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

40:37So I'm curious how you think about that. And was that the sort of challenge in terms of the milestone based system you're referring to? Or was it something else? Well, I think if a founder or management team sell some shares in financing like that, at least the buyer is a sophisticated buyer. They know the risks that they're getting into. So that to me is a good system. and then i was another side of that uh at paypal we actually did a secondary in 2001 wow you know a lot of people make it as though it's a very recent innovation it existed back then and it was a relatively modest amount i went from um being a person who still had student debt to repay and i had thirty thousand dollars in my bank account because we did the small secondary in the summer of 2001 paypal yum yum i felt so rich it was an incredible feeling to not to not have student debt anymore.

41:30You just paid it all down at once. I was just done. And I can go on a vacation for the first time. It was pretty liberating. But the other thing it did was when eBay came knocking in August that year, offering an acquisition, it gave us more of a backbone because we'd all taken a little bit of money off the table and we weren't desperate. And so I've been a big fan of companies. Now at that point, PayPal was approaching profitability. we probably had on the order of 50 60 million in revenue at that point annualized and so we were building a real business um and it just gave us the confidence to keep going and for that reason i've been supportive of founders being able to take some secondaries because i just think it's unfair for them you know to wait 12 years before they take a penny off the table in the meantime they want to buy a house or you know pay for their family's you know well-being and things like that you know they're they're taking a small salary yeah it makes total sense that's completely reasonable in my mind and then it better aligns our interests because it'll probably make them think a little bit long term because they don't have all their eggs in one basket anymore yeah i'm totally cool that was that i mean when i came up as an entrepreneur and we got offered 30 million dollars for weblogs inc and it was 18 months old it really wasn't secondary as a concept and so for me being negative like 20 or 30 000 in my bank account at the time it was a no-brainer to become a millionaire right like you had no choice and that was 2005 or so like just a different era um was it a crucible moment for you i think it was a crucible moment because i hadn't sold my first business the magazine um which i had been offered 20 million bucks for and i owned 80 percent of it and i didn't sell and then the dot-com crash happened so when weblogs inc happened i said you know what we good yeah being a millionaire and not having to worry again and i can always build another business and have since then so yeah these are challenging decisions to make but sometimes they're pretty obvious right um let's talk a little bit more about sequoia and you taking over um the the stewardship of it uh this has been 20 years in the making about yeah i've been in sequoia 20.5 years 20.5 and so you took over after two decades um i told you about five years into us being friends that you would pretty clear that you were going to take over at some point um what what did you learn from the previous stewards what was the the training and why did they pick you thank you um let me just say one other thing that's important is things are a lot more gradual on the inside that may appear from the outside so jim gets and i started to take responsibility for the management of our venture business here in the United States in 2010.

44:17Yeah, I remember. Yeah. Then in 2017, I actually became responsible for the overall management of the US and then Europe business. And Doug Leone was our senior steward at that point. And I became the steward of the US business, US-Europe business. And so there's a lot more gradual transition on the inside than some sort of sudden change in leadership. And that's actually one of the big advantages as we have at Sequoia. As I mentioned earlier, when I joined, Don was still coming to partner meetings. Yeah. Even though he had stepped back, I think seven or eight years before that. And he was an advisor.

44:54He was the founder of the firm. And he would offer advice when called on, but wouldn't interfere with the younger generation. He'd maybe quietly give them some perspective, but respected them to run the business. But we had this overlapping generations at the partnership. And so even now, Doug continues to come to meetings. I speak to Jim Getz from time to time. We have this ability to draw on the experiences of people who've seen different cycles, seen different waves. And it's a wonderful partnership where you're not hiring a fresh team from scratch. We benefit from each other's experience. The other thing is, and it all harkens back to Don not calling it Valentine Capital in the first place.

