This Week in Startups - Sequoia’s Roelof Botha on “Crucible Moments” and the state of VC | E1804

Episode Date: September 7, 2023

This Week in Startups is brought to you by… Supergut is the easiest and tastiest way clinically-proven to regulate digestion, curb cravings, and boost energy. Get 30% off their delicious shakes, bars, and fiber mix at Supergut.com with code TWIST. Coda. A new doc that brings words, tables and teams together. All your valuable data, plans, objectives, and strategies in one place. Go to https://coda.io/twist to get a $1,000 credit! Mercury. 90 percent of startups fail — 90 percent. Just 10 out of every 100 make it. Mercury exists to close that gap — helping companies succeed with banking and credit cards engineered for the startup journey. Join over 100,000 companies banking with Mercury at http://mercury.com Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust; Members FDIC. * Today’s show: Roelof Botha joins Jason to discuss the state of VC (3:35), Sequoia’s new series “Crucible Moments” (9:31), and much more! * Time stamps: (0:00) Sequoia Capital’s Roelof Botha joins Jason (3:35) The state of the Silicon Valley ecosystem (8:00) Supergut - Get 30% off with code TWIST at https://supergut.com (9:31) “Crucible Moments” and their significance (14:31) Pre-IPO vs. Post-IPO market values (18:10) Founder ambition and mistakes made during “Crucible Moments” (22:25) The importance of founders starting narrow and what makes a great VC in tech (27:20) Coda - Get a $1,000 startup credit at https://coda.io/twist (28:49) Commonalities between the AI boom and the crypto boom (33:31) U.S. frameworks regarding crypto (37:10) Mercury - Join 100K+ startups banking with Mercury at http://mercury.com (38:23) The milestone-based reward system in venture capital (43:24) Taking over as head steward at Sequoia Capital (56:02) “Crucible Moments” at Sequoia (1:05:57) Maintaining consistency in life and venture * FOLLOW Roelof: https://twitter.com/roelofbotha * Read LAUNCH Fund 4 Deal Memo: https://www.launch.co/four Apply for Funding: https://www.launch.co/apply Buy ANGEL: https://www.angelthebook.com Great recent interviews: Steve Huffman, Brian Chesky, Aaron Levie, Sophia Amoruso, Reid Hoffman, Frank Slootman, Billy McFarland, PrayingForExits, Jenny Lefcourt Check out Jason’s suite of newsletters: https://substack.com/@calacanis * Follow Jason: Twitter: https://twitter.com/jason Instagram: https://www.instagram.com/jason LinkedIn: https://www.linkedin.com/in/jasoncalacanis * Follow TWiST: Substack: https://twistartups.substack.com Twitter: https://twitter.com/TWiStartups YouTube: https://www.youtube.com/thisweekin * Subscribe to the Founder University Podcast: https://www.founder.university/podcast

when the idea for Yelp was just literary at a formation stage, Yelp was thinking by 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.

And Zagat's gone. Yeah. Zagat's gone. But you do see Yelp stickers. And restaurants. I mean, it's a number one part. I mean, he sold the future before others did. This weekend startups is brought to you by

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Just 10 out of every 100 make it. Mercury exists to close that gap. Helping companies succeed with banking and credit cards engineered for the startup journey. join over 100,000 companies Banking with Mercury at Mercury.com. All right, our next guest today on this week in startups is one of the greatest modern VCs. It was last on the show in 2015,

but he's also been on the show in 2010. We get him every five years, apparently. Man, if you were to look at the companies he's invested in, YouTube, Instagram, Square, Unity, MongoDB, Tumblr, 23 of me, countless others. In fact, he trained me. on how to write deal memos.

If you don't know how to write a deal memo, go search for the YouTube deal memo written by Ruloff. And that was back in 2005. He created the Sequoia Scout program. That was the first one. At least that's what I'm told. And he created the Sequoia Fund, which we'll talk about.

And last year, he took over Sequoia Capital as the senior steward. Basically, he's in charge of the firm now, succeeded in Doug Leone, Michael Moritz. and I think Don Valentine before that. And today, he's taking a page out of my book. He's starting a podcast, like all VCs, must have podcasts in 2023. And Rulov, both and Sequoia's new podcast is called The Crucible Moment, which we can talk about today,

as well as all the other news headlines about Sequoia and the industry writ large. Roloff, welcome back to the show. Thank you, Jason. It's great to see you. Yeah, great to see you as well. I see you're deep in the forest there with the Redwoods. So you got the new podcast. That's great.

We'll talk about that in a minute. But so much has happened since we last talked. We went through an incredible boom-bust cycle. And maybe here we are 18 months after the cycle ended. Maybe things are coming back. I'm curious what you believe the state of the venture capital market is today in the second half of 2023 and then going into 2024. and any thought you have on the crazy three or four year peak bubble,

if we consider it that, that we went through in 2019 to 2021. There are a lot of questions embedded in there. Yes. Maybe we start with the craziness, which is the combination of a pandemic, global pandemic, with incredibly loose monetary policy.

At the end of the day, we had an era where the cost of capital was essentially zero. And that led to a lot of investment, also a lot of speculation. And honestly, a lot of companies did things that were quite rational. If the cost of capital is zero, there's no difference between something that pays off tomorrow or pays off in five years. So it was quite rational for companies to ramp up their burn rates, ramp up expenses, R&D, sales, marketing to build for that future promise. And that obviously changed now that we have a more normalized interest environment.

And people are thinking much more carefully about payback periods, you know, where should you best spend your R&D dollars, which channels of customer acquisition are the most profitable for you to pay. pursue. So there's just a lot more discipline in the way that people are managing businesses. And one of the things I predicted at the beginning of the year is that we would see many companies outperform expectations on earnings in 2023. And that's exactly what's happened. Because there was a lot of excess in the system. And many companies have found religion around being cost conscious and being efficient. So I think you've seen that play out, certainly with the public companies. For this, yeah. Yeah. Well, I was just going to say on the cost cutting, that did seem to happen very quickly, as opposed to the last time you and I went through this in 2008.

