20VC: The Sequoia Investment Process | Investing Lessons from Doug Leone, Roelof Botha & Alfred Lin | Sequoia's Framework for Analysing Founders | The True Benefit of Having Sequoia on a Cap Table & Sequoia's Biggest Threat with Pat Grady

22:41There are lots of little tidbits like that in the fanos we work with. I have made many mistakes in terms of founders as firms. When you look back on yours, what did you not see that with the benefit of hindsight you should have seen? There is one thing, and there are a couple of founders that I'm thinking about on a mistake that I've made. So Peter Reinhardt of Segment would be one of them, and then Founder CEO of Revolute. Well, I start on Peter. What did you not see that you wish you'd seen? So I met both of those for series A's, and both of them told me the entire story in like five or ten minutes.

23:12It was super clear. And at the end of the five or ten minutes, I couldn't think of any questions to ask because they had already answered any question that I would have wanted to ask and then they just kind of looked at me and said So do you want to invest or what and I didn't know what to do And so you know I went off and tried to do some homework and try to come up with an answer and it was almost too simple and Because it was so simple for whatever reason I didn't have the conviction to lean in and we ended up passing on both of those and in retrospect back both of those were terrible decisions.

23:46And so I think maybe the lesson is, sometimes it really is just that simple. Like sometimes the very best founders can articulate things in a complete and compelling way in five or 10 minutes and that's all you need to hear. When I think about Nick that in particular with respect to him, I think about something Peter Fountain told me, which is like the best founders should make you feel a little bit uncomfortable. Yeah, they won't make you feel at ease. And I remember asking Nick, Nick, what's your favorite book? He was, I don't read book. I do PDF. Alright, what's your print PDF? And it was Ray Dalio's Principles.

24:19Ah, yeah, that makes sense. But I love that. People have the perception that Sequoia just see everything. Is that true? It's not literally true, but it's effectively true. So if I were going to decompose our value chain and let's say there's sourcing, picking, winning, building, harvesting. So, harvesting is selling. harvesting is actually generating returns. So sourcing, are we getting front of interesting stuff? Picking, are we doing a good job of selecting, winning, are we able to invest in the companies that want to invest in, building, are we actually helping founders build market leading companies, and then harvesting, are we eventually turning that into returns for limited partners?

25:00If I were to go across a value chain, I'd say on sourcing, we are eight or nine out of ten. We're not perfect, and particularly at the very earliest stages. It's really hard to have complete coverage because founders can come out of anywhere. But I think for the most part, we're in front of good stuff and we're in front of it early enough to have a real point of view. So I think in sourcing we're probably an eight or nine out of ten. On picking different people may disagree. I think we're maybe a six out of ten. Because there's so much uncertainty in this business, it is incredibly hard to make these decisions.

25:31I think we're probably as good at it as anybody, but it's just really hard. Which firm do you think is a better picker if you had to choose one? I'm not necessarily willing to say that he's better, but somebody who I really admire is Mammun a clientner I think Mammun has an exceptional track record of investing in companies that are not at all obvious at the time And I think about the series B and Figma, which is around that we looked at and passed on I think about the whatever round it was in Slack when it had just become Slack Ripling Yeah, Ripling's a good point So I think Mammun if you look at his track record, it seems like he's a pretty exceptional picker I totally agree with you.

26:06Okay, so we have that picking. So we are picking and then... What would you do to be better then? We spend every offsite on this topic. I think the answer is to be true to the nature of this as an apprenticeship business. The answer on getting better at picking is not to erect a bunch of scaffolding around people to try to help them make better decisions because this is not a manufacturing plant, right? We're in the outlier business. You can't design a system that's going to systematically identify outliers because each outlier is going to be different. They're going to be one of one if they're a true outlier.

26:35So whatever system you design and backtasked, it's going to miss the next one because the next one is going to break the bolt. And so the way you solve for that is, again, be true to this as an apprenticeship business, have experienced investors in the field doing the work alongside the people are earlier in their career so that they can see how it works and they can see from a variety of people. One of the benefits I had when I joined Sequoia, I wasn't assigned to a particular partner, I got to work with everybody. So I got to make investments alongside Doug Lilliani and Jim Gets and Rulapota and Michael Moritz and all these other people who really knew what they were doing and Through all those repetitions I got to kind of figure out how does Jim think about investment?

27:13How does Doug think about investment? How do I want to think about an investment? And I think that's the best thing you can do. You have to understand as a venture nerd this conversation just makes me so happy Who's the best sorcerer in Sequoia? The first name that comes to mind is David Khan. David joined us about a year ago. He is an absolute force of nature. I get into the office pretty early. He's always in there on a Zoom when I get in. He's always in there when I leave. David is just a total force of nature. I think his, some people are high volume, some people are high quality. He's both.