45:34He called it Sequoia because he wanted to build a partnership that would outlive him. nothing better than to call it this tree that lives for over 2 ,000 years you know here in California a tree that's only native in California along the U.S. west coast and so a lot of that comes down to what sort of people do you recruit and how do you manage and mentor them because when I look at some of our younger team members they're not yet to work for me I look at them and I think do you have the potential to inherit this wonderful business and will you treat it with a sort of respect where you in turn will be a steward and turn it into a great partnership for future generations that will serve future generations of founders and serve our limited partners who you know their foundations endowments non-profits will you be in that responsibility and i want to mentor you and teach you and empower you to develop into that role over time and that's a kind of mentality that we have at sequoia that's what it means to be a steward how many how old is sequoia now is it formed in 77 or something i don't remember 72 wow i didn't realize it was that old 51 years um so now you have your own crucible moments all this uh effort you put into working with founders and trying to understand their business sequoia is a business uh you guys added a ton of products over the years venture changed a lot over the years lots of you know people raising funds quicker having multiple funds you made a bunch of decisions I think over the last couple of years, I don't know if they were yours or collective or steward moments, but you had your own crucible moments.

47:09So let's go through them. Heritage fund was one. And then I guess the shuttering or a rebranding of Sequoia, India and China. Those are the ones that are in the news a lot. How did Sequoia come to those decisions? And I guess they would be crucible moments. Yeah. Yeah. There are crucible moments. I'd say if I recount a couple of the other ones, it was a decision to build an integrated growth business alongside our venture business. That was a decision we made in the 2006-2007 timeframe to actually build a dedicated team. When I arrived, we had no dedicated team members focused on the growth business.

47:45It was an afterthought for the venture team. Wow. So after making investments in the Series A, Series B, there are going to be Series D, EF, you know, bridges before things go public. That's a different style of investing and it's two different teams that's going to Yeah, and two different funds. Two different teams. Now, we're one team, and we share one office, we share one space. There's a tremendous amount of handover between the two teams and knowledge sharing. So it's very important for me that actually one of the offsides we had in 2017, the jackets I had made for us for the event said Team US.

48:18This was before we had opened up in Europe, and it was an intended double meeting of Team United States and Team Us because we were one team. so but there's a different skill set and you know when you when you have a spec so to speak for how to make growth investing it's distinct from making venture investing and you want to be careful to not blur those lines because otherwise you're a little bit too forgiving a little bit too risk taking but just with larger check sizes and you think you're a growth investor just because it's a 50 million dollar investment doesn't mean it really is a good growth investment it's maybe just a larger venture investment.

48:53And so we've learned. What's the difference? If you summarize it for folks. So our mission is to help the Daring build legendary companies from idea to IPO and beyond. And so we invest from the idea stage. And this is part of why another crucible moment, we launched this catalyst program called ARK to teach company building right from seed and pre-seed stage businesses. We have a venture fund, we have a growth fund. And then on the two IPO and beyond, we built and launched the Sequoia Capital Fund last year to enable us to continue to hold on to great companies many years after their IPO, where, as we discussed earlier, a lot of tremendous value creation can accrue.

49:32And so, we've structured our business around sort of living up to the mission that we have. And you still have Scouts in there too, I believe, right? And then we have Scouts. So, we have an ecosystem fund as well, where we have the Scouts program so that we have this idea that we came up with in 2009, 2010, where all these people who don't yet have liquidity but are in the midst of really interesting deal flow. Why don't we empower them and provide them with an ability to make small investments, be advisors to these companies because they're on the field playing today in their own companies. They don't yet have liquidity.

50:06Let's empower them to make small investments. So we have that program as well. And that's really to double down on our network Because at the end of the day, we're in a people business. I mean, our name says Sequoia Capital, but it's really Sequoia people. I mean, the people who work here, the entrepreneurs we work with, the builders and the operators, the executives that help make these companies successful. That's the centerpiece of our business, to be completely honest. So you asked about the different specs. So when we make a seed investment, we're looking for outlier founders. And by outlier, I don't mean one standard deviation or two standard deviations.

50:45probably three standard deviations. And it doesn't just mean IQ, by the way. It's not in that context. Just people who are exceptional, people who will knock down walls to build their businesses, people with grit and perseverance. So we want outlier founders. We want positive market dynamics. It doesn't mean a big market. It's what we think will be a big market tomorrow. Are you on the right side of history? Those sort of questions, the space that you're in. And then for a seed stage investment, we want to have a novel insight you can't just be great people you sort of you need to have looked at a problem space and you have an insight on something but you don't yet need to have built anything you may just articulate it and we listened to a company this morning we decided to invest in them there were two people great experience they could clearly articulate some of the problems they want to go address even though they haven't written a line of code yet we actually committed to do their financing before they technically incorporated the business and that's the fourth time this year.