Sequoia did a famous rest in peace, good times deck. And I'm curious what you think informed the very quick reaction from startups and even public companies this time around. I think the global financial crisis in retrospect was quite short-lived. It was very painful in Q4 2008, but the government's reaction, both in fiscal monetary stimulus, in that era was swift. And things started to bounce back pretty quickly in 2009. That was different this time because the financial impact is just much broader across many different industries.

And you combine that with continued lockdowns in China, the impact of a war in Europe, which slowed down a lot of demand for many of our companies in that region, and then a sell-off that was far more sustained. And candidly, there's no more room. You know, we're going the opposite direction, both, you know, the government doesn't have that much more room to do fiscal simulists the way they did during the pandemic. And monetary tightening is happening. You're not having a loosening of monetary policy. So I think all those variables combined to something that is a lot more protracted. And people are feeling

that pain and the need to adjust. And what does that do ultimately to the ecosystem? Because we have a delicate ecosystem here in Silicon Valley. You and I have learned this over the last 20 years that we both, or over 20 years, you've been an investor in, yeah, coming on 13 or 14 years, me being an investor. What is happening to the ecosystem? Because it is very delicate. You have founders creating these companies. You have the employees at the companies.

You have LPs and you have the venture capitalists, you know, arguably three or four different constituents. What is the state today and how do you look at it going forward at Sequoia? I'd say there was a period in 2022, especially in the second half of the year, where it felt like most of the world was in shock. And people were reassessing, trying to figure out what happens next. Because, you know, the sale was across every single asset loss. It wasn't just tech.

It wasn't just equities. It was bonds. It was real estate. It was just so broad-based. And many companies basically just froze for a little bit and try to figure out, where do we go from here? Now, as you know, many of the greatest companies are born in these periods of dislocation. because the sort of founders who start businesses or build businesses successfully during times like these are truly missionaries.

They're not mercenaries. And so, you know, a lot of the marginal ideas don't work. A lot of the marginal companies are not going to make it. And that's sort of a very healthy natural system that we have in technology in general. And, you know, talented people become redeployed. They start to work on other interesting projects. And so that's part of what we've seen with the renewed enthusiasm around machine learning and then specifically some of the generative AI capabilities. these that are now creating another wave of innovation in Silicon Valley. And that's really

sort of breathed fresh life into Silicon Valley in a way that I haven't seen for quite a number of years. You've heard me talk about Supercut a bunch. This has been a key part of my health journey. It's an awesome nutrition company that my bestie, David Freeberg from the Yolm podcast, started. I love their bars. I love their shakes, especially the gut balancing chocolate brownie bar. It is delicious. They also have an unflavored prebiotic mix. You can add to anything. I like to put it in my coffee. You can put in your O'Mail. Their products are super helpful for weight loss. Why? Well, SuperGut's products mimic the effects of OZempic by boosting your GLP1 hormone. This helps quell hunger and boost your metabolism, which is a great, great combination, obviously. And Supergut's

prebiotic fiber, that actually alleviates digestive issues. And obviously, the products all taste great. The best part, the team had super gut actually put the work in and scientifically prove their products work. They conducted a placebo control clinical trial with Stanford last year. That's been published in the medical journal, diabetes, obesity, and metabolism. The results were amazing. The participants in this study, they lost weight, they lowered their blood sugar, they improved their metabolic health, and they had improved digestion and so much more. Whether you want to improve your gut health, maybe drop a few pounds like I did, or just feel better throughout the day. And listen, you're busy, you're traveling. I like to bring Supergut with me. Go to supergut.com and use the code

twist. You get 25% off. Go to Supergut.com and use the code twist to get 25% off. I've been on this health journey. I've lost 40 pounds. A big part of that sincerely was me using Supergut. So go to Supergut.com and use the code twist for 25% off. Yeah, you talk about that crucible moment and that's the name of the new podcast. Maybe you can explain and this is a good juncture to do that. What exactly is a crucible moment? And obviously, you and I have seen this, the founders who succeed, not the easiest to get along with sometimes,

pretty strong-willed, and they always go through some horrific passage in order to get to the new world. So maybe you could explain a little bit your thoughts on that. And I, the crucial moment, I believe you did that in a blog post a couple of years ago, right? That's how you first manifested it.

We've talked about it for a number of years. So actually, your comment just now reminded me when I met Don Valentine long time ago when I joined Sequoia, who was alive. And he took me aside in my first couple of months at Sequoia, and he said, Rolf, there's a two-by-two matrix people we invest in.

On the one axis, easy to get along with, not so easy to get along with. On the other axis, exceptional, not so exceptional. We normally make money in one of those four quadrants. Your job is to figure out which. There it is. So to your point, you know, founders are the people who see, you know, the world as it is, and they don't accept it, they change it. They see a vision for the future.

I mean, that's just incredible to harness all that energy from founders. So the thing behind crucible moments that we've talked about is there's a tremendous amount of execution that goes into building a successful business. But in truth, there are one or two really important decisions, pivotal decisions that a company faces every year that have an enormous bearing on the ultimate outcome of the company. And we call these crucible moments. And these aren't decisions about, you know, what should we offer in the, you know, for employee lunches, that's not a crucible decision, obviously. You know, there's a crucial decision

about international expansion. Do you add this next product? Do you make a bet on this key technology platform? Do you change your business model fundamental? These are crucible moments. And the challenge is that they don't announce themselves. They don't come knock on your door and say, hey, I think you should think about this.