27:45I think Sonia has done a really good job of making a name for herself in the world of AI and creating magnets in the form of blogs and the form of a podcast that we're releasing soon. I think Sonia's done a really good job putting herself in that position. He's the best picker. A lot of people are really good pickers. I'll keep it on the growth team because that's where I'm better versed. I probably have to say Andrew Reed. If you look at Andrew's portfolio, very few false positives, very few false negatives. Most of the stuff in there is very good. And a lot of it wasn't obvious at the time. So the C3C and Figma, when Figma had, I think, 4 .6 million of ARR.

28:20That was not at all obvious, but Andrew had spent three years studying the design market and had a real point of view. I remember when he did that, and it was close to 400 million price. And everyone was like, not under that Sarah, and it was like, seriously. Yeah, this is just crazy. Yeah, and Andrew's also got ranged though. I mean, you mentioned Vanta, he let our series and Vanta. There's a big company over here in Europe called Bolt. He let our investment in Bolt, you know, which is the right sharing business. He let our investment in Robinhood. I mean, he's got pretty good range. Winning.

28:50Yeah. Just, was win. What percentage of the time do you lose? We do track this. I think it's 100 % the last 12 months. Actually, I take it back. There's one situation where an existing portfolio company was raising a series B and they chose somebody else and to be fair, we didn't make an offer. But had we made an offer, we probably would not have one. So I would count that one against us. Would you give yourself a 10 out of 10 for winning or? We don't give 10 out of 10s, but I'd probably give us a 9 out of 10 for winning. Some people want to believe that because we have this nice brand, we can just waltz in and founders will hand to shares in their company.

29:25and that is far from true. Like it is an absolute knife fight every time. And we try to have a team and a culture where even if your business card meant nothing and nobody had ever heard of the name Sequoia, you could still be put in position to win. Because you've built this sort of relationship with the founder that just makes them want to be in business with you independent of, you know, what firm you're from. What's your favorite winning story, Pat? You've been at Sequoia now for 17 years? Yeah. In sales parlance, people talk about the difference between making something happen and order taking.

29:58And the venture business in the last several years has turned into a business of order taking. And it's a business of order taking in the sense that a lot of companies are raising money, rounds are happening frequently. And when the round comes along, you raise your hand and say, okay, well, we'd like some please. That is very different than the way that it often worked 10 plus years ago where companies may not have been raising another round. They might have been generating cash. They might have had no need for money. And it was a business of figuring out if there was some reason that they would be better off if they had you as a shareholder articulating that to them in a compelling way and getting the opportunity to be shareholders and one that I think of is in 2009 Fred Lutty was building service now down in San Diego and nobody had really heard of it It was just a SaaS company that happened to be working.

30:42It was generating cash And so there's no need to raise any money. There was no browned plant. Yeah What is cash was it being? Just bullpaw. This is actually funny because we didn't have a full set of financials from them, so we didn't know literally until the last slide in the presentation in the partner meeting on the day that we were going to make the decision when Fred was presenting, the very last slide showed that they were generating 20 million of free cash flow. And that was on 25 million of ARR because they were getting paid in advance for two and three -year contracts. So they were unbelievably cash -generative.

31:13Obviously didn't need to raise any money. The reason that they decided to get into business with us, Doug and I went down to visit Fred and San Diego. We were sitting with him and Doug has this amazing discovery process. We're kind of teases out everything that might not be going so well with the company, which is not the stuff they want to tell you about it. How did he do that? He asked a gazillion questions. I can't tell you exactly how his brain works, but somewhere in there he is constructing a model of the human being and of the company. And so the questions don't go in like logical flow or you can kind of trace them from A to B to C to D.

31:43They kind of go all over the place, but by the time he's done, he has this very clear picture of who is this person and what is this company. Anyway, with ServiceNow, he teased out that they were having issues with the back end of the business. This is 2009. People weren't building companies on AWS. You were doing managed hosting or you were using some sort of data center co -location, but you were basically responsible for your own technical operations as opposed to effectively outsourcing it to the public cloud. Because the product for ServiceNow was getting pulled into these huge enterprise deployments, It was sort of outpacing the ability of the back end of the business to keep up.

32:18And that was showing up in terms of latency and in terms of downtime. And that was kind of the main pain in the business. It was one of these pains caused by success, right? But we were sitting there and Doug took out his phone, looked up a phone number, and while Fred is telling him this, he says, you need to call Marty Abbott. Marty Abbott was a guy who used to run technical apps for eBay. He's also somebody who helped us when YouTube started taking off. You know, 2005, we got a business with YouTube, and all of a sudden the thing starts running. they had the same issue or they had to keep their servers up.

32:45So anyway, Fred calls Marty Abbott. Marty Abbott comes in, helps him out, solves a problem, and we had a couple more of those, and eventually Fred was like, okay, I guess it'd be nice to have you guys around. And so he created an opportunity for us to invest, even though there's no need for money in the company. How much ownership did you get then? We invested 52 million for 20%. And for anybody keeping track, that is 260 posts I've done 25 million of ARR generating 20 billion in cash. Do you not try them? Market caps. I honestly don't look at public stocks, even the ones that you were responsible for.