51:44Four times this year, we found teams who we liked their ideas and we committed to investing before the company was incorporated. That's incredible. So we had to wait a week or two for them to find the right law firm and get everything set up. We want to be there at the idea stage. We love working with companies from the ground up. You should just keep like a briefcase with some money in it just so you can give them cash before they get their bank account and their number. Didn't we talk about regulations earlier? Yeah, exactly. If you compare that to growth, it's a different lens. And it's a different type of management team, isn't it?

52:18Not necessarily. You need more of a complete management team by then, obviously. At an idea stage, there were two people with an idea. Sometimes there's a prototype and that might be a seed stage investment. But by the time it's a venture investment, it may be$6 million,$7 million or$12 million,$13 million, in that order of magnitude. Usually there's some evidence. and by evidence it might be that you know when we invested in in linkedin that 20 000 21 000 registered users and there were seven people in the company when we invested in youtube there were three people in the team and that 9 000 registered users that was it yeah see sometimes people think sequoia does series a only and i think you have to like keep correcting that in the market that although you've been legendary during series a is what the amount of a series a has changed dramatically yeah you know today's series a is like yesterday's or today's seed is like double we were talking about this like actually it was it was brian from airbnb and i was talking to travis from uber like evaluations back then were three to six million and that was 15 years ago or so maybe a slightly more so you guys do the earliest possible so founders are clear we love that but we don't always we don't always get it right sometimes we just don't see the company or maybe sometimes we make the wrong decision or maybe sometimes the company really evolves and that's part of the beauty of having seed venture and growth is you know sometimes we meet them at the seed and we didn't quite understand it and we're lucky enough to partner with them at the venture stage there's a company we backed earlier this year where we met them at seed and venture and shame on us in some level we didn't quite understand how interesting the company was but we kept on thinking about the company we kept on meeting with them and then we made a growth investment in the company and so when we make growth investments um beyond evidence we would like to see it translated into what is likely a sustainable advantage and do we believe this company will be the leader of its category because can it be number one and is it defensible in some way it needs to be number one doesn't have a network effect as we see with airbnb uber yeah um i'm trying to think of who else is in that category we invested in palo alto networks and they wow they're one of the most important security companies that was a seed investment on the pod is incredible yeah so we made a million dollar seed investments in uh nearzo the founder of palalton networks back in 2005 or six wow um but we wanted to be in in the leader you know mongodb is a leader in the database space youtube became a leader in the video space it's you know google is the leader in the search space leaders accumulate power and power enables you to do really interesting things and profits are a source of power and i you know for all the audience members out there you know i realize that turning your idea into financials isn't maybe the first thing that comes to your mind but when you turn your idea into a great business with thriving financials that gives you the freedom to do more to explore other ideas to strengthen your product your value proposition and to conquer more yeah i mean look at tesla now it's be you know it went through its own j curve like they were just investing in that business, investing in it, and then it turned a corner.

55:23And my Lord, he's just throwing off cash flow with that business. Airbnb started their cash flow last year. And Tesla, I think I read this this weekend, Tesla's worth about as much as the next 10 car companies are worth combined. Yeah. For good reason, I think. Yeah. I mean, that's called a leader. That's a leader with Airbnb now. They're throwing off tons of cash. Yeah. And they just got admitted to the S &P 500 today. Fantastic. and uber's right behind them i think they might get they need what what is it three quarters four quarters you need of uh i can't remember what the requirements you need some amount of profitability there uh to get there okay other crucible moments for you uh creating the heritage fund and then uh disconnecting from china which seems like we're all being forced to do right now that's a separate jump off point for us and then disconnecting from india which people seem to be rushing to so take those three crucible moments in whatever order you like well it's actually in 2009 we decided to build two new businesses square capital global equities and square capital heritage fund and both of them had early setbacks by the way we lost some key initial hires and there was an easy reason to give up at that point and we didn't and we kept on building and those are two thriving independent businesses and then to get to the you know obviously getting into those businesses were crucible moments as launching in india and china where we built thriving businesses and earlier this year the different business leaders got together and we just realized it'd be better for each of us if we acted independently um you know there's a certain amount of overhead associated with trying to be a single global firm with a single global name um and each business is a leader in its own category and we just thought we would do better just truly embracing that independence because we were independently owned.

