You've been through so many cycles now, two or 3 to 3 decades through technology
to two decades of decades. Yeah, I won't age you.
You've been through so many cycles, so you've seen a lot.
And Sequoia is famous for its pithy sort of market messages.
In 2008, it was Good times adapting to endure more
recently. What's the message now?
Focus on the fundamentals. I think the the thing that I think about
from the PayPal experience in early 2000 when the market meltdown, we had seven
months of runway left and no revenue. The only thing we could control was
building a business, serving our customers.
And so that's the advice we give our companies today focus on the
fundamentals of building your business, because that's the only thing you can
control in the long run, and that'll help you achieve what you dream of.
I'd say there's one small twist to that, which is there are a couple of companies
that don't have ideal product market fit or may not be capturing the full
potential that they have. And we think they have a resounding
opportunity to go back to basics and think about whether there's something
different they could do to really help them achieve greater heights.
I'm curious what you think about the macro environment now.
Jamie Dimon has said we're heading to 7% rates.
The world isn't ready for that kind of stress.
Tech really benefited in a 0% world. Where is this going?
Is that the end of easy money? It is the end of easy money, for sure.
But if you go back in history and again, Sequoia has had over 50 years of
experience. When we invested in Apple in 1978, the
ten year yield was over 8%. In 1987, we invested in Cisco.
The ten year yield was over 8%. In 1999 was PayPal and Google, it was
over 6%. Today, the ten year yields only four and
a half percent. So great companies are built in
recessions in high interest rate environments, low interest rate
environments. And so that's what we focus on.
Last time we spoke, I believe you used a racing analogy Where's the car now?
Where is the Sequoia car now? On the racetrack.
Yeah, fast. Is it going?
The analogy we made that if you're in a race car, if there's a corner ahead, you
brake hard before you enter the corner, and then you need to find the apex and
accelerate out of that corner. And so right now I think we're getting
close to the apex, and the leading companies are using this as an
opportunity to extend the lead and to really hit the accelerator.
Instacart just went public and Sequoia was an early investor in Instacart.
That's a one and a half billion dollars windfall for you.
You did also invest at the late stage $39 billion valuation, and it's now
trading at around $8 billion. What did you learn from that decision?
Is there anything that you would do differently?
Well, the key is that we invested in 2013 when there were fewer than ten
people in the company with a bright idea to change the world of online grocery
shopping. The company's valuation was $29 million
at the time. And again, getting back to this notion
of performance in 2019, before the pandemic hit, Instacart had 214 million
in revenue last year.
That's two and a half billion in revenue.
And they had more free cash flow in the first six months of this year than the
entire revenue in 2019. And so, yes, we don't have a gain on the
investment that we made in 2021. But there are four other financings we
participated in that are very strongly in the money, and we're very optimistic
about the company's future. So does it change anything about how you
would make a similar decision in the future if given the choice?
Right. But we're long term business partners of
these companies. And so, you know, I think the only two
share prices that matter, the one when you buy and the one when you sell.
And so at various points, prices go up and down.
Public companies have share prices that go up and on every single day.
And so for us, it's about the long term and our belief of what Instacart can
become. So, you know, Sequoia has, you know,
made some bold moves lately in the venture business.
And you've gotten some criticism for holding on to post IPO shares.
I believe Fred Wilson at USV said folks who invest in funds that do that should
fire these funds. How do your LPs feel about this
strategy? Have any of them moved on?
So we launched the Sequoia Capital Fund at the beginning of last year.
We announced it in 2021, and the idea is that we want to be a partner to our
founders, from IDEA to IPO and beyond. And for us, it seems a natural to have
this expiration date on your relationship with the company.
And so 95, 96% of our LP's available capital rolled into our new Sequoia
Capital fund structure, which enables us to hold on to some of these companies
longer. Now, I understand what Fred said.
We were co-investors in a company called MongoDB where I I'm still on the board
of the company. Mongo went public at a price per share,
about $23. Today the companies with $350 a share.
More than 90% of the company's value happened after the IPO.
And so I don't understand why. If you have that kind of relationship,
why wouldn't you help your LPs capture some of that benefit?
Most LP sell as soon as we distribute shares.
And so, you know, if we if we have a conviction about the long term potential
of the company, we should hold onto those shares.
So the plan is to continue to do that if the opportunity arises selectively.
We understand that not every single company has an ability to continue to
compound as a public company. And so we need to be discriminating and
discerning about which companies make it into the Sequoia Capital Fund.
But why not? If you think about, you know, Google
went public and had a market cap of $23 billion.
Today, it's worth over a trillion. And video went public at a $300 million
market cap. We were the seed investor in them in
1993. And today it's also worth more than a
trillion. They're just phenomenal opportunities to
generate great returns by continuing to partner with legendary companies.
Venture is so different now from when you started, and one constant is that
Sequoia is one of, if not the most sought after name in the venture capital
business now that you're in the driver's seat, to use another racing analogy, you
are the senior steward. What will it take for you to consider
your tenure a success? Well, so the reason I have the title
steward is because we are caretakers of a phenomenal brand.
And it harkens back to when Don Valentine started Sequoia.
He didn't call it Valentine Ventures. He called it Sequoia Capital.
And as many people know, the Square Tree lives to be over 2000 years.
It's the longest lived tree in California.
And our ambition is to build a partnership that endures.
And that means we need to leave it in a better place than we found it.
