Alfred Lin on Airbnb, DoorDash, OpenAI & Citadel Securities

0:00Airbnb entered 2020 as the number one IPO candidate. It was this big fanfare, and we were going to go public early in the year. From January, February, March, and then April, we saw the growth rate just steadily decline as COVID started spreading through the whole. And at some point, it went negative. That's pretty scary. We don't love the word speed at Sequoia. We love the word velocity. Velocity is a vector. It has a direction, and you want people aligned to that direction. How did you partner with Citadel Securities? Well, it's funny because I would have never imagined that Ken Griffin would sell a portion of Citadel Securities.

0:39Our partner, Constantine, met Ken at a conference and developed a relationship. And over time, I think it's over like two and a half years where he kept asking Ken, could we ever invest in Citadel Securities? And I think Ken said no many, many times. And Constantine did not stop. And so it was a team effort. Constantine obviously sourced a developer relationship with Ken. Doug helped, I helped. We eventually broke through and got Ken comfortable with how Sequoia was going to help with the company building side. We may not know anything about market making, but we do know how to build technology businesses.

1:15And that's the type of help that Ken wanted around the table for Snowden Island Security.

1:31I was fortunate enough to listen to you speak at Forerunners AI, Consumer AI Conference. I think it was a couple months back. And there were two things that really stuck out to me. One that I mentioned on a podcast with Brian Kim from Andreessen Horowitz. But one thing you mentioned about these cycles, which I thought was just it was like encapsulated so well, is you said things that happened three months ago are not relevant today. Things that are happening today are not going to be relevant in three months. Do you think that's going to continue? Do you think it's going to compress more? How did you get to that framework of thinking?

2:07In the beginning of any technology cycle, it does feel frenetic. There's just so much changing. People are experimenting. People are trying new things. And I think the things that I observed was the interesting papers, the interesting research in AI that we're talking about today, we didn't talk about three months ago, which by definition, we're not going to talk about whatever we're talking about today, we may not be talking about three months from now. It's very hard for founders in that timeframe because what you want to do as a founder is to have a vision of a company that matters 10 years from now.

2:47If you're going to start a company today and it takes a decade to build an interesting company, you want something stable over time. And the thing that's stable right now may be that AI is going to transform the world, but how it does is very, very tricky. And so I think the great thing about that is startups are a lot more nimble than large companies. And they're going to be able to sort of experiment and do different things that large companies are not able to do. And so we're seeing more innovation. We're seeing more younger founders get into the game because experience is not as important as just innovation.

3:33And I stand by that. And for a period of time, there's going to be a lot of innovation. There's going to be a lot of companies that unfortunately won't make it. But out of all of this, there are going to be some substantial companies that are created because AI is probably the largest and most powerful technology megatrend in my lifetime. Why do you think markets collapse typically to two to three leaders? It doesn't always have to collapse that way. the restaurant business doesn't collapse to two or three leaders. I think in technology, there is an element of network effects. There is a brand network effect.

4:16And a lot of businesses want to be able to trade off between one or two alternatives. So you don't want to make one be the company. you know and for for the cloud there's aws there's gcp there's asher because if i am goldman sachs i want to be able to trade off and be able to use all of them um and if you're doordash or uber eats you know some level consolidation is good because otherwise you're just constantly fighting with a bunch of players. And so there's a natural network effect in those businesses where it consolidates to number one, number two, and maybe a number three. The other thing that I really liked what you said on stage was build for the world.

5:11There's 8 billion people here. You should think bigger. Specifically, you started, and I don't want to put words in your mouth, so you should say this yourself, but you started off with that specific area in San Francisco where we were and like the broader area. And then you expanded more and more and more. Why do you think it's important to think like that when you're starting a company? Well, over the years, I've found that there's an element and a desire to be cultish. And part of being cultish is to help create a religion around something. And in the very early days when I was working with different tools, there's a company called email reader called Pine.