57:12Each business unit made independent decisions anyway. And so we're largely disentangling sort of back office operations and finance and administration and things like that and some of the technology pieces so each business can thrive on its own. And that was a crucible decision. These are people that I've worked with in some cases for 17 years, people who I admire, you know people who've built incredible businesses yeah i mean at some point you things can get too big um and be unwieldy and they might be better as verticalized i think gary tan uh our friend from posterous and uh now running y combinator i think the first thing he did was shut up the growth fund or the continuity fund i think that's cool yeah and so i was like well that's an interesting decision and yeah well listen if you want to compete with the people you're providing an inventory of startups to that seemed weird to me and also like you got to focus on something right like it's kind of hard to do both of those things yeah reasonable decision it lightens the load and you see this in many of the companies in industry as well um you know there was a period of excess and i think it was a jim collins phrase the undisciplined pursuit of more you know that's a good phrase we've done this let's add this let's add this let's add all these things and a lot of the companies that i see right now part of the reason they're able to make these fabulous earnings that you're seeing this year is many of them have realized you know it seemed sensible to do these five things you know let's prioritize the three that are the most important and needle moving and maybe we'll come back to the other two later but we just can't dilute our attention this much yeah gotta focus the world is so competitive uh what do you think's gonna happen with china u.s relations it's kind of depressing i think to watch this you know wonderful engagement we had for a couple decades imperfect as it was to now sort of being feels like we're being driven apart and uh that seems like geopolitically not a great thing and not great for either group of citizens what were your thoughts on china u.s relations i hope we can stem the tide uh i think you're right that it's going in a certain direction right now it seems to be the the one thing that politicians in this country agree on on both sides of the aisle um I don't think it's in everybody's best interest.

59:28Obviously, you want to create certain rules for engagement around protection of intellectual property rights and trade and subsidies and everything else to make sure that it's a fair game. But it clearly is to everybody's collective benefit if we can find solutions. Right now, it doesn't look as though that's on the cards. Yeah, it's really depressing. Just as imperfect as it was, it feels that imperfection, imbalances and all, IP theft, feels a lot better than the alternative uh clearly uh crucible moment uh with uh heritage uh i'm sorry sequoia fund not heritage sequoia fund that crucible moment you decide hey 98 of the market cap of google is post uh these things go in public uh and you help lps the best ones in the world you know get to know these companies invest in them at the earliest stages why wouldn't you stick with those companies when they go public and capture that 98 percent and uh you have pretty good insight into those companies so walk us through that decision obviously timing wasn't perfect because you built it like maybe the year or two before the market uh had a correction so how's it going and how did you make that crucible decision you mentioned before hey sometimes crucible decisions get headwinds so explain yeah as we've talked about the idea stemmed from first and foremost could we generate better returns for our lps but because when we distribute shares to our lps you know they run an endowment with many different asset classes they invariably sell the shares that are distributed to them because they have needs you know it's a university endowment or a foundation that's giving away money and so they'd sell the shares so if we have a very strong point of view that this company could compound long term in some sense they're not benefiting from that when we distribute too early.

1:01:18But we don't have a mechanism for it because, you know, 50 years ago when the industry got going, they created this idea of a 10-year fund life in venture capital. Yeah. And we've been operating under this. I mean, how many industries are still operating with the same rules that were designed 50 years ago? Very few. I mean, even look at sports. We keep changing the rules slightly so the games become more entertaining and there's dynamism to it. But no one had done that for the venture industry. And so the idea behind this Acquia Capital Fund was to revisit this idea that there should be a fixed lifetime of a fund because I'm on the board of a company called Natero.

1:01:52We first made a million-dollar seed investment in 2007. It's a$5 billion public company today, and I'm still on the board, and it's 16 years later. And so why would we put an expiration date on our relationship with a great founder and a great company? So that was part of the idea is can we generate better returns? And you might have owned 5 % or 10 % of that company. I mean, that's not an insignificant position. And we should keep holding that position for the long term when it's a winner. Yeah. But how do we create a structure to do that? Because the old fund construct just didn't allow for that because it had this natural expiration date, if you will.