Sometimes there's a crisis. So sometimes it is responsive. So if you think about what happened to Airbnb and an event bright during, the pandemic, both companies lost 80% of their business in a matter of weeks because they're both dependent on live experiences. That's a crucible moment that hit you in the face. And you better figure out very quickly how to navigate through that, which both companies did obviously. Some of the other crucible moments are things that you could choose to do. So you think about Netflix having to

decide to move from DVD shipment to streaming. That's a crucible decision. And getting those decisions right have a huge bearing on your success. And there's a wonderful parallel to one personal life. Each of us have a couple of key decisions that have a huge bearing or what happens to your professional life. The sliding doors theory, right? The sliding doors theory. Your decision to move to Silicon Valley, that was a crucible decision you made a long time ago.

Your decision to sell weblogs into AOL, that was a crucible decision. Some of the key investments you've made in your life, those were crucible decisions. And so, you know, at the end of the day, we want companies to focus on these crucible decisions because they don't always spend enough time thinking about them. And so the danger is that you miss a critical decision that could really lead you to something wonderful down the road. And then once you've identified them, how do you make the right decision? How do you harness all the best insights and perspectives

to help you arrive at a great outcome and a great decision? And then there's a third one that I think is often missed. Honestly, it's one that I've made a mistake on quite a few times myself, which is you get the decision right, and you don't realize all the consequences of that. If your business is moving in this direction, you've chosen to become a cloud first company instead of being an open source company. Well, now you're running a service. You're not shipping software.

Do you have the right people? Do you understand how to manage a marketing funnel? Yeah. Do you understand how to operate, you know, five-nine's reliability for customers to depend on you to run that cloud service on their behalf? So there are a lot of knock-on effects to actually how you operate under that new framework. So first of all, you have to understand if this is a crucible decision. lunch in the cafeteria obviously doesn't make a difference

where you locate the company maybe your work from home policy these things could be crucible decisions at this moment in time or any moment in time making the right decision number two and then number three hey you made the decision

you're going to stop sending DVDs in the mail what do you do now and obviously doing Quicksar or whatever that was called was like a bad decision they reversed it but they seem to have made the right decision investing in content right they didn't just go online They decided there was a second crucible decision in Netflix case. That was a huge decision.

Yeah. Do we even make our own IP? Do we keep buying IP from Disney? And it sounds like they made a really good decision because that's when the company went massively up in value. And that's something you and I have talked about. You know, you make these investments. And as well as they do as private companies, often they go public and they do better. So, you know, Amazon, Netflix and Google as private companies didn't even come close to what they did.

I believe as public companies. I wonder if that remains true today, or we just don't have a long enough arc for, you know, companies like Facebook, Uber, Airbnb, and some of the ones that came out on top, DoorDash Square, in this sort of last cycle of public companies. Where are your thoughts on that? In terms of how much the market value was created post IPO?

Yeah, pre versus post. You know, apart from companies that went public at the peak of the market in 2021, by and large, the vast majority of market cap accrued after the IPO. So in the case of Google, it's literally 98% of the company's market value today came after the IPO. In the case of MongoDB, the company went public at a share price of, I think, $23 a share. Today, the company's worth roughly $400 a share. So 95% of the company's market cap happened after the IPO.

And they only went public, I think, seven years ago, six, seven years ago. So there are many examples of companies that do that. Now, the funny thing, though, is that the median company, the average company, trades below its lockup expiry price. More than 50% of tech IPOs never recover the price they had six months after the IPO. And the key is to identify which are the legendary companies, which are the ones that have that breakout potential, which have the management teams that are willing to go through re-founding moments to imagine an even better future for the company.

And this is one of the phrases I love from Jack Dorsey, who talks at Block, formerly known as Square, about how companies have multiple founding moments. Today, about half the company's revenue comes from Cash App, a service that didn't exist until about your five of the company. That was a brand new idea, and they moved from being in the SMB business, and they added something completely different, which is individual consumer financial services. There are lots of questions inside the company why are we doing this?

This is a good test for a crucible moment, by the way, is how controversial is that conversation in your management team? Right. That's actually a really interesting gauge for what is crucible and controversial. Yeah, no, certainly creating a consumer app after a square or block previously square,

everybody knew square as a way for merchants to take credit cards at flea markets and cafes that previously didn't. It was an incredible product. I mean, Jack is really great to see. he's created two huge businesses Twitter and Square. You worked with him, you know, extensively. What's his gift?

Because each founder is a little different, right? What's his zone of excellence? I'm curious since you work with him. Creativity, calm, an ability to understand the long term, great at spotting talent, empowering to those he works with. one of the things that I had a lunch with him before we invested in Square is a way to get to know each other.

And it was on a Saturday in San Francisco and he was wearing a short-sleeved shirt. And I noticed that he had a tattoo in his one forearm. And it's a tattoo of an integral sign. And the fact that somebody would have a tattoo of a mathematical symbol in my mind sort of neatly summarized, somebody who's technical and has all that prowess yet cares about design and cares about aesthetics and is creative. And it's a wonderful summary in some sense of his personality.

Curious what you think of mistakes, you know, in, within the framework of Crucible moments and working with these companies. They also bought, like, title, that might have been a mistake, music company. You have Facebook trying different things

all the time. It copies a lot of people's products. They launch a Snapchat competitor. It fails. It fails. And they incorporated it into Instagram. etc. Where does taking big, bold swings and missing fit into the sort of crucible moment and just being successful

in general? Well, I don't think anybody gets crucible moments right the whole time. Yeah. There are many mistakes people make. And I think if you want to build a really successful business or if you want to have a successful career, you want to get more of them right than wrong, but don't expect perfection.

And when companies have made mistakes, I mean, I've been part of companies where we have made, failed acquisitions, we bungled a business model transition, we thought about going international too early or too late. I mean, I've made my fair share of these mistakes. Can you learn from them quickly and can you course career? And while there are a small number of these decisions, most of the time they're not fatal.

