THE INFLUENCE OF SEQUOIA: Do you know what the similarity
between Apple, Google, Nvidia, Cisco, and Oracle is? Well yes, they’re all multi hundred billion
dollar Fortune 100 companies, but they were also all funded by Sequoia Capital.
Sequoia has also funded Dashlane, Doordash, Github, Instagram, PayPal, Reddit, SpaceX,
Square, WhatsApp, Yahoo, YouTube, Zoom and all of these other companies as well.
In fact, the combined market cap of all Sequoia Capital companies is a whopping $3.3 trillion and
that was as of July of 2019. Since then Apple alone has reached a market cap of $3 trillion,
so it’s safe to say that Sequoia's aggregated market cap is well over $5 trillion today even
with the stock market crash. And all of those are just a compilation of Sequoia’s known investments.
Sequoia has dozens of undisclosed investments that will likely stay undisclosed indefinitely.
Considering this, many would argue that Sequoia is by far the most successful VC firm of all time and
that’s not a very controversial statement, but it’s not all sunshines and rainbows. While it’s
cool to say that you’ve been involved in all of these companies, the reality is that to get here,
there’s way more failures. In fact, 75% of all VC backed startups fail, so for every Apple they
score, they have to deal with 3 wanna be Apple’s who end up consuming tens of millions each. But,
that’s not even the worst part. The worst part is that when you’re making so many investments,
it’s only a matter of time until you invest is someone who’s truly evil.
Their most recent slip up was none other than FTX in which they had a total of $150 million.
Some of their other controversial and borderline fraudulent investments include BharatPe, Trell,
and Zillingo. But, despite the roaring highs and humiliating lows, it seems like Sequoia
has cracked the code. They’ve been operating for over 50 years, they’ve invested in 1800 companies,
and they’ve essentially funded the entirety of silicon valley.
So, here’s the story of Sequoia Capital: the architects of Silicon Valley.
DON VALENTINE:
Taking a look back, the story of Sequoia Capital traces its roots back to a stern man named Don
Valentine. Don was born on June 26, 1932 in Manhattan New York during the worst of the
Great Depression. Don didn’t have a very strong background either. His father was a regular old
milkman and his mother was a homemaker, so grit and hardship was something that he got
used to very early on. He woud end up attended Fordham University where he majored in chemistry
before moving to Southern California in the 1950s. This was during the height of the Cold
War so the defense industry was popping off. So naturally, Don would get a job as a sales
engineer at Raytheon, but he didn’t really want to be here. You see, Don lived by the ideology
that the past is wrong. If you want to make truly great investments, you have to do something that’s
not part of the past, to do something entirely different. From Don’s perspective, the something
that was completely different was obvious, it was silicon wafers. He didn’t really understand
the technical side of these gadgets, but he knew he wanted to be a part of this industry.
So, he joined Fairchild Semiconductor as one of their first salesmen and ended up becoming a star.
He basically built out the entire sales department over the next 7 years, and he did such a great job
that he would be offered a executive role at one of Fairchild’s spinoff companies: National
Semiconductor. He would happily take the job, but it wasn’t long until he started having arguments
with his superiors. You see, Don felt that it was stupid that they were selling boatloads of
wafers to certain companies but not investing in said companies. He tried to convince leadership
to try their hand at investing, but the answer was always no. At first Don accepted their reluctance,
but the more time that passed, the more he felt that he was missing out. Don started feeling
that the next something was no longer silicon wafers, but the companies that were built on
these wafers. So, Don began investing his own money into up and coming tech companies which
caught the attention of Capital Group. Capital wasn’t familiar with the tech scene or startups,
they were primarily a mutual fund company. But, while they didn’t have expertise,
what they did have was money and they wanted Don to invest this money. With that Don would
quit his job and create Sequoia Capital in 1972 using $3 million worth of funding mostly
from Capital. The term Sequoia alludes to a local tree that’s known to live thousands of years. So,
he chose quite an ambitious name but Don had to now walk the walk. Fortunately for Don, this
wasn’t too hard as his first investment itself would be $600,000 in Atari. Atari would go on to
be sold for $28 million to Warner just a few years later, so it was no doubt a great investment, but
there was something that made the Atari investment magnitudes better. If you know your Apple history,
you probably know that Steve Jobs used to work at Atari. I think you can guess what happened next.
HITTING THE JACKPOT:
Don wasn’t the first person that Steve approached. The first person Steve approached was actually the
founder of Atari: Nolan Bushnell. He offered Nolan 33% of the company for 50 grand. While
Nolan was tempted, he ended up declining and suggested that Steve talk to Don. Don was sold
almost immediately. He says that he’s only met two visionaries throughout his entire life. The first
one was Robert Noyce, a cofounder of Fairchild and later Intel. The second was Steve Jobs.