5:56And literally the name of Pine is Pine is Not Elm, which was a previous email reader. And then you had the Mac and the PC wars. You know, there's a religion around the Mac and the PC. You have a bit of a religion around the clouds. You have a bit of a religion around Android versus iPhone. And yet, what you really want to do is not be web two or web three. You just want to build for the web if you're an entrepreneur. And so, yeah, we were sitting in the Presidio. So I said, don't build for San Francisco, which has probably 800 ,000 people. You may start there. Your ICP might be 800 ,000 people and it may be everybody in San Francisco because you're going to launch in san francisco but you have to think broader all of the bay area is about eight million people but you want to move beyond that and you can want to be able to reach the world and that's how many companies start doordash started with university avenue it was much smaller it was around the stanford campus and then all of palo alto then a few cities then nationwide and now they're trying to go internationally.

7:08They have a strong presence in Europe and they're going to want to build for the whole world. With Airbnb specifically, they went through a really dramatic period during COVID. How did you help them navigate that if you did? What did you learn from the way that Brian navigated that. And what do you think of founder mode? I think one of the things that was fascinating about the Airbnb story and Brian has credit on his leadership is he really, really knows how to navigate through a crisis. and i think people forget some of the facts but he airbnb entered 2020 as the number one ipo candidate of 2020 and it was this big fanfare and we're going to go public early in the year and uh from january february march and then april we saw the growth rate just steadily decline as COVID started spreading throughout the world.

8:23And at some point, it went negative. That's pretty scary. A company that is used to growing 30%, 40 % a year went to losing 80 % of its revenue. and I think it was very reasonable for a lot of us who were focused on a variety of things to just go inward. But Brian was thinking about his team. He wanted to make sure that Airbnb survived this pandemic, but also for generations. And that was, in some sense, resilience is about having purpose. And he had purpose. He's always wanted to build Airbnb so that everybody can belong and belong anywhere. That purpose, he was not going to give up. But that's in your head.

9:17And then you used to think about from the heart. This is like true suffering. Like you lost 80 % of your revenue. You can either choose to hope or you can be in despair. And for him, he's optimistic. He was a hopeful person. He chose hope. What are the bright, shiny things that were still working, even though things were in decline? It was experiences because we could do virtual experiences. It was actually sort of shorter distance days. Airbnb had been a cross-border company where you traveled internationally, went to different parts of the world. And now we saw people leaving New York City to go upstate New York, leaving San Francisco to go to Napa.

10:10And that business still was working and thriving. So he focused on the places that were still really positive in this business. And he stayed really calm. And he stayed really calm to, we call these things crucible moments. You have to be calm and untangle all of the noise to find the direction that you need to go and to accelerate out of this situation. And then finally, so you have the purpose in your head, the hope in your heart. And then I just think that physically, he just kept doing the work. Every day he got up. He had in all hands. He had a team meeting. Every Sunday, we had a board meeting.

11:04He prepped everybody from the board all the way down to all of his employees on what we were going to do. And that was a significant change. And along the way, he would call me and we would bounce off ideas. Obviously, we needed to raise money. Do we do it in equity? Do we do it in debt? Equity would be very punitive at that time, we decided to do an indebt. And we decided that we were going to cut expenses, but there's a framework, which is you cut marketing because we didn't need to market anymore. We cut offices, we cut contractors. And then the last thing he wanted to do was to have a layoff, but he had to do that eventually.

11:51And so it was a very, very logical, almost very thought through way of dealing with the crisis, even though the crisis is happening so fast. Sorcery is brought to you by Brex, the financial stack trusted by more than 30 ,000 companies, including one in three venture-backed startups in the U.S. Nearly 40 % of startups fail because they run out of cash. Brex is literally built to help founders avoid that. Unlike traditional banks that let your money sit idle, chipping away at it with fees, Brex is designed to help you spend smarter and move faster. Their all-in-one solution combines checking, treasury, and FDIC protection into one powerful account.