33:19We still own a bunch of snowflake, we own a bunch of amplitude. We actually own a bunch of data dog. I really don't check data day. 27 is it such a secret weapon having Doug come in to founders? I remember talking to Christian Hacker at Trade Republic about his meeting with Doug in COVID on a terrace in Germany, in the cold. and he just said like it was another life. I think about if you've got Mark Andreessen and Ben Horace doing the hard fucking cell and then you have Doug Lee only doing the hard fucking cell. No, I mean I'm obviously green. My dog's gonna win a win. But when Doug starts pulling away, how does one think about losing a weapon?

33:55Well I don't think people have gotten to see what made Doug so effective 10 or 15 years ago because the thing that made him so effective 10 or 15 years ago, was he was the tip of the spear. He wasn't the guy who got parachuted in later to play the role of senior big dog and impress upon the founders how important they are because hey the big dog is here. That's more what he's been asked to do recently. 10 or 15 years ago, he was the tip of the spear. He was in the first meeting. He was leading the charge. He was asking the questions. He was doing the work and in that capacity, he was the best there's ever been because he would fully fully fully commit to being present.

34:35understand that person to a degree that nobody else has ever understood them. Understood their business to a degree that nobody else could possibly achieve in 45 minutes. And by the time that conversation was over, there was no question that they wanted to be in business with him. It doesn't matter who else comes into the room. It could be anybody. But like nobody could be duck at that point. I remember meeting him for the first time. I met him at a hotel for breakfast at the Conald in London. Yeah. And he ordered the most incredibly specific breakfast. It We took about five minutes to describe the beauty of this six egg whites, no butter, no oil.

35:09Exactly. And after we said, he's having, he's been here before. He's a good choice. It's funny. I actually learned to eat faster because I used to travel with Doug so much and we would try to squeeze in food in between meetings and he'd be done in 30 seconds and I'd still be sitting there. So I actually trained myself to eat faster so I could keep up with Doug when we're on the road. But when we go along the life cycle of like fund investing, the net is actually helping companies be great. So, queer has big, big teams now. And then I have the alternative which is your founders' funds of the world to say the best founders, they make great companies.

35:48And so my question is, toward extent does the investor really move the needle in enterprise value creation do you think? Well, first of all, big teams, you know, when I joined 17 years ago, we had 14 investors today. we have 27 and so that's less than a 2x or you know 17 years. So our team is fairly small relative to our market presence. The thing that has changed a bunch is when I joined we had two people that I would call kind of front office operators. So not compliance, finance, all that good stuff. But two people one in marketing and one in talent. That number two has grown to almost 60 today.

36:24And so that's where we've really invested and the reason we've done that is largely a reflection of the market. One of the nice things about technology is kind of this democratizing force, right? A founder could come from anywhere in the world and focus on any vertical. And so the venture capital market is subject to something that people used to use in relation to the big data world 10 years ago, and that was a thing, which is the three V's, volume variety and velocity. There is a higher volume of founders coming from more places coming at us faster than ever before, and we have to react to that as a business.

36:52One way to react is to staff up the investment team, We get 100 investors. We chose not to do that because what we want to do is concentrate the experience, concentrate the knowledge in the smallest possible number of people so that when one of those people happens to stumble across the next Fred Levy, the next Todd McKinnon, the next Brian Halligan, they're going to give that founder the sort of outlier experience they deserve. So we wanted to keep the team as small as possible. The thing that we can scale is the platform, so those front office operators that I mentioned. And that platform, it amplifies our efforts as investors.

37:23It also is an opportunity to build advantages that can compound over time. And the most obvious instantiation of this is the technology platform and the data science system that we built, which has signals that get better and better over time. How much of your investing role is impacted by the data signals that you get? I had a lot. I had a lot of it. I had a lot of it. Yeah, yeah. Yeah. People didn't retook about the quiz data platform. It's not exposed externally. Yeah. It's just something that exists inside the building. occasionally we'll use it to help out founders, but for the most part it is an internal tool that makes us more efficient.

37:54We don't want to get to the point where the technology platform is like pumping out by signals. We don't want it to make the final investment decision. We do want it to get to the point where it can tell us whether that we should meet a company and it got to that point a year or two ago. To what extent do you think that's reliable? When you think about it can predict which companies we should meet. All the biggest outcomes not purely anomalous. When you look at Daniel Acquist Spotify, in the series A he was going around asking serious ambassadors not only for the round, but also if they knew a good CEO that would like to replace him.

38:23Yeah, yeah, yeah. It's so anomalous in every way. It's a lot better for growth than it is for early. It's a lot harder to get those signals out early, which is why we have the ARC program. We're not getting thousands of applications every time we have a new batch for ARC, which we're now doing a couple times a year. Do you think ARC has been successful? I think ARC has been a wild success. There are only two things that matter. Number one, do founders like it? Number two, doesn't make money for our limited partners. On point number one, do founders like it, overwhelming success. The NPS of the last batch was quite literally 100.

