to give up, because we gave a shit.

57:03In a world where every other venture firm started using the words, these are the mulligan funds. If you play golf, what mulligan is, is your first golf shot. That's no good. You do a do-over. This is the do-over fund. We're just going to forget about 1999. And we didn't. And I say it again, that might be my proudest moment at Sequoia. That deserves a chapter in a Sequoia book. You learn most in misery. You want to talk about united at night, how to do that. Mike really took the leadership on that. Mike was a senior. I was a little younger. He was a partner a couple of years beforehand. And I watched.

57:39I watched the calm hand. I watched the long-term strategy. And I learned. And we worked as a team. Don't get me wrong. I also had a lot of companies on boards. I know money. But we got it done. And I'm incredibly proud of that. If I were to do like a return attribution going from 0.3 to 1.9, is a big swing. What were the literal components of that that were influenced by what you did? What did you literally do to make that change happen? I wish I could tell you it was one company. It was all the partners contributing a few gains. We would take a company public or sell it and we wouldn't take any carry and we would just reinvest everything.

58:16So for the next 10 years, even though we were investing new funds, we took a little piece and we told the new funds LPs, yeah, we're taking a little piece of yours to put back in the old funds, but one day you may be caught in that. And it wouldn't be nice that you're in business with partners that care a lot enough so that investors not only never lose money, but make money. They were completely supportive of that because they knew one day the shoe might be in the other foot. I'm happy to report 20 years later in the US, the shoe has never been on the other foot, but it could happen. As you think about your LPs, who you've mentioned already are predominantly foundations, charities, endowments, et cetera, even just constraining to that world, what have you learned about picking the right LPs?

58:58Even if I was only going to sell to foundations, let's say, what have you learned about the right LP partners and finding them and partnering with them? I would say long-term thinkers with business sense. The thing we don't want to do is get a call of an LP. I hired a new analyst. Please give us all the investments you've done in odd year, every Tuesday of the month. We're not going to give you that. The other thing I tell LPs, ask the tough questions. Because I've learned from sales, a customer who's talking, a customer who's asking the tough question is an engaged customer. Sometimes they're a little more pissed, sometimes less, but they're talking.

59:33It's a customer that doesn't talk that you have to be terrified. You don't know what they're thinking. And sometimes LPs don't talk. They're afraid of upsetting Sequoia, getting fewer allocations. And I remind them, you are the client. So you are the important side. and we build great LP relationships where we have no turnover. We have more and more than want to come in. Unfortunately, the funds are closed now. We have most large endowments, most foundations, and we have schools, schools that your friends, I don't know if you have kids I want to go to, that 20 % of the endowment, not of the private equity side, the whole endowment is Sequoia.

1:00:10You want to talk about a responsibility because these people have scholarships they have to hand out, they have operating budgets, and so on. So we feel that huge bird, huge. What stands out as the most interesting question that an LP has ever asked you? Let me give you a little secret. Our culture of Sequoia is not to spit shine things. Our culture of Sequoia is to let them have the bad news. So first of all, any Sequoia pitch has returns on slide one, not slide 28 where you bury it. Slide one, welcome, here's returns. And they're net returns, not gross returns, Before fees. No, it's the money you get back.

1:00:50Slide two is probably the lowlights. Not the highlights, the lowlights. Let me tell you everything that's screwed up. So once you have that conversation, first of all, they're blown away. The newbies are a little scared. Oh, my God. I didn't know there were all these problems. But that builds trust because then they go to all the other meetings and they've sold a pile of shit. Here's our returns before marketing expenses. Like, what does that mean? So to me, the questions are the drill down questions. Are you doing too many things? When we went into China, oh, what do you guys do in China? Of course, they made a ton of money in China.

1:01:25When we vertically integrated, are you doing too many things? Well, we vertically integrated, but we have very small teams. Our family office maybe has 809 investors, a hedge fund in the US, seven or 809 investors, a venture team, about 10. So we decentralize things to empower the local people that know something. So even though it may be bigger, it's made up of very small team that are accountable to one another. At the end of the day, we will not put up with non-performance teams. We will shut down lines of businesses. Yeah, I've heard you say elsewhere that performance, maybe there's a lot of values, but ultimately performance is the cultural thing that matters most, which makes a ton of sense, obviously, given everything we've talked about, how do you make sure that that is on everyone's mind all the time?

1:02:14What are the actual behaviors that you've engendered in the firm that make sure that performance is the thing at the top of that list for everyone? First, appreciate that we are in the latency business. If you're in a hedge fund, you mark everything mark to market at the end of the day. We're in a business where cancers can grow and you may not see them for three years. Just think about that. So how do you drill down so you don't have to wait for two, three years? To me, it's establishing very clear norms of what performance is for someone who just joins us. Performance is for someone for two or three years.