And for me, that's making sure that we have a team that is able to take over
the reins of Sequoia. And so when I recruit younger team
members to join us, it's not to come work for me.
It's to work with me and to have an opportunity to inherit the business.
Now we're in London, so we have to talk about Europe.
Sequoia just recently separated from its China India businesses, but doubled down
on Europe. Europe doesn't have the same wealth of
tech companies that we see in Silicon Valley.
Why do you think there's so much opportunity here?
Not yet. So I think you need to think about the
ingredients for building great companies, especially our Europe
business. We actually structured that with one
team, one fund, because we want to find the market leaders across the West, and
that company might be a path that came out of Romania.
It might be a unity that comes out of Copenhagen.
So we have a single team. If you look at the ingredients in
Europe, this incredible talent, about a third of the software development talent
in the world lives in Europe. So there's latent talent.
Many of these founders have now been part of other companies.
So the ability to work at a supercell and
spin off and build a company like Walt, the 14 companies that have spun out of
Resolute. Increasingly, you're seeing founders
spin out of these platform businesses, and they have the inspiration and the
confidence to start their own companies. And then lastly, the scale of ambition
in Europe is completely different from what I saw 15 years ago.
Founders who dared to dream big and they want to build global businesses.
And so we're incredibly enthusiastic about what we see on the ground.
You just met with U.K. Prime Minister Sunak, and Europe has
taken a hard line on tech. Should Europe be deciding the fate of
big tech from a regulatory perspective?
Well, I don't think that has a huge impact on
the startup formation in the same way that interest rates don't have a huge
bearing on people who have bright ideas to solve problems for customers.
I think, you know, some of the regulatory changes that are happening in
Europe at a very high level don't really affect seed stage company formation and
the ambition of young founders to build global leaders.
How is. A formal separation from your China
business going like, do you ever imagine or foresee competing with your former
colleagues? Well, we've structured in a way we each
of the businesses will run fully independently.
I think we each have an advantage in our respective regions.
We may compete over time, but honestly, I think there's more opportunity for us
to cooperate. We've gone from being siblings to being
cousins. And if anything, we're going to pick up
the phone and speak to each other and find ways to collaborate rather than to
compete. Sequoia is a huge investor.
You're an investor in OpenAI, for example. There's so much hype about AI in
general. What's hype, what's Realogy reality and
what's your strategy in between? So we've been making very active seed
investment. 60% of our investments over the last 12
months have been in around I now I was in Silicon Valley in the late nineties
and there was a lot of hype around the Internet and we went through a trough of
disillusionment at some point around 2002.
And I think in the long run the Internet was far more profound than we could have
imagined at the time. I think the same may be true for A.I..
The potential is immense. We liken it to the internet or to cloud
computing or mobile and its significance.
And sure, there are going to be pockets of exuberance, but we have very strong
belief in the future potential. I think you have 17 AI investments in
stealth mode, which I was wondering, is that a record for stealth investments in
one sector? That may be one of the most fascinating
things. So, you know, our mission is to find
these founders very early. We've had five investments this year
where we found the teams and discussed investment terms before that Inc..
Wow. Because we endeavor to meet these
founders right at the point where they started to think of these ideas.
And that's part of the reason so many are still in stealth.
They were very, very early stage businesses.
So what's cool besides A.I. right now?
I mean, I've heard people say there's nothing else interesting out there in
tech beyond AI.
Where are the most exciting opportunities?
Well, I think the opportunities over 40% of what we invested in wasn't I was
certainly not A.I. first or primarily A.I..
There are opportunities in health care. I've always been excited about the
potential for bioinformatics, personalized medicine, the opportunities
in defense technology, which I think is really interesting.
You backed Elon Musk's Twitter or I should say x $800 million check.
How's that one going? Is that one going to bear out?
So my first job opportunity in America was given to me by Elon and it was to
work for x dot com 23 years ago. So it's an interesting full circle that
it comes back. We're very enthusiastic about X.
I think the things that have happened at the company in terms of changing the
cost structure, streamlining decision making to get much more rapid product
evolution, record usage levels on the service, a reinvention of the business
model, full transparency on content, moderation and veracity.
And so we're very enthusiastic about the future, and it's still early days.
Think again. We normally invest in companies and wait
10 to 15 years before there's an outcome, and it hasn't even been 12
months since the company was acquired. So are you is it easier for you to call
it X? Because I still can't get quite used to
it. I've adjusted
given we're in London. What do you think the best places to
start a company today? Is it London?
Is it San Francisco? Is it Miami or Austin?
Bill Gurley told me he thinks Silicon Valley is still the place to be.
For now, Silicon Valley is still the place to be.
I think if you look at the last 12 months, Silicon Valley had about roughly
50% of all venture investment dollars went into Silicon Valley.
Next was actually New York City and uh, Los Angeles, followed by London.
And Paris is very close, but I don't think it's the availability of capital
that matters most. It's getting all the talent together
that you need to build a business. It's not just about the investment, it's
can you hire the right product managers, the right designers, A finance person
that understands how to work with technology companies and Silicon Valley
has never aspired to have a monopoly on this.
We love it when company formation can happen anywhere, and we encourage that
because talent is far more distributed and we want to find those great founders
wherever they may be. So what's going to define the next era
of tech investing? There was, you know, move fast and break
things, then the era of efficiency. What's next?
Well, for now, I think it's focus on the fundamentals.
Companies need to focus on serving the customers and making sure they have line
on site and building that great business model.