38:53And so the NPS on this thing has been very good, we're getting a lot of referrals. If we go through and say, okay, well, are they the right kind of founders who are applying to this? There are a lot of great founders. We've run into a lot of companies later at the Series A or the Series B that were hunting and then we go back and look and it turns out they applied to ARC two, three years ago. And so we're actually attracting really good founders and we get a lot of value out of the programs. So that's huge. The one liner that they've said, which is my favorite way to encapsulate it, is other incubators or other accelerator programs teaches how to raise or series a Sequoia teaches us how to build a business.

39:24That's the words of our founders, not the words out of our mouths So that's kind of point number one founders like it point number two Is it gonna make any money for LPs? The truth matter is time will tell there are some really good companies that are starting to come out of ARC And so I'm optimistic that it will also make money for LT's when I suppose Danny Rimer a couple of weeks He said, the reason that in -dice spins successfully, I'm kind of bossed by using it, but you know, it's kind of my job. Uh, is that they've been very, very good at keeping the main thing, the main thing. Yeah. And I guess the question that I have for you is when you look at like the ecosystem fund, when you look at ARC, when you look at scout funds, when you look at the operator talent platform, there's a question of how do we think about keeping the main thing, the main thing, is is that flying in the face of it?

40:09It is absolutely the right question to be asking. I'm a big fan of fewer better things. It is good to experiment because if you don't experiment you're not going to be on the bleeding edge and you're not going to be the ones defining the future. You're going to be getting dragged into the future by somebody else who's defined it for you. So I think it is good to experiment and I think that we've experimented aggressively and I'm a big fan of that. I also think it's really important that the default for any given experiment is that it gets killed. But burden proof is on the experiment, right? Unless it is a wild success, shut it down.

40:42Most companies say, well, unless it's an abject failure, we'll just keep going. No. Unless it's a wild success, shut it down. That doesn't mean it's going to be a home run right out of the gates. None of the experiments that we've done were home runs right out of the gates. But you could find something in there that allowed you to craft your thesis for why it was on the track to being a wild success. What did you let run for too long that you should have shut down? In 2005, when we got into India and China, we did so with the thesis that the world was getting smaller. And when we parted ways in 2023, it was because that thesis in some ways had been invalidated.

41:19Maybe we could have done that a few years sooner. You don't think the world is getting smaller again? I think what we're seeing is technology ecosystems that are more geographically isolated than we might have expected. and there's a lot of interconnectivity, but it's not just a single global technology market. To be clear, I think our partners in those regions did a fabulous job of building their respective businesses and reaching the conclusion that these are going to be isolated technology markets. We probably could have reached that conclusion sooner than we did. We just wanted to make sure that for a decision of that magnitude, we were getting it right versus being reactive.

41:53I spoke to Andrew, and you didn't about this in particular. We've mentioned the team, the platform build, but on the investing team build, you're apparently one of the best Hires of investing talent there is in the business they said But they actually wouldn't do it wouldn't they? I mean you're talking about people I hired What is she still Andrew that's so good at finding 23 year old analyst from Goldman Sachs He's really good at that But but you know and you told me about you hiring him and Matt Huang and the panny they heart They felt like a good process. I might both the mobbosy have turned into it.

42:30Very, very brilliant investors. When you reflect back on your hiring process for hiring investors for the team, what have you learned? What do you do well? I had to read Matt Huang both started on our team in February of 2014. And so the process that led to them was conducted over the back half of 2013. And it was about the most rigorous hiring process we've ever had. Top of funnel was 9 ,000. And what came out the bottom of the funnel was Andrew Reed and Matt Huang, which is pretty spectacular a couple of outputs. So I think one lesson in hiring is it is a process like any other. Yes, there's some art to it in terms of trying to really understand people, but there's also a lot of kind of science process management aspects to it, you know, just set it up to be a very efficient process.

43:12If you maximize top of funnel, that is one of the best ways to make sure that you're going to be happy with whatever comes out the other end of the funnel. Right, so I think that's probably one big point. The second big point, which is around the kind of art piece of it. And this goes back to what we were saying earlier about how I've been trying to get better at sort of understanding people Most of the time when you go into a hiring process You have this list of things that you want you know that you're supposed to keep it short But you end up with 17 things on the list because everybody has their pet rocks that they want to include and you go into the hiring process And you come up with a candidate and you're about to make a final decision on the candidate And then somebody says but wait but wait they don't have a cs degree And you go check your list and it turns out that none of the 17 things says cs degree But somebody thinks that's really important, you know, and they didn't get to put together the list and so now they're gonna block the candidate.

43:57So on the art side of it, you need to figure out what are the few things that are absolutely essential and make sure that the person absolutely nails those things and everything else is a nice to have. Does it change for each role? It depends on whether you are looking for more of a DNA higher or more of an experience higher. So Andrew Reed is a DNA higher and then David Cohen is an experienced high. Both DNA hires. David had more experience in the Andrew, but they're both DNA hires. Primarily DNA hires, it's not either or. It's what's sort of primary. So for example, Carl Eschenbach or Brian Heligan for that matter.