1:02:25So the Sequoia Capital Fund would enable, at the point that we make an initial distribution decision of a company, that those LPs who wanted to take their shares because they needed to fund their operations or their great cause could do so. But those who didn't could roll them into the Sequoia Capital Fund and we would hold those shares longer and benefit from that continued appreciation. And we'd obviously maintain our relationship with these legendary founders and their companies. It also offered enormous administrative simplification for us in terms of Sequoia. It just makes fundraising and all the logistics around operating our business simpler.

1:02:59So that was a lot of the motivation for it. Now, we had a record year for distributions in 2021. Even though we knew the Square Capital Fund was on the horizon, we did make wonderful distributions for LPs. And then when the fund launched in early 2022, we did start to move some of our better companies into the fund. And obviously, the fund had a rough year in 2022 as every single asset class on the planet seemed to drop precipitously. Overall, the fund is doing very well. Year-to-date, the fund is up very strongly. We've outperformed the NASDA composite so far this year, which is the benchmark that we have for performance for the fund.

1:03:39And we're very happy with it. But it's still very, very early days. I mean, it's just over a year that we've been operating this new structure. Yeah. It's good to have some things face headwinds, I find, because it makes you better at what you do. Well, test your resolve. Yeah. Certainly test your resolve. And, you know, one of the things, we have this lovely framework that one of our teammates here at Sequoia came up with, which is four I's, which is idea, initiative, iterate, impact. So, because a lot of times I hear people say, well, but I had this idea two years ago. Yeah, okay, but did anybody actually take initiative and do something with that great idea?

1:04:15It's not enough to have an idea. You also need to take initiative. Then you need to iterate because it's never going to be right the first time. If you worry about being perfect in the first time, you'll never launch. Right. So be willing to accept those initial imperfections, get it out there, but understand that you're going to have to iterate. You're going to have to make adjustments and changes and refine it as you learn. And eventually you'll have impact. And so right now we're in that iteration phase. So we had the idea, we took the initiative to launch it. We thought of a lot of things, but we didn't think of everything.

1:04:45And we keep on refining and learning and making it better. Well, Park, how much has the venture business deployed during this last cycle? And then what did you return? I've heard some pretty outstanding numbers. A couple of billion. For Sequoia or for the industry? For Sequoia. Yeah. I think you guys have deployed like$2 billion in the venture business? Well, I think the stat that you're talking about was with the$2 billion that we had deployed, we had generated 34 in value that's extraordinary 34 billion so that's an enormous gain and those are realized gains by the way so that that number excludes all the value of shares that we still hold and all the wonderful private companies that we still um own yeah it could go up almost certainly well yes but i will say one thing the motto we have we're only as good as our next investment nothing wilts as fast as laurels that have been rested on yeah and so while we're proud of what we've done in the past we're obsessed at sequoia with what's next and the need to maintain our edge yeah it's it is amazing how this industry changes so dynamically like you're saying um and how you know you have some storied firm that just absolutely collapses just in their next fund after having some extraordinary performance.

1:06:14It's hard to be consistent, isn't it? In life and in venture, hard to be consistent. It requires energy. Yeah, energy. It requires a lot of energy. It requires a lot of discipline. And I think you need to have a truly unique culture and team. And that's part of the magic we have at Sequoia. And honestly, part of it comes back to the point we made earlier about stewardship. And I don't judge people for doing this. If I'd built a firm under my own name, for example, the rational thing would be at some point probably to pull up the tent and accept you know that was a good run and move on and go do something else and retire whatever the case is but over here we have a different view and a different responsibility the burden on my shoulders is to leave sequoia in a better place than i found it and to set up the next generation for success that is my mission right now the uh the previous two stewards they lasted 60 65 till they were maybe 60 or so i had on the pot i'm not sure i think it was 60 at the time what's the right age for a venture capital to um pack it in but no costal seems like he's sharp as ever he's he's not leaving the building i think they said they got to drag the note out well i think um how do you think about yourself you've done pretty well uh you ever think about retiring and then what do you think is there like an age cap here we got presidents and uh you know center we have politicians right now who are having a hard time with the retirement concept.

1:07:39So I think the thing that you benefit from with age slash experience is that you can teach. And ours is a business where there is a lot of teaching to be done around how to build great companies that younger generations can benefit from. And so that's part of the reason you wouldn't pack up too young because you don't have the benefit of being able to teach that next generation. I also think there's a difference between whether you're in the leadership position or whether you're a part of the team. And so what Doug has done is he's moved from being the lead to playing an individual role where he continues to serve on many of our boards.