1:02:50Someone just joins us. Have they figured out what the bathroom is? It's a metaphor, but you know what I mean. Two or three years, can they source anything? Can they hold a meeting? Partner, someone a little older, are they on the right side of an argument? Do they have the courage to have an opposing point of view when six people have another point of view? You're about to be partner. Do you have a history of being right? When you're on five boards, can you point to two that we are going to generate? No, we all made the investments, but you were the one that pushed it. That's how we measured it.

1:03:22Are you a good human being? Do you use the we pronoun a lot? Are you likable to founders? Can you win situations? Do you have the smarts that has for help? because we don't care if you win and ask for help. That's a win. That's an everybody win. But you know what's terrible? When you lose by yourself because you had the ego or you didn't read the tea leaves, right? Those are the things we look at. And we look at them quite often. Speaking of the argument piece, what are the components of a fantastic memo, a fantastic investment memo? I just rule off the same question. I love this answer. Complete clarity.

1:03:58Here's the thesis. here's one or two reasons why one of it, not 17 reasons. Here's the supporting data. Here's the opposing data. An intellectual honest memo that gives you both sides, but then argues at the end that in spite of both sides, you think side A is more important for the following three reason. Therefore, we recommend that investment with an appendix, with the reference checks that either are the full reference or a summary, two lines on top, because not everybody's going to read the hold on reference. And you do that in three pages, not in 32 pages, not in these investment banking, let me show you how hard I work, 35 pages that nobody reads.

1:04:38Nobody reads. A two to three page memo, we all read. I can't imagine the number of people that you've encountered of extreme skill level. If you think about a dinner where you're taking a founder that you've just invested in, who's beginning to see some success, but it's still early. And you could pick any three dinner companions to impress upon that founder some of what they've learned? And these people could be living, dead, whatever people you've encountered. Which three people would you bring to that dinner and what about them? Frank Sloopman, who's, when you net it out, the execution is 90 % of the goal.

1:05:14Execution is strategy for breakfast. And he executed, take no prisoner. Don't give me this bologna that you need, cappuccino and 915 to be productive. No crap. Everybody buys in. Go, go, go. Because if you want a great culture, nothing builds a great country like winning and all the other things are irrelevant. David Velez of Nubank, probably the second best CEO I've ever been in business with after Frank. Frank has great execution. David Velez has vision and very strong execution and the blend of the two. And then I'll probably bring Elon, if he's serious, we're not talking about should I be CEO of Twitter, Elon on point to discuss scale of ambition.

1:06:08Those would be my three dinner guests. What black magic popped out at you most powerfully when you first met a founder? If you think back on just someone where it's just instantaneous recognition of black magic, who pops to mind? Let me give you the investment thesis on NewBank. The best investment thesis are very simple. Let me give you the NewBank investment thesis in 30 seconds. the seven largest market cap company in Brazil are all banks. I went to see four banks in every corner. Let's go try to get a credit card. You wait in a line outside, you finally get let in. Six weeks, he says, we think we can upend this with technology.

1:06:50So when he came to us, we only gave him one word of advice. Don't build a fintech company, build a technology company that does fintech. We were going to beat them on fintech. That was to me the clarity of the opportunity. Or Drew Houston, who told us of Dropbox, who explained there were these 16 products and why they all sucked. And let me tell you what a great product, just total clarity. You and I would have understood it. Look, I'm assuming you're a smart guy. I'm a smart guy. Yes, I program a few languages, but you just understood it. You came out of that meeting, of course, we're going to be investors.

1:07:27It's never something you scratch your head, You have to go to your AI expert and say, what does this mean? It's never that. It's always the other. Simplicity is a wonderful core theme of the conversation. Exactly. I've loved our talk. I've learned so much from you and your partners and watching and learning from the firm. I ask everyone that I speak with the same traditional closing question. What's the kindest thing that anyone's ever done for you? I can think of a couple of things. There was this popular, good-looking athletic kid in high school, who unfortunately committed suicide much later, who, when people were abusing me for no good reason, he was sticking up for me.

1:08:08And I always wonder, why does Steve Weiss always protect me? I wasn't particularly his friend. If we get to the real world, I say Don Valentine, who, in a world where I will tell you with total certainty that the other four partners wanted me out after two years. and he wasn't kind business. He just understood that I was making progress and that I needed time. I wouldn't be here if it weren't for Don Valentine. There's no doubt about that. Why do you think Steve stood up for you? Maybe because, remember, he committed suicide. There was a side of him that had pain that I'd never begun to understand, that thought what was happening to me was very unfair.

1:08:55Yeah. Pretty powerful. Doug, thank you so much for your time. My pleasure.

1:09:35Outro Music