44:30More experience hires, but the reason they work is because they're DNA. Both Carl and Brian have resumes that are kind of one -on -one, right? Like Carl ran VMware from 40 million to 7 billion in revenue. Now he runs Workday. Brian built a company from zero to two billion in revenue. All the way from PLG up to the enterprise, Act 1, Act 2, Act 3. a lot of good strategic decisions. Those guys are amazing based only on their experience. The thing that separates them from other people who have similarly amazing experience is their DNA. They're just very special human beings. The way that they interact with founders, that is the thing that makes them so effective.

45:04Once they don't think people necessarily appreciate. How do they interact with founders differently? You know, Brian Long at Attentive? Yeah. Brian's the founder of Attentive, which is a marketing software company. And I remember one time he was saying, hey, I think there's sort of two types of executives out there who would like to get involved with venture capital back companies. They're the kind who view it as their job to tell the founder what to do, and they're the kind who view it as their job to be in service to the founder. The thing that makes both Brian and Carl so great is that they view their job as being in service to the founder.

45:33And what that means is they don't show up and just pontificate about all the things they did right when they were operators. They show up and they listen and they ask questions. and they're very direct with their feedback, but they're direct in a loving sort of way. And so it's the unbelievable lack of ego, the humility, the curiosity, the genuine care, and the genuine desire to help the founder. That is the thing that makes them so special and makes them so effective. I honestly think the world in both. Also, Halligan is fun. Halligan's amazing. He's really fun. He's amazing. Yeah, really loved doing that show.

46:06The final element was the harvesting. What have been the biggest lessons in terms of generating value from sales because you have the question of when do I sell? Do you, I hold? What have been some of the biggest lessons there? It's really hard. There are companies that we sold way too soon. When I say we, the founders, you know, ultimately we are in support of the founders, but YouTube is a canonical example, PayPal is a canonical example, you know, so there are companies that have been sold way too soon. There are also companies that we hold on to for too long. There's one in our portfolio now that but I'm not going to name, but we had an offer from somebody to buy the company from almost $5 billion.

46:41We own just north of 20%, that would have been a huge home run. Now the company looks like it is kind of not headed in a very good direction. But there are companies you can sell to, seeing there are companies you can hold onto for too long. Similarly in the public markets, you know, we were talking about service now. If we'd held service now through to today, it'd be a $30 billion game, right? But we didn't. We distributed it a year or so after the IPO because it was the first billion dollar gain over time, not all at once. But it was within the first couple of years because it was the first billion dollar gain that we had ever had in the growth business.

47:16The growth business for Sequoia was kind of this fledgling second -class citizen. Did you need to do that? You're Sequoia. You don't need to prove yourself. We didn't need to and nobody was putting pressure on us to do it. But we looked at and said, said, okay, this is pretty good. You know, let's go ahead and call it a win. I think today, we'd be a lot more patient, we'd probably hang on to it for a lot longer. It's not always the right decision. We held on to a lot of stuff in 2021. That's worth less today than it was then. My question is, like, when you think about that, what is the takeaway?

47:45Is the takeaway to be prudent and take 33 % off the table in increments over a nine -year period, three years at a time? Is there a takeaway from that? Or is it just it's hard? Yeah, I think there are a couple takeaways. and there's sort of a high level choice to be made, and the choice to be made is how much energy do you wanna put into the harvesting? How much energy is needed? That's it. And so there are some firms that say, look, we are venture capital investors, not public market investors. We are not going to try to outsmart the public markets and figure out exactly when to distribute our positions.

48:16We're just gonna do it programmatically. And I think that's a totally viable answer. Maybe you say, okay, we're gonna distribute a little bit as soon as the lockup comes off, a little bit more six months later, a little bit more six months after that, whatever your algorithm is, I think that's a totally okay way to do it. The way that we have chosen to do it is to try to be really good at it, which doesn't necessarily mean outsmarting the public markets. It does mean having a pointed view, so that when a company goes public, it's not just programmatic. There's real work that happens to try to figure out where the company has a chance to go from here.

48:45And the result of that, when it works, this company's like Square, where at IPO, it was a, I don't know, maybe a couple hundred million dollar gain. And by the time we distributed five years later, it was a multi -billion dollar gain. Our company's like Mungo, which has compounded close to 40 % in the public markets that we held onto for many years after the IPO. Or Palo Alto Networks, where we went into that IPO with the exact same ownership position as one of our co -investors, we ended up generating more than a billion dollars more than them because we were more patient. And so sometimes it really pays off.