1:08:18He continues to be an advisor to me and to younger team members, but he's given room to a next generation. And so I think there's a point at which my responsibility will be to create room for a new generation to take over and to innovate and to do things that I wouldn't have done. And hopefully they'll do a lot of things better. And, you know, maybe they'll make one or two mistakes in the same way that I'm probably making one or two mistakes now that, you know, a previous generation looks at and wonders about. But you need that breath of fresh air, that new innovation and reinvigoration of the business with the next generation.

1:08:50So I think that happens before one retires is the handing over of leadership responsibilities. Yeah, it's such a good process. And it's like, you know, the press, you know, especially in tech, which is kind of sad. It went from being like too cheerleader in the 80s and 90s to being, you know, too bitter now. It's got to be something in between the two. But they report on everything happening at Sequoia under your tenure as if like these decisions were not 10-year processes. and i think hearing directly from you and and just you know listen i come down and i'm in the building sometimes and i see doug hanging out there it's pretty vibrant you you got everybody back to the office you believe in people being in the office yeah yes we're in the office by default probably four days a week you know our business is a little bit flexible because you might be out at a board meeting you know i won't be in the office uh tomorrow and thursday because i'm actually at companies joining board meetings engaging with management teams or i'll have to go visit company.

1:09:45So, you know, being desk-bound as an investor is probably not the recipe for success, but there's so much to benefit from being together in person. I mean, last week we had our annual off-site for the investor team and spending, you know, two days together in an intense environment and just talking through some of the issues and brainstorming on things that you could do. And all the cues you get from non-verbal communication just makes you so much more effective. You had any, like, off-site tips? Anything you'd like to do with the off-sites now that you're in charge of approving them? running them, people in a drum circle, guys going to sweat lodge.

1:10:20How do you make these decisions? Pickleball? We did that last year. That was actually the first time I played. It was a lot of fun, but we didn't have time for it this year. Usually we like to do at least one team building event that is physical in nature, and we do one team building event that's a little bit more cerebral in nature. And so at our offsite last week, we had to change tires. and so we were in small teams of four or five people and we're with like a sports car a nascar race car you know where they have those big drills and the wheels you have to do like a time you lift it up and it's a timed run yeah different teams have to compete and you know the instructor at the end of it said now isn't it funny you guys think you've just had fun for two hours but all you did was change tires yeah pretty exciting something you normally think is a chore and then you know and you see how you improve over time there are lots of lessons about are you experimenting are you getting up are you doing the rehearsal are you are you doing it over and over and learning how to do better or you're just sitting there thinking about it because thinking about it's not going to make you better you actually want reps yes which is an analogy in our business you want reps you want to meet companies you want to write investment memos you want to get through the reps i have taken so many notes from you over the years here now that i'm running my own firm we're doing like we're on track to like 3 000 meetings and i have taught a whole nother generation of researchers analysts and associates now at our tiny little firm how to write these deal memos and you know how to take the meetings and staying positive i always have to say like you know having worked with you you've always taken a very positive collaborative approach um and you know i work with other investors who are very anxious and they seem to operate out of fear this fear of failure you have always been composed and i always took that with me as a thank you i'm a pretty passionate guy but your composure is always something that rubbed off on me you've always been very positive and you've remained had that composure i think it's like very laudable uh skill as if you say doesn't exist in many other places thank you i think the investors, we can all think about all the things that can go wrong.

1:12:31And we can all think about all the reasons you shouldn't make every single investment opportunity that comes across your desk. Yeah. The gift is understanding what can go right. Yep. And imagining, you know, if it does, what can this company turn into? And dreaming with an entrepreneur. Yeah. That really is the skill. And staying positive. i was just i was hanging out with travis last week and uh we were talking about uber and cloud kitchens and these amazing things he's done i just was remembering because i knew him through the two companies before that i just remember 19 of 22 people who i introduced the company to saying no and the varied reasons they gave were all the reasons that made it special and it was very weird for me to have people say like um this operates in the real world we can't do it but it's not the opportunity to operate in the real world because people are not doing oh you should just sell software they literally have some vc who said just convince travis to make it enterprise software cab companies i just thought wow you don't understand how much more efficient it is when you take out the cab company it's taking 55 tax you just missed the entire point but yeah that What is the...