12:31You can send and receive money globally at lightning speeds, get 20 times the standard FDIC coverage through their partner banks, and even high yield from day one. With same day and even same hour liquidity, access your funds anytime. time. Companies like Scale AI, DoorDash, Service Titan, HIMS, Anthropic, Flexport, Robinhood, and Plaid trust and use Brex. Start today at brex.com slash sorcery. That's B-R-E-X.com slash sorcery. I find it interesting because I feel like his decisions as a founder at that time and as a leader on the external presence made it like, I don't know how to put this, like it made it that company and his leadership like super attractive to go work there.

13:24But in a situation like that, that would crumble your culture. You would be doing layoffs. People would not be feeling very secure. It would be very disorienting. But having strong leadership does attract strong talent. I'm curious, how do you think about talent shifts and culture and resetting those cultures through these turbulent times? Leadership is about making hard decisions, in my opinion. And in difficult times, true leadership shows. Culture is also about hard decisions and hard times. If you think you have a great culture during good times, you don't really know whether that culture survives during bad times.

14:10A great culture survives bad times. And the test of leadership and test of culture is going through bad times. Which is why, you know, in some sense, the companies that do extremely well have it hard early. and they can take lessons and they can shape their culture early to survive and to be resilient during hard times. I mean, Airbnb, Brian talks about the fact that it was very, very hard for them to raise any money in the early days. And then we like gloss over that because they had this nice little glide path for a period of time. But yeah, they started, it was tough. Nobody thought that we should fund a company where strangers are staying with other strangers.

14:59But he had a vision. I often talk about the fact that someone else's feature is another person's bug. Brian just thought that my father, who loves staying in hotels, in the same hotel, in the same room, because he wanted no variance when he travels for business, Brian thought that that was kind of mind-numbing. and he wanted to create a company where people traveled much more authentically and he brought that to life and the pandemic showed that the culture he created and the leadership that he has can survive both good and bad times what do you think that means for being a founder in a highly competitive or highly, it could go both ways because they're both, you know, like extreme environments, either highly competitive or highly turbulent.

15:57What do you think that means to be a founder? Like what kind of, what do you need to, how do you need to show up? I think you show up with a vision and a North Star and you measure your speed in in the right direction so we don't love the word speed at Sequoia we love the word velocity velocity is a vector it has a direction and the magnitude and you want to go in the direction that you want to go in and you want people aligned to that direction motion does not equal progress and you've heard that before from variety of different people and getting a company to align in a and will march in the same direction is what is really important during turbulent times.

16:48Because it's very easy to run around with as if your head was cut off during a crisis. It's very easy to see every little shiny penny that pops up because there's so much change in AI and try to go after a thousand different things. But your leadership as a founder is to make sure the company is focused in the right direction. There's some interesting Carta data around this cycle in AI. And there is a premium that AI native companies are getting. And it's more dramatic in the Series A and Series B. But given the macro on the AI environment, how do you set a culture for AI or to rebuild for AI?

17:38I guess like, let me just, let me reposition all of that. Talking about cultures and in this new AI era, there are teams that have to reset and rebuild. how do you help orient or what would you what would you say is like the best practice or principles to use to rebuild those cultures for AI there's founders like Brian Armstrong that are making really hard you know pivots or I guess like statements in his company everybody needs to learn how to use AI this week if they're not they're fired and then there are others that or maybe taking it a little bit less intensely. But how do you think about setting cultures in the AI era and rebuilding them?

18:24I think you want to build a culture where people pursue growth and learning, period. And so right now it might be AI and you want to learn all the tools that sort of can help you build things faster, automate things, et cetera. But when the internet happened, you wanted every single person in the company to learn about the internet. When mobile happened, you wanted everybody to learn about mobile. When cloud happened, we wanted to have developers learn about how to launch things in the cloud. And so I think you want your culture to stand for innovation, stand for progress, and stand for growth.