49:16God, and the cash is at beast. The cash is a total beast. Yeah, absolutely. and I did a show with him recently and it was at the end of a 36 hour fast. And so I was just incredibly... You were fasting or he was fasting? No, I was fasting. And I was just incredibly moody. And I just took it out on him. Did he push him in place? Yeah, and then, no, no, he didn't. This was a point and then I got loads of matches off. So I was like, dude, you're the only person in 20 years. He's like, oddly, bad with him. And I'm like, oh my god, what did I say? That was an interesting one. The catch has been incredible.

49:46That tell us it's been interesting because Mark McLaughlin was perfect for that like 100 million to billion revenue leg of the journey. And then the cash has been perfect for the six billion or whatever it is now leg of the journey. So that's been a great story. When you review the life cycle that we've just gone through, why are you weakest? You know, it's funny. Ironically, I'm probably weakest now where I was strongest 10 or 15 years ago, which is on the sourcing piece. That was the only way that I could distinguish myself. that Sequoian the early days was to just try to go find interesting stuff, try to find companies worthy of Doug Mioni's attention.

50:22Is Ventura a young person's game? It really depends. I think if you go across the value chain Sourcing in some ways might be a young person's business. Here's a tricky thing. The more experience you have That experience compounds the knowledge compounds your picking algorithm gets better. You would say okay The more experience you have the better off you're gonna be a picking. The problem is we're in a details business If you're just trying to separate good from bad, you don't necessarily need to be in the details. If you're trying to separate good from great and great from exceptional, truly exceptional, like the one out of every couple thousand companies that's really going to matter, you got to be in the details.

50:56Because the 10 or 15 that all look about the same from a distance are going to look very different when you get up close. And so picking, you need to have the attitude and the work ethic and the tenacity of somebody who's earlier in their career and trying to prove themselves, coupled with the experience and the knowledge of somebody who's actually been around and seen a little bit of that, which is why I think a lot of times the sort of mid -career investors can be the best because they have both the right attitude and the right experience. One of the things that we try to do that we try to distinguish ourselves on is to not have the more experienced people check out and get into administrative management roles, like we should be in the field making investments, meeting companies, doing the work, really try not to understand the details and if we can do that, then hopefully we end up at a better place on the picking.

51:43When you think about the benefits of having Sakura as the line on your cap table as well, I think one of the biggest lies we tell startups is the startup style of indigestion, Nord of starvation. I think anyone who actually has any reality in the real world knows that most companies actually run out of money in the real world, Nord in a while growing venture world, which does happen too, but the proportion is wildly to those that run out of money. and speed is everything and finding product market fit is everything. When you have Sequoia on your cap table, your ability to raise an extra round from someone, it may not be a tier one, but from someone is very, very high.

52:17And therefore, you get a far extended amount of time to find said product market fit and that ideal customer and that revenue, which means you have an inherently lower mortality rate. Do you agree? Yeah, I absolutely agree. One of the things that our competitors try to use to sell against us is what they call signaling risk. Oh no, no, you shouldn't take Sequoia at this round because then if they don't need the next round, you're toast. I just use your Dolcey choice of shit. But... Appreciate you. You're like I'd prefer you on Zoom. But if you look at the data, it's actually not that signaling risk, it's signaling advantage.

52:55And it's signaling advantage in the sense that if you have Sequoia on your cap table, chances are your life just got a lot easier for the sake of future fundraising and the delusion that you're gonna get from future fundraising Just went down a bunch because it is the easiest algorithm in the world as a venture investor somewhere else to say okay I'm gonna hunt the Sequoia seed investments. I'm gonna hunt the Sequoia series days I'm gonna hunt the Sequoia series bees And so if you have us in your cap table chances are your life just got a lot easier. This is a cool -haven pricing power It's funny, it's something that I find best is don't look for in companies, which is like the best businesses have pricing power I think similarly in our business if you're way up the funnel at the moment of company inception The difference between starting a company with Sequoia and starting a company without Sequoia can be pretty big Huge and so most founders at the very early stages are willing to you know If you think of us as a premium product you pay something different for a premium product Then you pay for a normal product and they pay for a premium product in the form of the equity I think seed series A's were pretty decent pricing power, so to speak there.

53:59And then the later stage of the company gets, the more the company itself has already been established, and having sequined the cap table is not going to be a company -making moment. It might be nice. You know, hopefully it can help them more over time, but we're not likely to get any sort of huge discount at the later stages. When you have fun sizes at the sizes you have now in the capitol you have with recent fun raises, but $0 isn't enough. You need to see a pathway to $10 billion. dollars. But sometimes that can impede your decision to invest in what could be a great company and you have to kind of turn over the next card to see that next flip.

54:32How do you think about that and that inhibiting your ability or decision to invest in a great company? You know, we were talking about this earlier. The tiebreaker always comes down to the founder. If I'm not sure about the market, but the founder just seems like dynamite, I'll probably lean in on that because to your point you mentioned this earlier, the best founders are going surprise you by finding more tam. We don't have to see a clear line of sight to 10 billion or a hundred billion or something grandios figure. We do need to see a clear line of sight to good returns with an exceptional founder who could maybe find some upside from there.