1:13:47Here and there, but I think some of the most beautiful businesses, most successful businesses were non-obvious and right. Which was the biggest miss then for you? Biggest miss and the one you're so proud you got? I guess YouTube. Getting YouTube right was really good. That was really good. Well, I'll tell you why. Because at the time, the concept of using storage and bandwidth for free was the stupidest thing. Mark Cuban came out and he's as smart as it gets, you know, and he did broadcast. economy said this can't work it economically cannot work um and uh that's the danger of expertise by the way sometimes yeah sometimes you know there was a movie once like the man who knew too much yeah like sometimes there's a risk that you know too much about a particular sector but but your knowledge may be dated i knew a lot about financial services at one point because i I was in the industry, but I can't transpose what I knew 20 years ago to what the industry is today.

1:14:48And so I've often seen this, people who knew a lot about security who missed the next security wave. People who knew a lot about broadband infrastructure costs who missed this, who missed YouTube. So I think one has to be really careful to think that your expertise sometimes is a curse when it comes to making investment decisions, where you need a little bit of naivete. Because you need to dream about Tim Postle. Yes, the founders too. and so anyway so you have to dream i'm also which is your biggest and then what's the biggest well i'll tell you you would say take from a non-consent non-consensus bet well this company that i mentioned natera which was a bioinformatics company that provides genetic diagnostic testing and when we first invested it was a million dollar seed in 2007 with a person i'd known in high school in south africa yeah i know very talented matt yeah he's a you know stand for phd you know switched to electrical engineering, and then he went back to learn about biology and genetics.

1:15:44Started this company. They deliver over 2 million tests a year in America. They've branched from doing non-invasive prenatal testing to oncology testing to organ transplant rejection testing. It's just a phenomenal business that really impacts the lives of people. And it started with such a small idea in a small market. They were only addressing the IVF market initially. Back to your earlier point about the ICP, they had a very small market initially, which is the 150 ,000 IVF cycles in America every year. Or at the time, that was the number. And eventually, they were able to get to broad-based prenatal testing, and there were about 4 million births in America a year.

1:16:23So that was orders of magnitude, more market opportunity. Now they've opened up the Aperture and they've added oncology screening. So they took an initial market. they were very successful in that market and then they'd leveraged their technology expertise to broaden into adjacencies and so they tam kept growing yeah so anyway so that answers that we were talking about before yeah that's a great one to be to be proud of biggest miss you had to have missed some things i know people don't like to talk about their anti-portfolio but you got to have one that just still burns you introduced me in 2007 to a little company called twitter it was your introduction thank you very much this is what got me the job as a scout by the way i think this was the origin of the scout program was my long email to you and more and saying i think these guys figured something out it's really cool and uh i know the date because i looked at the day you know when did i sign up for twitter originally and actually has your your original signup date and yeah when you introduced me and that was 2007 the iphone hadn't yet been released.

1:17:24No, it was SMS. It was SMS. I remember getting SMS updates because you were on the service and you'd write something about, I'm having a cappuccino somewhere. I'm like, this is kind of weird. I don't care that you have a cappuccino. Shut up, Jake. Still talking. So, and I didn't quite get it. And I'd met Jack at that point and Ev was there. Ev was the person giving the presentation and we had an opportunity to invest early on and I didn't quite get it. And I kept on thinking about that and trying to learn from, you know, my failure to imagine what Twitter could become at that time. I think it was more obvious by the Series C I'd say in early 2009.

1:18:04Yeah, Obama had gotten on at some point and it went beyond like me and Robert Scoble. Yeah. It was the Arab Spring that happened and so at that point I think it became much more obvious. Ashton Kutcher I got on, I think. Yeah. Yeah, we tried to engage but at that point the ship had sailed and we missed the opportunity and so that to me was a big regret. but obviously it was able to partner with jack on the next company so well it's such a long game here you know it's one of the things i like about this industry is like we all get to see each other over and over and over again and uh it's very i think it's more collegial than maybe people think you know like it's you remember these sharp elbow moments but there's so much great collaboration i remember i don't know if it was i think it was michael moritz who said it to me at some point and he said, oh, you know, no conflict, no interest.