19:04And the companies that survive over time have had to have Act 1 and Act 2 and do things that are hard. I mean, how does Amazon, which is an e-commerce company, be a cloud company and build AWS? How does Zappos, who was just focused on shoes, go from all these other categories? How does Airbnb go from home sharing to all accommodations to experiences? Whether it was AI or not, you needed a culture that was going to be innovative and continue to sort of push the envelope of what can be done. And, you know, and so DoorDash had to do that from restaurant delivery to grocery to convenience to international.

19:57Maybe sort of take a step back on your specific question. I think for Clay, I'll just use Clay as an example, where they started out as trying to bring programming to the masses. They built something and there were not enough users who thought that this was something that they wanted. They didn't know what to do with it. And so Kareem decided to use his own product for go-to-market. And then they developed this whole notion of go-to-market engineer. That was the first sort of thing that sort of made Clay into what it is today. But then, okay, well, we're in the world of AI. How do we automatically update these leads using AI?

20:42How do we use more AI tools to help users learn the product so that they can prompt Clay to do the things that they want? That gets built into the culture because they've constantly been an innovative and learning company. And that's what you want to build. I want to go back to the beginning when we were talking about all the categories you go after. specifically within AI, a company that I've gone to know a little bit more recently is Profound. And this whole new world, it's a category creator. Another thing that I've heard from all your founders is you really back category creators. Calci's absolutely a category creator.

21:30Nominal, I think they're going to be there. Airbnb for sure. Profound is, it's just like, it's totally new. Like who thought you would need SEO for LLMs and all of these sorts of things. But I'm curious from your standpoint, could you one, break down Profound, but then two, how you think about, like, I just, I just, I want to understand like, who is Alfred as an investor? Because you back so many different kinds of companies like how do you find them and like what makes you attracted to them well profound is a great company let's start there and they're gonna create this category of helping brands build their brand on on on AI and if we start searching more and more on AI and trying to get more information brands have to show up in foundation models and AI the way that they want to show up.

22:27And so it is creating a whole new category, but I don't think they're going to stop there. They're going to think about what marketing is going to be and how it's going to be different in the world of AI, not just showing up on AI SEO. That's the initial wedge, but James has a much, much broader vision for recreating marketing the way we know it. One of the things that over all of these sort of megatrends that I've been fortunate to live through is that the business models changed. The internet, there was a lot of innovation around advertising. Ad units changed. Keywords became something that we bid on.

23:10There's just new innovation. With SaaS, obviously, there was this change in selling seats and selling it in a subscription model versus licenses. Mobile, we had in-app purchases. We had freemium models where you got the free version of the product. And if you liked it, you upgrade. These things are really interesting because I may not be able to build the product, but I can help founders reimagine what business models are going to be. And I think AI with the technology that's coming, we're going to reimagine a lot of business models. And so that's really fun. And so when you ask, who am I as an investor?

23:56I don't love the word investor back to we love being partners to the founders that we back and the management team that they hire. I'm really a partner to help solve these problems. And maybe another way of thinking about me as an investor, all these different categories, I just see specialness in the founders and their desire to go change the world. This is a very fun business because I get to meet with these wonderful founders who want to go change the world. Even if I don't agree with them, I just love hearing the stories and their insights. In today's high-speed business world, staying ahead means using the smartest tools possible, including the powerful capabilities of artificial intelligence.

24:44Meet Turing Intelligence. Turing builds customizable AI systems designed to solve your mission-critical challenges, no matter your industry. From expert guidance to tailored projects, Turing helps top companies realize AI that's more capable, more adaptable, and more effective. With Turing, discover how AI can accelerate your business growth. To learn more, visit Turing.com slash sorcery, spelt S-O-U-R-C-E-R-Y. That's Turing.com slash sorcery. How did you partner with Citadel Securities? Well, it's funny because my brother is head of fixed income and macro at Citadel, the hedge fund. and I would have never imagined that Ken Griffin would sell a portion of Citadel Securities this market making business I've asked him about the business and you know and he's just like yeah you know it's interesting but our partner our partner Constantine met Ken at a conference and went up to Ken and talked to him and struck a developer relationship and over time i think it's over like two and a half years where he kept asking ken could we ever invest in citadel securities and i think ken said no um many many times and constantine did not stop um and so it was a team effort constantine obviously sourced a developed relationship with Ken.

