Jul 8, 2024 · 1h 12m · news
Pat Grady: Sequoia Partner on Investing Lessons from Doug Leone, Roelof Botha and Alfred Lin | E1174 · 20VC with Harry Stebbings
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In this in-depth interview, Sequoia Capital partner Pat Grady sits down with Harry Stebbings to discuss his journey from Wyoming to Silicon Valley, detailing Sequoia's rigorous frameworks for evaluating founders, winning highly competitive deals, maintaining organizational humility, and institutionalizing world-class investment processes.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 20.8% of the talking time here. How this is scored →
Harry as informed peer 4.8 Guest teaching 4.9 Guest disagreement 1.4 Harry pushing back 3.1
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 55:49 Pat dismantling competitor 'signaling risk' claims
Pat directly rejects the common competitor narrative that taking early money from Sequoia creates signaling risk, countering with hard internal data showing a 4x valuation uplift on subsequent rounds.
Hardest push from Harry ▶ 42:37 Harry demanding a specific failed experimentWhen Pat provides a generalized philosophical response about experiment thresholds, Harry refuses the broad framing and explicitly forces Pat to state which experiment Sequoia ran too long.
Biggest teaching moment ▶ 1:04:03 Pat revealing Sequoia's 10-year numerical voting dataPat educates Harry on Sequoia's internal data collection since 2014, showing that whether an investment is consensus or contentious has zero correlation with outlier performance.
Harry holds his own ▶ 24:54 Harry challenging Pat on superior deal pickersHarry shows deep market knowledge by challenging Pat's self-assessment of Sequoia's picking ability, putting forward Mamoon Vasuri at Kleiner Perkins and citing non-obvious hits like Figma, Slack, and Rippling.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Welcome and Childhood Upbringing | 4 | 3 | 1 | 3 | Harry conducts backchannel research with Pat's team (Sean McGuire, Matt Miller) and introduces Matthew McConaughey's quadrant scorecard framework to push Pat on how he measures irrelevance. | |
| Defining Success and Magical Circumstances | 5 | 5 | 3 | 6 | Harry explicitly refuses Pat's deflection regarding the word 'success,' insisting that backing $200B companies defines success. Pat reframes his outcome as macro luck tied to entering Sequoia right before the cloud/mobile shift and global financial crisis. | |
| Managing Brand Hits and Investment Failures | 3 | 5 | 1 | 2 | Harry asks about managing firm accountability without creating a culture of fear when investments fail. Pat educates Harry on Sequoia's methodology of evaluating inputs and behavior rather than single outcome data points. | |
| Crystallizing the Investment Thesis | 4 | 4 | 2 | 3 | Harry challenges whether an investment thesis must be a narrative violation or counter-narrative. Pat explains that VCs overvalue being contrarian for ego, whereas Sequoia focuses purely on net multiple returns regardless of consensus. | |
| Founder vs. Market | 4 | 6 | 1 | 2 | Harry offers his rule that founders differentiate 1B from 10B companies. Pat schools Harry on HubSpot's early days, detailing how strategic pivots like staying SMB and acquiring Performable transformed a mediocre product into a market giant. | |
| Founder Evaluation Framework | 5 | 4 | 0 | 2 | Harry notes founder evaluation patterns such as childhood side hustles over management consulting backgrounds. Pat presents his framework dividing founder-market fit into problem vs. solution domains and assessing vector magnitude. | |
| Lessons from Missed Investments | 6 | 4 | 1 | 2 | Harry cites Peter Fenton's advice that great founders should make investors feel uncomfortable, sharing an anecdote about Nikolay Storonsky reading PDFs. Pat shares how over-simple pitches led him to pass on Segment and Revolut. | |
| Sequoia's Value Chain and Sourcing vs. Picking | 6 | 5 | 2 | 4 | Harry interrupts Pat's self-assessment to ask who is a better picker outside Sequoia, naming Mamoon Vasuri at Kleiner Perkins and citing Figma, Slack, and Rippling. Pat agrees with Harry's assessment. | |
| Sequoia's Best Sourcing and Picking Talent | 5 | 4 | 1 | 2 | Harry displays domain knowledge by recalling the exact $400M valuation and negative market reaction to Andrew Reed's Series C investment in Figma. Pat details Reed's multi-year study of the design market. | |