But the real question is, can you harness them to really achieve, you know, the scale of your ambition? Yeah. And I mean, it's difficult when you don't. don't realize a decision correctly, but, you know, you recover. I mean, that's, you know, winners never quit. Quit and never wins, right? Yeah.

You got to keep going. It's one of the great things when you're building these businesses is you can make mistakes. But as you pointed out, are you nimble enough to correct the mistake or even know you're making a mistake? I mean, if we look at Airbnb, Brian went crazy building like five or six new products all at once. And then I just had him on the podcast this year. and I think he's one of your leading interviews

with the new Crucible Moment series from Sequoia, go search in your podcast player and subscribe now. He told me he had to like get really focused on what got him here. Maybe you talk a little bit about founders maybe not being ambitious enough or maybe sometimes they have success

and they just decide, you know what? I have the Midas touch. Let me see if I can do two or three or four things at once. So how do you advise founders? because we've seen this phenomenon over and over again, right? The advice into what is the... Well, the advice into not taking enough risk, not launching enough new things,

and then maybe launching too many and having to pull back. The focus question, I guess, is how we would talk about it as investors. Yeah, that's tricky, because I think the crucible moments I regret the most are the sins of omission rather than the sins of commission.

But the sense of commission are, when you maybe have taken on a little bit more than you should have and you need to digest or maybe you need to divest take something off your plate and Brian certainly experienced that part of the crucible moment that was the pandemic really got the company to focus and he realized they needed to sort of declutter a lot of what they were doing in order to do that but I'd say more often than not people settle

they've achieved a certain level of success and most people are risk-averse in that situation and they don't reach for that next level game that they could be playing. You know, you've built a successful business doing this, and there is this adjacency that you can move into. You're block, and you've got the square business, and you could go into consumer financial services too, but you've got a great business as it is.

You don't need to do this other thing. And I think that's actually where people mostly squander the opportunity is going from good to great. It's much easier to respond to a crisis and identify those crucible moments, because, you know, humans are just wired to be able to respond in that. that situation because the alternative looks so dire. Right.

So basically burning the boats or just going for it, you know, you might figure it out. Whereas if you don't even try, man, somebody else is going to pick up that business before you even know it's there. And that's where I'm, yeah. That's what I worry about most, honestly. Yeah. Interesting. And I'm curious what you think about sort of advice for the early stages versus later stages.

In the early stages, it's a lot of. of advice today about, you know, building for a very narrow audience, a very specific group of people. Sometimes people will call it the ideal customer profile, a beachhead, just a very narrow focus, build for one person, build for a small group of people, a title at a company, versus, hey, we've got to build a platform here. And you had a company like Unity, which seems to have opened the aperture of their business widely, but they started, you know, very narrowly. So what's your advice there for founders? Are you supposed to start narrow? or have a big vision, what's the best practice?

I prefer the start narrow piece, honestly. If your vision, the vision should be broad, but your launch should be narrow. If your launch is wide, I mean, think about it, you're competing, then typically in a large market that is already served. They're a big incumbents. They have so many advantages over you. They've got capital and resources that you don't have as a little company. Much better for you to focus on a small audience who you could serve distinctly well. And then the key is, do you have an ability to extend that?

So have you built something that can go beyond that to others? So, you know, if you think about the democratization of technology, you know, Square started off literally with the merchants at flea markets, as you pointed out. Yeah. And then they've slowly added more and more software capabilities that today you have merchants that have multiple locations or multiple restaurants that are able to use them because we've added more capability over time. But if we try to serve them initially, that would have been too difficult. So in the same way, Unity started off with indie developers with very lightweight games, and over time they've improved the physics and they've improved the capability of their software,

and now people can make AAA titles with Unity. But that's not something we could have done out of the gate. So that would be my advice. Start small and build. One of the canonical examples is Facebook, honestly, where initially they really satisfied the users who are on college campuses. And in 2006, a lot of people wondering, and Facebook at that time was slowing in its growth. And people were saying, why, I don't think this thing will ever go beyond colleges.

I'm not sure there's a value proposition for, you know, the middle age demographic. But Facebook made sure that that initial user base was, you know, had a very high net promoter score. That user base loved the product. And from there, you can extend and grow. What do you think the right temperament is? Because I've watched you ad partners at Sequoia. I've watched people not be invited back, maybe. For another fund, obviously you have people who stay there for a long time, decades,

but you're now responsible for building the next generation of investors. A lot of controversy around what makes, or debate, I should say, what makes a great investor? Some people like operators, some people like analysts. What do you think makes for a great venture capitalist in technology? So to channel one of my partners, there's this element of being driven and having a heart of gold. And that's a recipe for success at Sequoia. And being driven means that you have the drive for excellence, the relentless pursuit of excellence.

And that comes in two flavors. There's an element where drive means you show up every single day and you do the work every day because you love it. But you also have an extra gear and you have a killer instinct. Because you need to know that on this given Wednesday, you've just met an absolutely fascinating company and you need to drop everything else and you need to prioritize. So, and that's an important difference, right?

There's certain people who can show up every day, but they never have that extra gear to know when to go for the kill, so to speak. You know, how can you win the, you know, who's the person you want to pass the ball to, to score the winning, the winning goal in a game? Yeah. Right. That's killer instinct. Right. And you need to have a harder goal because we work as a team at Sequoia. So it's absolutely crucial for us that this person needs to play well as a team. That may not be necessary at other venture firms.

So it's just the style that works for us at Sequoia. So we want people that are great partners to each other because we believe we win as a team. Now, there are much of other things, you know, intellectual curiosity, breadth. I mean, I'd say intellectual curiosity is one of the most important ones. Our business changes so much, right? The sort of companies that you and I first invested in 10, 15 years ago, those aren't around anymore, right? No. foothold in those. And so you have to keep moving and you have to explore new types of

entrepreneurs, new types of industries, new technology waves. And if you don't have that curiosity to learn and to grow and to repot yourself, then you go stale very, very quickly. For many knowledge workers, over 50% of their day, it's filled with doing tedious, repeatable tasks. We all know this. They're technically working, right? But are they being productive? Are they driving the business forward in any way or is it busy work? Imagine if you recapture 50% of that person's time. Think about all the things you could redeploy and all the projects you could finish. Well, now you can with Coda. Coda is the all in one platform that changes how your teams work together. And they just introduced an AI powered assistant. That is brilliant.