55:02What do you think a holiday thing of Jocho Bith today? I feel like you may not be familiar with this analogy but did you watch basketball? No, okay, okay great. So the Bay Area team is the Warriors and And several years ago, the Warriors had two players who were both just A plus Superstars, Steph Curry and Kevin Durant. And they managed to keep them together for several years and win championships and all that good stuff. But eventually, Kevin Durant left to go somewhere else. And so one of the things that I think about inside the building is, I feel like we don't just have two Superstars. We have a dozen Superstars.

55:37When I look at our team, any one of our partners could be a total star somewhere else. And so the thing that I was thinking about is how do we keep so many superstars together in one place and Get everybody to work as a team and try to keep Egos and balance and all that good stuff. I would say so cool as like an iPhone Which is like once you have an iPhone is like we're not gonna get it and droid up There's nothing else. That's why I'm almost like, you know, don't peak too soon I think I said this to Julian, I was like, just so you know, once you get there is that you just have to accept that like There's no like up like yeah You know what I mean.

56:18Yeah, well, that's I genuinely believe that being a partner to cool Here's the best job in the world and we try to make sure that that's true for the very best people So that we can have a team of people who are sort of individually exceptional We do post -mortems on why a company isn't successful ahead of time try and predict what could be harmful If you did a post mortem on Sequoia, 10 years out of what is the reason why it may be challenged? I do this exercise every year and we do it as a team. I'll tell you one thing that I've heard Doug say to his kids or about his kids, which is I can give my children anything in the world except for the one thing that made me who I am, which is my sense of desperation.

56:57And I think similarly being part of Sequoia We have every advantage in the world except for the one thing that made us who we are, which is a sense of desperation. And so the pre -mortem for Sequoia has nothing to do with the financial markets or technology platforms shifts or competitive dynamics out in the market. And it has everything to do with staying hungry, staying humble and to use the Amazon terminology, behaving as if it is day one every single day. And that the default is if we don't go out there and earn it tomorrow, we are irrelevant. I think that is true, and I think as long as everybody inside the building believes that is true, and everybody inside the building behaves accordingly, we'll probably be okay.

57:40But I think every pre -mortem begins with arrogance, complacency, taking it for granted that we get to be sequoia tomorrow because we were sequoia yesterday. Well, I want to go a little bit off -schedule now. Yes, because everything's been so specific. Yeah, but I do want to do a quick fire round and that was a wonderful like God the artistry of that interview Which is like when a relevance kind of circles back. I don't know if you guys any of these questions I did and ridiculous you just didn't know it's such an enchanting interview style And on the quick fire round tell me what do you believe that most around you disbelief?

58:16One area where I'm probably Most often different than others is around this concept of fewer better things Most of the time when a company that we're involved with wants to go do a bunch of new things, it seems to me that the better use of resources is to make the thing you already do better. The thing that you already do, unless it is absolutely heads and shoulders above any of the alternatives out there in the market, you probably get more juice out of making that thing better than you are out of doing more stuff. So that's probably a place where I generally disagree with people. When you review investment decisions in town, Nate Sikore, in terms of the voting process and the process to get it done, all the unanimous ones generally the best outcomes or all the contrarium ones the best outcomes.

58:59So we have actual data on this going back to 2014 where we started recording the votes numerically on every single investment. So about 10 years worth, which believe or not, is not conclusive because there are so few outliers that have emerged even in the last 10 years. But best we can tell whether something is consensus or contentious actually doesn't matter. The thing that matters is presence of conviction. So there could be investments where everybody's is six and the voting is zero to 10 no fives. So six is above the line, six is lukewarm enthusiasm. There could be an investment where everybody's is six and then compare that to investment where one person's a nine, two people are eights and then some people hate it.

59:36There's some twos and threes. Do you let people be a six? Yeah. I think numbers that are further away from five are more clear in terms of your point of view, but a lot of times people are co -mingling bravado with conviction. If you vote a nine, just because you feel like you need to vote a nine to, you know, show your conviction, that's probably not a good reason to do it. If you vote a nine, because you're actually a nine, and you're probably not nine more than one cent of blue moon, that's great. Do you worry about political voting? I'd always do it six if I wasn't sure. Because I mean, yes, but I'm a weak yes.

1:00:05If it turns into, you know, a mongo, I said yes, and if it's a dog, I was a weak yes. I know I like this one. This was from Alfred. Which French ambassador do you most respect and love from outside of Sequoia? Sarah Goi Ah, come on, it's an easy one. How did you guys, Sarah, is your wife? That is a good question. Tell me, what's the most memorable first founder meeting you've had? Two of them come to mind. One was Eric Yuan just because he was in this terrible office, but he was so full of joy and energy and enthusiasm because of this product that he was building. And it just reinforced focusing on the things that actually matter.