| Proactive Dealmaking: The ServiceNow Win | 4 | 5 | 0 | 1 | Pat recounts how Sequoia proactively won ServiceNow in 2009 by diagnosing technical ops issues and introducing eBay's former tech leader. Harry asks for precise deal financial metrics. | |
| Doug Leone as a Deal-Winning Weapon | 5 | 4 | 1 | 3 | Harry compares Sequoia's deal-winning approach to Andreessen Horowitz and asks how Sequoia copes as Doug Leone steps back. Pat clarifies Leone's historic role as tip-of-the-spear rather than a parachuted executive. | |
| Building the Platform and Scaling Experiments | 5 | 6 | 2 | 4 | Harry pushes on whether large platform teams actually add enterprise value compared to lean models like Founders Fund. Pat defends scaling front-office operations and internal data systems while keeping the core investment team small. | |
| The Philosophy of Experimentation | 6 | 5 | 2 | 7 | Harry cites Danny Rimer's philosophy at Index on keeping the main thing the main thing, then presses Pat to name a specific experiment Sequoia ran too long. Pat admits their delayed exit from India and China. | |
| Recruiting and Identifying Exceptional Venture Talent | 5 | 5 | 2 | 3 | Harry references comments from Andrew Reed and Julian Beck about Pat's talent identification. Pat explains the 9,000-candidate hiring funnel that yielded Reed and Matt Huang, and distinguishes DNA hires from experience hires. | |
| Lessons on Harvesting Value and Selling Too Soon | 4 | 6 | 1 | 3 | Pat details public market distribution strategies, contrasting early exits like YouTube with patient holdings like Square, MongoDB, and Palo Alto Networks. Harry probes whether Sequoia distributed ServiceNow early to prove its growth fund. | |
| Nikesh Arora and the Fasting Podcast | 5 | 5 | 1 | 4 | Harry recounts interviewing Nikesh Arora while on a 36-hour fast and asks Pat where he is personally weakest. Pat admits sourcing is now his weakest link and explains why mid-career VCs make the best pickers. | |
| The Sequoia Advantage and Signaling Risk | 6 | 6 | 3 | 5 | Harry challenges the popular VC narrative that startups die of indigestion rather than starvation. Pat counters competitor claims about 'signaling risk' by sharing data showing a 4x average valuation uplift for companies raising post-Sequoia. | |
| Does Sequoia Have Pricing Power? | 5 | 6 | 2 | 4 | Harry asks if large fund sizes hinder investing in companies without obvious $10B paths. Pat explains stage-based pricing power and shares Sequoia's annual pre-mortem focused on combating complacency and loss of desperation. | |
| Quick Fire: Fewer Better Things and Conviction Voting | 5 | 5 | 3 | 3 | Harry launches a quick-fire round and asks about voting dynamics. Pat reveals 10 years of internal Sequoia voting data showing that consensus vs. contention does not correlate with success—only high individual conviction does. | |
| Quick Fire: Sarah Guo and Memorable First Meetings | 5 | 5 | 1 | 2 | Harry conveys a question from Alfred Lin regarding respected external VCs. Pat shares stories of early meetings with Eric Yuan and Qliktech, and discusses Jim Goetz's early cloud conviction in 2007. | |
| Mentorship, Genuine Connections, and Farewell | 3 | 4 | 0 | 0 | Harry asks why Pat mentored him when he was 19. Pat uses Ravi's concept of 'auditioning for life vs. living life' to explain why he chose to support Harry. |
Statements from this episode (47)
Grady: Market sets the ceiling, but founders determine actual company size
“The market determines how big a company can get. The founder determines how big the company will get.”
Grady: Sequoia is 9/10 on sourcing but 6/10 on picking
“I'd say on sourcing, we are eight or nine out of 10. On picking, I think we're maybe a six out of 10.”
Grady: Missing a wildly successful startup is usually Sequoia's mistake
“When a company is a wild success and you don't see us in the cap table, Chances are at some point we screwed it up.”
Grady: My venture success came from Sequoia's platform and 2007 timing
“Let's say you'd picked any random person off the street in March of. And plop them down into Sequoia where they have one, the greatest business card you could possibly hope for to the beginning of the cloud mobile transition. And three, you're about to head in…”
Grady: Prestigious firms attract status-seekers rather than true builders
“When you work at a name brand place like a Viking or like a Sequoia, You're attracting people who want to be part of something great, not people who want to build something great.”