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formulas all in Cota. Get a competitive advantage. If you want an assistant that lets you get back to work and does all the busy work, get started with Cota AI today for free. How's that for a price? Head over to coda.io.io slash twist. Coda.coma.com.com slash twist to get started for free. The paradigms do shift. It feels like every 10 to 15 years we get one. Cloud and mobile being the last two before that broadband, the internet itself. And now machine learning AI. We had a little diversion into crypto.

You guys tripped up there a little bit. Had some investments not go so well. Other firms, man, they bet the farm on it. Let's look at the two and compare and contrast them. Crypto versus this AI boom. when you look at them what are they share in common and was Crypto Fools

gold? Was it overhyped? Was there too much ability to I don't know moving money around without a license kind of situation? What are your thoughts on the two booms we've seen right now?

One is obviously distinctly different than the other. I said the one thing that they share is true technology. I mean the sort of people that were involved in the creation of either of these companies. And actually, part of what you see now is some people who were in crypto now move into machine learning and AI because they often have very common deeply technical skill set.

So I think that's one thing in common for both of them. The promise of crypto around decentralization is still incredibly powerful. Just in concept. Why? Why do you think that? Because it removes centralized power structures. the ability for censorship or freedom of speech, freedom of movement of money, and all those sort of things, you know, ultimately crypto is just fully decentralized.

But if you think about a value proposition of Bitcoin today, it's actually quite powerful for people who live in countries where they don't trust their reserve banks. Yeah. If you think about what's happening in Argentina at the moment where they have rampant inflation and the pesos just losing value very, very quickly. But there's so many countries around the world where Bitcoin is a way better alternative than the local currency where you're subject to all the political

dynamism of your country. Right. So that has a real value proposition. So some of the other projects had value propositions that weren't maybe quite a striking. And I think there was still some technology that needed to figure out because they weren't as easy to use.

So when I'd use some of the early crypto wallets or identity systems, honestly, they were a little clunky. They just went to eat. Pretty gracious there. they went easy to embrace. But I think so many of those teams are still endeavoring on that. And so I think that's actually one of the things that I would not be too early to declare judgment on that category because I know of some of the teams that are working on solutions.

And if those solutions do work, it may be truly transformational. And part of the promise of crypto is an alternative distribution mechanism, far more peer-to-peer and riding a different set of rails. And distribution at the end of the day is one of the biggest stumbling blocks. business success. So I think there's still some promise there. I would say that many of the crypto founders that I'd met over the years would describe the technical innovation without necessarily connecting that to a customer problem. And that's the contrast for me with what I've seen with many of the machine learning applications. Many of the people who listen to you, many of the team members here at Sequoia have been studying statistics and machine learning for decades.

These are not new concepts. Part of what's new over the last few years is just massive amounts the data, thanks to the cloud, and massive compute capability and some new model innovations that enable us to do things that were hard to imagine even a couple of years ago. I would also say that what AI is keeps shifting. Because if I showed you a computer that could recognize objects five years ago, you would have called it AI, and now we relegate it and we call it computer vision. Yeah. At one point, a self-driving car was considered AI.

Now it's just a self-driving car. So units will keep changing the definition. We have bit you a pretty quickly to like incredible experiences. It's like, we know what's in this photo. Now it's like, we know what's in the photo. How would you like to change it? Here's, you know, some incredible gender of AI solution. But I think your point is well made.

It is the use case that was missing in much of crypto. And you're saying, hey, listen, these are smart teams. Maybe they will actually connect the promise of this very complicated technology. And AI just seems to instantly be. become, it just instantly becomes useful. Almost every pitch I hear, I'm like, yeah, that would be useful to this customer. And it was, there was never a customer really, I would say in four to five pitches in crypto, customer was never mentioned. Who would buy the tokens was mentioned a whole lot? So I'm curious what you, we'll talk, we'll go deeper in AI. Last question on crypto,

what should the United States do in terms of a framework? You and I, in the venture space, and with the with the square fund you know in the public space we are subject to a lot of rules and regulations the SEC is very very clear very detail oriented and you know takes enforcement seriously about what we do for a living I'm raising a fun right now it's work and there's a lot of paperwork and you got to you know dot every eye cross everything and then crypto and public markets obviously we all know they have a lot of regulation crypto kind of was like yeah we these don't apply to it

us and now they're kind of finding out the SEC begs to differ and some courts beg to differ. What should the United States do here? Because you want to protect consumers, but there was a lot of fraud going on. I think you need the right frameworks for this. You need the right

foundations in a regulatory system. Otherwise, it will not flourish. If it's too much of the Wild West, bad takes over. I mean, this is, talk about a crucible moment. Early in the life of our investment in YouTube, literally, I mean, with three founders in Chad's garage,

they moved into the Sequo office right after the investment because they didn't have their first office. And we faced a crucible decision early on what we were going to do with pornographic material that was being uploaded to the site. And the conclusion we had is, well, it was likely to be like a cancer. If left unchecked, it would completely take over.

And so we just made a very early, very clear decision. We needed to make sure that that kind of content didn't make it onto YouTube. And we built all these moderation systems to make sure that those sort of videos got flagged and taken down immediate things that were violent or, you know, pornographic or offensive, those things just had to go. So I think there's a similar dynamic when you think about building financial systems.