But, by the time Steve reached out to Don, they already had operations underway and Steve had
wisened up regarding how much Apple was really worth. So, Don had to invest a much more hefty
$150,000 into Apple. It’s not clear how big of a stake this gave him, but that didn’t really matter
as he would end up selling just 2 years later for $6 million. That’s obviously a phenomenal return,
but Don didn’t exactly want to sell. The problem was that Don’s investors needed their money back
for tax purposes so Don was forced to sell. This was quite a shame as Don literally had the future
world’s largest company in his hand, but this taught Don a valuable lesson. Never accept money
from non tax-exempt institutions. Don wasn’t too disappointed though. He felt that the computer
revolution was just getting started and that there was plenty of opportunity left. With that, Don
would turn around and invest in Electronic Arts in 1982. He would follow this up with an investment
into Oracle in 1983. These were obviously great investments that performed exceptionally well,
but Don couldn’t help but feel that he just didn’t have enough skin in the game. Sure, he was pretty
good an investing a few hundred thousand dollars and making a few million or maybe even tens of
millions. But, there was no way that Sequoia would reach the hundreds of millions or billions if
they stuck to this strategy. So, Don started looking for companies in which he could gain
a much larger stake. This took quite some time, but he would eventually find his target: Cisco.
In the late 1980s, Cisco was in dire need of money. They had already asked Sequoia for money,
but less than a year later, they needed even more money. Cisco was desperate and lets just say Don
would seize this opportunity. He offered them $2.5 million for 32% of the company. Looking back, this
was definitely a predatory offer but Cisco had no choice but to accept if they wanted to survive.
This actually worked out super well for Cisco as Don would bring his expertise in management
and sales to Cisco which allowed them to become the world’s largest company by 2000.
As for the founders, it didn’t work out so great for them but that’s a wholenother story.
At the peak, Cisco was worth $569 billion so let’s just say, Sequoia made a crap ton of money.
Sequoia was now the world’s most well known and most respected VC firm, but they were just getting
started as they would turn around and invest all of their profits from Cisco into dotcom favorites.
BECOMING THE GOAT:
Some of the last investments that Don personally led at Sequoia was Nvidia in 1993 and Yahoo in
1995 but this was for the best. You see, Don was extremely self aware and he acknowledged
that modern companies were way beyond his expertise. He was able to somewhat keep
up as long as companies were actually creating physical products like Apple, Cisco, and Nvidia.
He could help with manufacturing, suppliers, scaling, and logistics.
But, more and more companies were starting to have no physical product whatsoever, and this was a
clear sign to Don that it was time for him to step down. In 1996, Don would hand over Sequoia to two
of his most trusted executives: Doug Leone and Michael Moritz. These two were nothing less that
absolute professionals. They would not only run Sequoia well but they would run it exactly how Don
had envisioned. For example, in the mid 1990s, the duo started feeling that much of the opportunity
was overseas. At first, they considered just doing it themselves, but then they thought about how
Don would approach the situation. If it wasn’t his expertise, Don wouldn’t do it himself and this was
the exact philosophy that Doug and Michael would use overseas. Instead of investing themselves,
these two would assemble local teams in these overseas countries specifically in China and
India. Let’s just say, this strategy has worked out spectacularly. In China, their most notable
investments include Alibaba, DJI, JD, Nio, and of course Bytedance. And here’s a list of their
hundreds of investments in India. But, just because Sequoia was expanding internationally
didn’t mean that they were slacking at home. In fact, they were catching even bigger fish back
home. In 1999, they would score Google and PayPal. In 2003, they would score LinkedIn. In 2005,
they would score Kayak and YouTube. And in 2009, they would score DropBox which brings
us into modern times. Over the past 15 years, the world has experienced a mobile revolution
which has progressed faster than anyone could have ever imagined. But, somehow, Sequoia managed to
stay on the leading edge of the mobile revolution as well. Their first mobile investment was Airbnb
in 2009 where they invested a total of $600,000. They would follow this up with Evernote, Stripe,
Tumblr, Square, WhatsApp, Instagram, Instacart, Doordash, Reddit, Github, Zoom, Robinhood,
Dashlane, Figma, and SpaceX just to name a few. How are they able to find so many winners you ask?
Well, it’s not rocket science though they invest in rocket science as well. The secret is simply
that they’re constantly handing off the torch to newer generation leaders. First, Don passed on the
torch to Doug and Michael who were responsible for many of the dotcom and international hits. These
guys then passed the torch to Jim Goetz who scored most of their victories throughout the 2000s. And
more recently, it seems that the torch has been passed onto Matt Miller and Andrew Reed who are
both barely 30 years old. In fact, Andrew actually identified Github and Robinhood in his 20s. And as
long as Sequoia keeps embracing the youth, they won’t be losing their own youth anytime soon.
THE LEGACY OF SEQUOIA:
Nowadays there’s a lot of VC firms out there that have hit it big from Tiger Management to Andreesen
Horowitz. But, what sets apart Sequoia is their longevity. Most of the other VC firms have barely
been around for 15 to 20 years, but Sequoia has been around for over 50. And the craziest
part about all of this is that they were investing in leading edge companies the entire time.
They’ve literally had their hands in everything from Apple in the 1970s to SpaceX in the 2020s.
Unfortunately, Don Valentine wasn’t around to see this as he passed away in late 2019 at age 87.
But, while Don is no longer with us, there’s no question that his legacy and impact will live on
for as long as the Sequoia tree itself. Were you familiar with Sequoia Capital?
Comment that down below. Also, drop a like if you hope that your legacy lasts as long
as the Sequoia tree. And of course, consider checking out our discord community to suggest
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