Grady: Sequoia's 50-year relevance stems from an underdog desperation
“One of the things that has allowed us to remain relevant for 50 plus years now is this sort of underdog mentality and the sense of desperation and the sense that tomorrow is not our birthright.”
Grady: Sequoia never fires or promotes investors over a single deal
“You will never see anybody at Sequoia reprimanded, fired, chastised for a failed investment. You will never see that. Similarly, you will never see anybody at Sequoia Promoted, lauded, praised for a single great investment.”
Grady: Investors err by starting diligence without a defined thesis
“One mistake people make is they sort of launch into diligence on something before they really have figured out what they want to diligence.”
Grady: Sequoia issued the only term sheet for HubSpot's 2011 Series D
“So for example, HubSpot back in the day, we led the series D in 2011. We would later find out that we were the only term sheet. Nobody else wanted to invest.”
Grady: HubSpot had a mediocre product in a crappy market in 2011
“If you look at HubSpot, mediocre product in a crappy market. Not today. Not today. Not today. Circa of 2011.”
Stebbings: Exceptional founders never come straight from McKinsey or Bain
“One of the most clear signs for me of an exceptional entrepreneur is they always start early. They always sold Nokia mobile phones on eBay. A lemonade stand at school, you know, whatever that may be. You never came out of McKinsey or Bain and made your first e…”
Grady: Zoom founder Eric Yuan required nine visa applications to enter US
“Eric Yuan, as the legend goes, it was his ninth visa application that finally got him into the US, right? Like, he was seeking out a better opportunity for himself, and he stuck with it because he really wanted to see it through.”
Grady: Passing on Segment and Revolut Series A rounds were terrible mistakes
“I met both of them at the Series A, and both of them told me the entire story in like five or 10 minutes. And it was super clear. And at the end of the five or 10 minutes, I couldn't think of any questions to ask because they had already answered any question …”
Grady: The best founders can articulate their entire story in ten minutes
“And so I think maybe the lesson is sometimes it really is just that simple. Like sometimes the very best founders can articulate things In a complete and compelling way in five or 10 minutes, and that's all you need to hear.”
Grady: Kleiner Perkins partner Mamoon Hamid is an exceptional deal picker
“Somebody who I really admire is Mamoon at Kleiner. I think Mamoon has an exceptional track record of investing in companies that are not at all obvious at the time. And I think about the series B in Figma, which is a round that we looked at and passed on. I th…”
Grady: Sequoia looked at and passed on Figma's Series B
“And I think about the series B in Figma, which is a round that we looked at and passed on.”
Grady: Quantitative systems cannot systematically identify venture capital outliers
“You can't design a system that's going to systematically identify outliers because each outlier is going to be different. They're going to be one of one if they're a true outlier. So whatever system you design and back test, it's going to miss the next one bec…”
Grady: Figma had $4.6M ARR at Sequoia's Series C
“So the series C and Figma, when Figma had, I think, 4.6 million of ARR, that was not at all obvious, but Andrew had spent three years Studying the design market and had a real point of view.”
Grady: Sequoia won nearly 100% of targeted deals over the last year
“We do track this. I think it's a hundred percent in the last 12 months. Actually, I take it back. There's one situation where an existing portfolio company was raising a Series B and they chose somebody else, and To be fair, we didn't make an offer, but had we…”
Grady: Venture capital has devolved into passive order taking
“And the venture business in the last several years has turned into a business of order taking. And it's a business of order taking in the sense that a lot of companies are raising money rounds are happening frequently. And when the round comes along, you raise…”
Grady: ServiceNow generated $20M free cash flow on $25M ARR in 2009
“The very last slide showed that they were generating twenty million of free cash flow. And that was on twenty five million of ARR because they were getting paid in advance for two and three year contracts.”
Grady: Sequoia invested $52M for 20% of ServiceNow at $260M valuation
“We invested fifty two million for 20%. And for anybody keeping track, that is two 60 post on twenty five million of ARR generating twenty million of cash.”