1:00:46So that was one that was pretty memorable. The other one was in the summer of 2007. So I joined Sequoia in March of 2007. Jim Getson, I come over here to London to look at an investment that we were contemplating at the time. And I convinced him to take a day trip with me to Sweden. So we flew into Copenhagen, then we drove across the bridge to Malmo or whatever's over there. and there's a thing called the Loond or Lund Technology Park that a whole bunch of start -up senate. Guess is very skeptical about this trip to southern Sweden and that was reinforced when we got lost on the way to this technology park.

1:01:21We took the wrong exit off the freeway and we're just lost in the middle of farmland stuck behind a tractor. Literally there's a tractor in front of us taking up the whole road and Jim and I are sitting there behind the tractor and he turns to me and he's like, there's a technology company around here. It was this company called click tech run by this guy named Monz Holtenon and it actually turned out to be a great business. It ended up going public. It was worth several billion dollars but when we were lost in a farm field in southern Sweden I was sweating bullets. What's your biggest lesson from Jim?

1:01:49I think Jim's two superpowers. One is his ability to see the future and two is his ability to figure out people and what motivates them and how to put people together into teams and how to motivate those teams. I learned a bunch of lessons from them. The one that probably sticks out the most is on that first part, which is seeing the future. Because I remember back in 2007 when I first joined Sequoia, and we were using, we just started using Salesforce .com, and prior to that I was using an on -prem civil system at Summit Partners, and Salesforce .com circa 2007 was garbage compared to on -prem civil system.

1:02:25And so I was not particularly positive on the whole idea of SaaS in 2007, and unfortunately I learned. But at that point, I wasn't. And I remember Jim with just full conviction was explaining to me one day, we were looking at some cloud company and I was poo -pooing it and Jim was telling me why I liked it. And he just, with 100 % conviction, he was like, great, he's like, don't you get it? Everything is going to the cloud. I was like, Jim, what are you talking about? Like this software is crap and you know, like why is everything going to cry? He's like, no, no, no, trust me. Everything is going to the cloud.

1:02:57And he had that point of view in 2007 way before. way before. That was at all obvious. And so the lesson for me from that was a little bit of like, trust your instincts or maybe a little bit of dare to dream. Because I think Jim had picked up enough clues to have a real point of view on the direction the world was going, even if the data at that time didn't necessarily support it. Which futuristic point of view do you have, which the data does not support today, that you can chat with me? I think that even if you or to freeze the capability set of the current foundation models and turn all of your attention to optimization and tuning and developer ecosystem.

1:03:36It would revolutionize trillions of dollars worth of industries and create trillions if not tens of trillions of dollars worth of market cap. The race is still on for advancing the capabilities of these foundation models. I think the current capabilities are powerful beyond anything people have figured out how to do with them yet. But final one, one of the kind of things that anyone has ever done to me is give me their support and mentorship. You met me so many years ago, when I did this, you've just like a 19 -year -old. And you have family, you are now head of secort, you have so much constraints on your time.

1:04:14Why were you so kind to me? I've never asked you that, but I've often thought it and we still have regular calls, and I know how busy you are. Why did you do it? That's a nice question. You're going to give me a choke up here. So Robbie, who you know, was sharing this concept one time of there are a lot of people who are sort of like auditioning for their lives versus just living their lives, meaning they are doing the things that they think they're supposed to do and jumping through the hoops that people have told them to jump through. But they haven't really figured out what it is they want to be, what it is they want to do, and what it is they want out of life.

1:04:53And so I mentioned this in relation to your question because most of the people I encounter who are earlier in their career are sort of auditioning for their lives. They haven't really figured out what it is they want, how they want to get there, and they might be working hard, but they're kind of going through the motions. And I think when I first met you, it was very different. And it was clear that you were not auditioning for your life, you were living your life, and you had decided what you wanted and you had come up with a way to go get it and you were very genuine, very earnest, not very earnest anymore, you're very earnest then.

1:05:34You're very genuine, very earnest, extremely hardworking, very curious, all of the attributes that you would want out of somebody that you could be friends with or be partners with or have a long -term relationship with. And so you made it very easy for me to be kind to you because you're the sort of person that I wanted to be in business with. Honestly, our relationship means so much to me. I have loved doing this. I'm so glad that we had this great detailed schedule that we could work off of and above everything, thank you for being my friend. Thank you. My word, that was a special one. I mean, it's rare that both of us choke up at the end of an episode, but Pat has been such a dear friend and mental to me over the last decade.

1:06:14I want to say a huge thank you to him for forgiving me the time, Mentorship and advice that he has done if you want to watch the full episode then of course you can on YouTube by searching for 20 Vc That's 2 -0 Vc. I always loved to hear your thoughts on episodes But before we leave you today I want to talk to you about a new venture fund making waves by taking a very different approach It's a public venture fund anyone can invest in not just institutions and accredited investors the fund rise innovation fund is is democratizing venture capital, which could have big consequences for the industry.

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1:08:53As always I so appreciate all your support and stay tuned for an incredible episode coming this Wednesday.