If you don't make it safe for the average person, inevitably the bad actors take over. And a lot of why the U.S. has thrived as an economy, why is the U.S. economy grown so much? Why is the U.S. GDP per capita grown so much faster than many other industrialized countries? It's because of the institutions and frameworks in America that are engaged. encourage wealth creation and business. But for that, you need the right frameworks, you need property rights, you need an efficient bankruptcy process. All these sort of things go into building an efficient market system.

And so I think you need the same for crypto. The risk, of course, is if the regulation is too early and too heavy-handed, then you may end up stifling that innovation. But I just can't see a world where it flourishes without proper guardrails. Have you thought about what might work in terms of these token-on? offerings and, you know, utility tokens, you know, they serve a purpose. But if people are speculating on them, that's not the purpose or, you know, that's the sort of anti-definition of it. So is there a way to actually do this in a space that is largely

permissionless? I'm just curious if you, if you've given that thought of what a framework might look like. You have to register your crypto project. Maybe it can only be a certain size. Just like certain venture funds can only be a certain size before they become hedge funds or or other devices and, you know, or you have, oh, sorry to interrupt, maybe you have this requirement for those who are permitted onto the platform to limit speculation for people who may not know what they're doing.

I mean, that to me is the sin is that you end up taking advantage of people who are not fully informed. And so, you know, is there a minimum requirement to make sure that you're not taking somebody's, you know, retirement savings that they're betting on some crypto token and they don't actually know what they're doing

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Banking services provided by Choice Financial Group and Evolve Bank and Trust. Members, FDIC. Yeah, I know your customer is pretty good one. You did that at PayPal and you faced, my God, you were one of the first systems to face massive fraud and manipulation and you were specifically responsible for it. They learned a lot during that, huh? For sure. Some of it is know your customer,

but then also some of it is, as you know, to invest in funds, you need to have a certain minimum income level or minimum education level to know that, you know, do you understand the risk

of these products that you're speculating on or investing in? So I think that has to be an element of tokens as well. In general, the fact that you're able to monetize your business

without even shipping the product to me is probably not a good thing. Why? But most of the time in reinvest in companies, they actually have to build a thriving business. And then at some point, you know,

six months, after an IPO, even you have a lockup period before insiders can sell shares. Because you've built value for others first. And I think part of what got twisted in some of the crypto projects was that you would have people cash out on tokens based on an idea

when nothing had yet been built. And that to me is almost perverse and used to some adverse signaling in of itself. And then what, I mean, why would the founder come back to work tomorrow if they just cleared $100 million in six months? And what does that do to a founder's brain? I gave an idea, I got $100 million,

dollars, okay, what should I do next? Come up with another idea and don't execute on it. Whereas if you got rewarded for execution and we have a milestone-based reward system in venture capital, you make it to the next milestone. You have friends and family, accelerator seed, series A, series B. That system has been refined over decades here. And it seems high functioning, yes? High functioning, not perfect.

There always room for improvement in any of these systems, but I think it's it works for a reason. One criticism, I think maybe it's what you're alluding to is, hey, people can mark things up or maybe people who couldn't get in on series A's because they can't compete with a Sequoia, a benchmark, you know, whatever top firms there are in the world.

You guys get sometimes the pick of the litter. People want to have Sequoia on their cap table. And people do frisky things in the series B. Frisky things in the series C. I remember when I was coming up in the industry, there were one or two venture firms who stated a position was to follow Kleiner and follow Sequoia into deals. So 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 sells some shares in a financing like that, at least the buyer is a sophisticated buyer, so 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. 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 being a person who still had student debt to repay, and I had $30,000 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 have student debt anymore. You just paid it all down at once. Oh, you're done.

And I can go on 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 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 to wait 12 years before they take a penny off the table.

In the meantime, they want to buy a house or pay for their families, you know, well-being and things like that. You know, they're taking a small salary, yeah, it makes total sense. That's completely reasonable in my mind and then it better aligns our interest 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 mean, I'm totally cool with that. I was the, I mean, when I came up as an entrepreneur and we got offered $30 million 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. Was that a crucible moment for you?

I think it was a crucible moment because I hadn't sold my first business, the magazine, which I had been offered 20 million bucks for, and I owned 80% of it, and I didn't sell, and then the dot-com crash happened. So when Weblogs Inc. happened, I said, you know what, it'd be 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? Let's talk a little bit more about Sequoia and you taking over the stewardship of it.

this has been 20 years in the making, about? Yeah, but it's like 20.5 years. 20.5. And so you took over after, or two decades. 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. What did you learn from the previous stewards? What was the training?

And why did they pick you? Thank you. 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. Yeah, I remember. Yeah. Then in 2017, I actually became responsible for the overall management of the U.S. and then Europe business. And Doug Leone was our senior steward at that point. And I became the steward of the U.S. business, U.S. Europe business.

And so there's a lot more gradual transition on the inside, you know, than some sort of sudden change in leadership. And that's actually one of the big advantages we have at Sequoia. You know, 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, you know, he was an advisor. He was the founder of the firm. And he would offer advice when called on, but would.

interfere with a younger generation, you'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, you know, now Doug continues to come to meetings. I speak to Jim Gets from time to time. We have this ability to draw on the experiences of people who've seen different cycles, seen different waves. And there's a wonderful partnership where, you know, you're not hiring a fresh team from scratch. We benefit from each other's experience. The other thing is, you know, and it all harkens back to Don not calling it Valentine Capital in the first place. He 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 here to work. 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 old is Sequoia now? Is it formed at 77 or something? 72. Wow, I didn't realize it was that old.

51 years. So now you have your own crucible moments, all this effort you put into working with founders and trying to understand their business. Sequoia is a business. 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 years.