1:18:48And I was like, hmm. Also, honor amongst thieves, I don't know. Yeah. What would you learn? I'll just wrap the fire. What'd you learn from Michael Moritz? What made him great? His ability to imagine. Hmm. Big thinker. We met with Jeremy Stoppelman and Max Lifchen when the idea for Yelp was just literally at a formation stage. Yelp was thinking about just doing email back and forth. The website hadn't launched. Again, smartphones didn't exist. And Michael said, I imagine in years to come, there'll be a Yelp sticker in a restaurant window right next to the Zagat sticker. Wow. He had that vision at the point that the company was being formed.

1:19:35And Zagat's gone. Zagat's gone, but you do see Yelp stickers in restaurants. Oh, they are everywhere. He saw the future before others did. your three compatriots at PayPal, Elon, Peter, and Sachs. Also, Stanford colleagues. Give me the one-liner on what makes each of those individuals so extraordinary at what they do. For Elon, I'd say it's first principles thinking and the ability to break things down, first-order issues, thinking ground up. The work ethic too, huh? I mean, that's something you only see over time. That's a given. But that's extraordinary. I mean, his ability to work, you know, having hung out with him.

1:20:22Peter works, David works, Max works. I mean, work ethic is so important. I mean, I'm sorry. I feel like at some point that's a necessary condition for success. Yeah, it's a baseline. It's not sufficient, but it's necessary. Got it. All right, give me the next guy. Peter is a strategist. I mean, part of what I thought was, and talking about crucible moments, it's actually one of the things that started me thinking about crucible moments was, there were days where Peter might not be at the office on a given Thursday morning. And so what's Peter doing today? And I started to chat with him about what he was doing.

1:20:52And he would take time to think about what was going to happen. What were the chess pieces? And obviously he was a chess player, is a chess player. Thinking about what happens as the games evolve between us and Visa MasterCard or us and eBay or us and other financial services, big banks that were trying to kill us at the time. And Peter would take time to think, not scurry around doing busy work, running from meeting to meeting. Just clear your mind and think about what are the key decisions we need to make. And so Peter's ability to really hone in on key questions to answer and prioritizing those is phenomenal.

1:21:29I really admire that. He's such a strategist. Such a clear thinker about these issues. Yeah, I agree with that. For David, the thing I admired most was his sensibility for great product and design. interesting because he was an ops guy well he he ran product before he became coo yeah and i remember when i was interviewing at paypal david was one of my interviewers and like part of what we did is he put up a mark of what how he imagined the pages might look like for paypal and he and i would brainstorm on you know what if the flow was this what was the next button do what did you ask for next what makes for good design and flow and David was also just so open-minded at continuously thinking about what makes for a great user experience an end user experience and I think that's informed a lot of his success as an investor as well now that he runs his own investment firm and with other companies that he started was that empathy with customer first and what is the customer's experience fantastic yeah all right listen i kept you for over an hour i get you every five years so i'll see you in i'll see you in 2028 i'll have an i'll see you before that but we'll we'll do another pot then and uh just uh thanks for sharing being so honest and wisdom in the support over the years not just for myself but countless founders and also countless investors i mean if you look at that sequoia scouts program i think there's been like hundreds of scouts over the years yeah yeah and it's one of the best performing funds and uh just remember those first meetings at the rosewood and it was like sam altman me brian sugar i think who else was in that early was in that cohort matt robinowitz i mean it was a really fun crazy concept to just give a bunch of lunatics you know 25 50 100k checks and say go have fun really was uh and it really launched no good deeds you'll go unpunished now you've got all these crazy competitors out there but it all no conflict no interest i mean it's really the great thing about the network in this industry you know if you if you the goodwill in this industry is so underrated hey people are so negative on tech and business and entrepreneurship right now which is so weird compared to how we grew up we celebrated entrepreneurs up until like 2000 now we just want to take them all down but the truth is like who else is going to innovate in the world and create all these amazing product services that push humanity forward and everybody is so generally supportive here in silicon valley somebody comes in and needs advice or needs an introduction it's almost like the whole place mobilizes we're serving a greater good i agree i agree all right everybody back to work rule off both uh the now the uh the steward the steward i'll take an iced tea if you got it there different yes sir yes sir anything for our founders uh we'll see you all next time when this week starts make sure you stop right now you listen to this great interview get more rule off in your podcast player in the podcast player right now so search for sequoia crucible moments and subscribe now to their new podcast continued success we'll see you next time everybody bye-bye