26:19Doug helped, I helped. And so we eventually broke through and got Ken comfortable with how Sequoia was going to help with the company building side. We may not know anything about market making, but we do know how to build technology businesses. And that's the type of help that Ken wanted around the table for Citadel Securities, because fundamentally it is a technology company. And in some ways it is an AI company. They've been using math to find ways to make money and calculate arbitrages and calculate risk for those arbitrages for a long, long period of time. And so they know how to do that.

27:06We know how to help them build and grow a technology company. So why did you want to invest?

27:16Maybe in another life, I was supposed to work at Citadel Securities. As you know, I go all the way back to, I was born in Taiwan. I grew up mostly in New York City. I came to the US not knowing any words of English. and my parents were like, yeah, you're kind of bad at languages. I was always bad at languages. So you better study math and do it well. So I studied math. I went to Harvard and studied applied math. They took a class from Robert Merton. And the class was called Continuous Time Finance. A few years later, he would win the Nobel Prize for his work on continuous time finance. And I asked him for a job.

28:06at this place called Long Term Capital. And he said, you know, you're pretty smart and you're pretty good at math. You should probably go get a PhD and then come and ask me for a job. I said, okay. So I came out to Stanford to get a PhD in statistics. And I fell in love with the internet. So I dropped out. A few years later, when I was at Link Exchange, I was the acting CFO at the time. We're trying to take link exchange public. The market was dropping 100 points an hour. Sorry, August 31st, 1998. It was dropping 100 points an hour. And it was because long-term capital was blowing up. So I dodged a bullet by not going to long-term capital.

28:55But there was some ricochet because we couldn't take link exchange public. We eventually sold it to Microsoft. off. But I could have ended up working for a hedge fund or for Citadel Securities or Citadel or some company like that. Growing up, I think most of my family members, definitely my mom and my dad would have thought my brother would have worked in entrepreneurship because he's He's sort of the extrovert. He's charming. And I was the introvert, awkward. So I was going to work, either be a professor or work in a hedge fund. But the two of us swapped places in some ways. Wow. And then that led you to having a piece of it.

29:44Life is funny in that way. Sentimental. I like that. IPOs are causing a lot of demand. Demand from people like Citadel, public market investors, those types of personas to want more of these tech companies to go public. It's good for the ecosystem, but there is like a little bit of a pressure there. There's a little bit of pressure from investors, for DPI. I'll share some information in the comments on some Carta data for that that's coming out today. But how would you advise companies as they think about these exit scenarios? And I was like, well, why wouldn't you want to get acquired? So like putting that to the side, how do you help your companies think about exit scenarios, whether it's through M &A, going to IPO, what makes a company a public market company or other routes of exits?

30:46The exits is not something that I spend a lot of time thinking about or the founders I work with in general. I think the reason that is, is if you focus on building a great business and a great company, then exit opportunities will abound. And if you need to raise money, whether it's in good or bad market, if you have a great company, you will be able to raise money. And that's true privately, and that's true in the IPO market. That's true after the IPO, where you may raise financing in the public markets through a secondary or through a debt. And so I've always asked founders to focus on building a great company first and foremost.

31:38On exits, it is the timing of an IPO, the timing of whether you sell the company has a lot to do with what the founder wants to do. I always tell founders an IPO is another fundraising round. It just happens that you're selling it to the public and you can get some liquidity for your early shareholders and your employees. But it is a fundraising round. And are you prepared to be a public company? Are you prepared to give quarterly earnings and guidance and all those things? It's about preparedness on the IPO. On an exit, one of the things to think it through is this is a terminal price. But more importantly, whether when you sell the company to the acquirer, whether it fulfills your vision.