I don't know if they were yours or collective or steward moments. But you had your own crucible moments, so let's go through them. Heritage Fund was one. And then, I guess, the shuttering or 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 2006-7 time frame to actually build a dedicated team. When I arrived, we had no dedicated team members focused on the growth business. It 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 okay, yeah, and two different funds. Two different teams. Now, we're one team and we share one office, we share one space. We, you know, there's a tremendous amount of handover between the two teams and non-sharing. So it's very important for me that actually one of the off-sides we had in 2017,

the jackets I had made for us for the event said, Team US. This 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. But there's a different skill set. And 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 too risk taking, but just with larger check sizes, and you think you're a growth investor. Just because it's a $50 million investment doesn't mean it really is a good growth investment. It's maybe just a larger venture investment. And so we've learned. What's the difference if you're to 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 ARC 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 Sequo Capital Fund last year to enable us to continue to hold on to great companies many years after their IPO, whereas we discussed earlier,

a lot of tremendous value creation can accrue. And 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 a scouts. So we have an ecosystem fund as well, where we have the scouts program so that we have, you know,

this idea that we came up with in 2009, 2010, where, you know, there are 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. Let's empower them to make small investments. So we have that program as well. So we sort of have a, and that's really to double down in 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 Sequoer people.

Yeah. 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, probably three standard deviations. And it doesn't just mean IQ, by the way. It's not in that context. Just people who are exceptional,

or 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. Doesn't mean a big market. It's what we think will be a big market tomorrow. Are you in the right side of history?

That's how, you know, those sort of questions, the space that you're in. And then for a seat stage investment, we want to have a novel insight. You can't just be great people. 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 their financing before they technically incorporated the business. And that's the fourth time this year.

Four times this year, we found teams who we like 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? Not necessarily.

You need more of a complete, management team by then. 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, $7 million or $12, $13 million,

you know, in that order of magnitude, usually there's some evidence. And by evidence, it might be that, you know, when we invested in LinkedIn, that 21,000 registered users and there were seven people in the company. When you invested in YouTube, there were three people in the team

and they had 9,000 registered users. That was it. Yes, you said, 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 for during Series A is what, the amount of a Series A has changed dramatically. 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, the valuations back then were three to six million, and that was 15 years ago or so. maybe a slightly more. So you guys do the early as possible, so founders are clear. We love that. But 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. As 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 made growth investments, 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? So can it be number one, and is it defensible in some way? It needs to be number one. It doesn't have a network effect, as we see with Airbnb, Uber. Yeah.

I think of who else is in that category. We invested in Palo Alto Networks and they they're one of the most important security companies. That was a seed investment. I just had to cash on the pod.

He's incredible, yeah. So we made a million dollar seed investments in near Zook, the founder of Palalta Networks back in 2005 or six. Wow. But we wanted to be 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 are, 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 in a 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. And my lord, he's just throwing off cash flow with that business. Airbnb started their cash flow last year.

And Tesla, I mean, 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, the... That's called the leader. And that's a leader with Airbnb now. They're throwing off, you know, 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, I can't remember with the requirements. Yeah, something. You need something about of profitability there to get there. Okay, other crucible moments for you.

Creating the heritage fund and then 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 already you like. Well, it's actually in 2009, we decided to build two new businesses, Square Capital Global Equities and Sequo 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. You know, there's a certain amount of overhead associated with trying to be a single global firm with a single global name. And each business is a leader in its own category. And we just thought we would do better, just truly, you know, embracing that independence. Because we were independently owned. Each 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, things can get too big and be unwieldy and they might be better as very. I think Gary Tan, our friend from Postress and now running Y Combinator, I think the first thing he did was show of the growth fund. 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 too, that seemed weird to me.

And also, like, you've got to focus on something, right? Like, it's kind of hard to do both of those things. It seems to be a reasonable decision. It lightens the load. And you see this in many of the companies in industry as well. you know, there was a period of excess. And I think there's a Jim Collins phrase, the undisciplined pursuit of more.

That's a good phrase. We've done 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 in needle moving. And maybe we'll come back to the other two later, but we just can't elude our attention this much. Yeah. Got to focus. The world is so competitive. What do you think is going to 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 of decades, imperfect as it was, to now sort of being, feels like we're being driven apart. And that seems like geopolitically not a great thing and not great for either group of citizens. What are your thoughts on China-U.S. relations? I hope we can stem the tide. I think you're right that it's going in a certain direction right now. It seems to be the one thing that politicians in this country agree on, on both sides of the aisle. I don't think it's in everybody's best interest. Obviously, 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 currents. 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, clearly. Crucible moment with heritage. I'm sorry, Sequoia Fund, not heritage. Sequoia Fund, that crucible moment, you decide, hey, 98% of the market cap of Google is post.

These things go in public. 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% and 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 had a correction.

So how is it going? And how did you make that crystal 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? 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 comment. pound, long term. In some sense, they're not benefiting from that when we distribute too early. But 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 beyond this, a core capital fund was to revisit this idea

that there should be a fixed lifetime of a fund because I'm in the board of a company called Natero. We 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. So there's a quite capital fund we'd 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... the Sequo 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 turn and

Sequoia. It just makes fundraising and all the logistics around operating our business simpler. So that was a lot of the motivation for it. Now, we had a record year for distributions in 2021. Even though we knew the Sequoia Capital Fund was in the horizon, we did make wonderful distributions for LPs. And then when the fund launched in early 2020, 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. and 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 Soquay came up with, which is four eyes, 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? It'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, then 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, and 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 billions. 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 standard that you're talking about was with the $2 billion that we had deployed, we had generated $34 in value. That's extraordinary. So that's an enormous gain. And those are realized gains, by the way.

So that number excludes all the value of shares that we still hold and all the wonderful private companies that we still 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 waltz 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 is amazing how this industry changes so dynamically like you're saying.

and how you have some storied firm that just absolutely collapses just in their next fund after having some extraordinary performance. It'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 in team. And that's part of the magic we have at Sequoia. And honestly, part of it comes back to the point we met 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 previous two stewards,

they lasted 60, 65, till they were maybe 60 or so. I had dug on the pot. I'm not sure. I think it was 60 at the time. What's the right age for a venture capitalists to pack it in? Beno Cozola seems like he's sharp as ever. He's not leaving the building.

I think they said they got to drag Benoed out. Well, I think... How do you think about yourself? You've done pretty well. You ever think about retiring? And then what do you think? Is there like an age cap here? We got presidents and, you know,

We have politicians right now who are having a hard time with the retirement concept. So 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, he 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 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. So 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 two 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 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 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.

Our business is a little bit flexible because you might be out at a board meeting. I won't be in the office tomorrow and Thursday because I'm actually at companies, joining board meetings, engaging with management teams or I'll have to go visit companies. So being deskbound 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 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 like to do with the off-sides now that you're in charge of approving them and running them? People in a drum circle guys

going to sweat lodge. How do you make these decisions? I think the pickleball? We did that last year. It was actually the first time I played. There was a lot of fun. We didn't have time for it this year. We do, 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 offside 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 you. It's a timed run. Yeah. And different teams have to compete. And the instructor at the end of it said, no, 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 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 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. 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. Now that I'm running my own firm, we're doing like, we're on track to do like 3,000 meetings. And I have taught a whole other 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. 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 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. And 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 scale. And staying positive. I was just, I was hanging out with Travis last week. And 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, 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 it. oh, you should just sell software. They literally, there was some VC who said, just convinced Travis to make it enterprise software for cab companies. I just thought, wow, you don't understand how much more efficient in it is when you take out the cab company. It's taking 55% tax. You just missed the entire point.

But yeah, that is the... Do I hear in that, but I think some of the most beautiful businesses, most successful businesses were non-obvious and right. Which is 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.com and he said, this can't work. It economically cannot work.

And... That's the danger of expertise, by the way. 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 your knowledge Maybe dated I knew a lot about financial services at one point Because I was in the industry But I can't transpose what I knew 20 years ago to what the industry is today And so that's I've often seen this people who knew a lot about security

Who missed the next security wave you know, 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 makes, when it comes to making investment decisions

where you need a little bit of naivete. Because you need to find about too. Yes, the founders too. And so, anyway, so you have to dream. Which is your biggest? And then what's the biggest joy you would say take from a non-consensus bet? Well, this kind of

company that I mentioned in Naterra, which was a bioinformatics company that provides genetic diagnostic testing. And when we first invested, it was a million dollar seed in 2007. It was a person I'd known in high school in South Africa. Yeah, I know. He's a, you know, Stanford PhD, you know, switched to an electrical engineering. And then he went back to learn about biology and genetics. Started this company. They deliver over 2 million tests a year in America.

They've branched from doing non-invasive prenatics. 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 and a small market. They were only addressing the IVF market initially. Back to your earlier point about the ICP, that 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 they're about 4 million births in America a year. So that was, you know, orders of magnitude, more market opportunity. And 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 leveraged their technology expertise to broaden into adjacencies.

And so they tam kept growing. Yeah. So that answers that question. That boldness we were talking about before. Yeah, that's a great one 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 my 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 Moritz saying,

I think these guys figured something out. It's really cool. And I know the date because I looked out that at, you know, when did I sign up for Twitter originally? It actually has your original sign-up date. and that would introduce me. And that was 2007, the iPhone hadn't yet been released. No, it was SMS.

I remember getting SMS updates because you were on the service and we'd tell you know, you'd write something about I'm having a cappuccino somewhere. This is kind of weird. I don't care that. Shut up. Shut up. Take out. 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 at saying early 2009. Obama had gotten on at some point and it went beyond like me and Robert's Goldbl. Yeah, it was the Arab Spring that happened. And so at that point I think it became much more obvious.

Ashton Coucher I got on, I think. 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, we was able to partner with Jack on the next company. 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 it's very, I think it's more collegial than maybe people think, you know, like it's, you remember these sharp album 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. He said, well, you know, no conflict, no interest. And I was like, hmm. Also, honor among thieves, I don't know. Yeah. What would you learn? I'll just wrap the fire.

What did you learn from Michael Moritz? What made him great? His ability to imagine. Hmm. Big thinker. We met with Jeremy Stoppelman and Max Lefchen when the idea for Yelp was just literary at a formation stage. Yelp was thinking by 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.

And Zagat's gone. Yeah. Because that guy that's gone, but you do see Yelp stickers in restaurants. Oh, we are everywhere. I mean, it's a number one player. It's amazing. I mean, he saw the future before others did.

You're three compatriots at PayPal. Elon, Peter, and Sacks. Also, Stanford, colleagues. Give me the one-liner out 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. Peter works, David works, Max works.

It's true. 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 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, um, and talk about crucible moments, it's actually one of the things that started me thinking about crucible moments was, um, 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 and 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 evolved between us and Visa MasterCard or us in 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 bear 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. I 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 ran product before he became C-O. Yeah.

And I remember when I was interviewing at PayPal, David was one of my interviewers. And part of what we did is he put up a mark of 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 would 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, continuously thinking about what makes for a great user experience. 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 see you before that.

We'll do another pot then. And just 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 just remember those first meetings at the Rosewood. And it was like, Sam Altman, me, Brian Sugar, trying to think who else was in that early cohort. Matt Rubinowitz was in that cohort. Matt Rubinowitz. I mean, it was a really fun, crazy concept to just give a bunch of lunatics, you know, 25, 50, 100 K checks and say, go have fun.

Really was a, and it really launched my career as an investor. No good deed, she'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. It's just 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 saving a greater good.

I agree. I agree. All right, everybody. Back to work. rule off both the now the uh the steward the steward i'll take an iced tea if you got it there different times yes sir yes sir anything for our founders uh we'll see you all next time on this week starts make sure you stop right now you listen to this great interview get more rule off in your podcast player you're 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