Grady: Sequoia still holds positions in Snowflake, Amplitude, and Datadog
“We still own a bunch of Snowflake. We own a bunch of Amplitude. We actually own a bunch of Datadog.”
Grady: Doug Leone was the best VC ever at winning deals
“The thing that made him so effective 10 or 15 years ago was he was the tip of the spear. He wasn't the guy who got parachuted in later to play the role of senior big dog, right? And impress upon the founders how important they are because, hey, the big dog is …”
Grady: Sequoia grew its investment team from 14 to 27 over 17 years
“When I joined 17 years ago, we had 14 investors, today we have 27, and so that's less than a two x over, you know, 17 years.”
Grady: Sequoia expanded platform operators from 2 to nearly 60
“When I joined, we had two people that I would call kind of front office operators. So not compliance, finance, all that good stuff, but Two people, one in marketing and one in talent who were there to amplify the efforts of investors and serve the portfolio. T…”
Grady: Sequoia's internal data platform predicts which founders to meet
“We do want it to get to the point where it can tell us whether or not we should meet a company. And it got to that point a year or two ago.”
Grady: Data signals work far better for growth investing than early stage
“It's a lot better for growth than it is for early. It's a lot harder to get those signals out early, which is why we have the ARC program.”
Grady: Corporate experiments should default to termination unless wildly successful
“I also think it's really important that the default for any given experiment is that it gets killed. The burden of proof is on the experiment, right? Unless it is a wild success, shut it down. Most companies say, well, unless it's an abject failure, we'll just…”
Grady: Sequoia should have split from India and China branches earlier
“In 2005, when we got into India and China, we did so with the thesis that the world is getting smaller. When we parted ways in 20, 23, it was because that thesis in some ways had been invalidated. And so I think maybe we could have done that a few years sooner…”
Grady: Tech ecosystems are becoming geographically isolated rather than globalized
“I think what we're seeing is technology ecosystems that are more geographically isolated than we might've expected. And there's a lot of interconnectivity, but it's not just a single global technology market.”
Grady: Sequoia screened 9,000 candidates to hire Andrew Reed and Matt Huang
“Andrew Reed, Matt Huang both started on our team in February of 2014. And so the process that led to them was conducted over the back half of 2013. And it was about the most rigorous hiring process we've ever had. Like top of funnel was 9000 and what came out …”
Grady: Sequoia rejected a $5B buyout for a now-struggling portfolio company
“There's one in our portfolio now that I'm not going to name, but we had an offer from somebody to buy the company for almost five billion dollars. We own just north of 20%. That would have been a huge home run. Now the company looks like it is, ah, kind of not…”
Grady: Sequoia missed a $30B gain by distributing ServiceNow stock early
“If we'd held ServiceNow through to today, it'd be a, I don't know, a thirty billion dollar gain, right? But we didn't. We distributed it a year or so after the IPO because it was the first billion dollar gain over time, not all at once, but it was within the f…”
Grady: Sequoia made $1B+ more on Palo Alto Networks by holding longer
“Or Palo Alto Networks, where we went into that IPO with the exact same ownership position as one of our co-investors. We ended up generating More than a billion dollars more than them because we were more patient, and so sometimes it really pays off.”
Grady: Deal sourcing is currently my weakest skill as an investor
“Ironically, I'm probably weakest now where I was strongest 10 or 15 years ago, which is on the sourcing piece.”
Grady: Mid-career investors make the best venture capital pickers
“A lot of times the sort of mid-career investors can be the best because they have both the right attitude and the right experience.”
Grady: Sequoia keeps senior partners actively investing rather than managing
“One of the things that we try to do that we try to distinguish ourselves on is to not have the more experienced people check out and get into administrative management roles.”
Grady: Startups see 4x higher valuations in rounds immediately following Sequoia
“But if you look at the, if you look at the data, it's actually not signaling risk, it's signaling advantage. And it's signaling advantage in the sense that the average valuation for the round that you raise after your Sequoia round. So if you raise a seed from…”
Grady: Sequoia holds pricing power at Seed and Series A stages
“And so most founders at the very early stages are willing to, you know, if you think of us as a premium product, you pay something different for a premium product than you pay for a normal product, and they pay for our premium product in the form of their equi…”
Grady: Sequoia does not require a clear path to a $10B+ outcome
“We don't necessarily have to see, we don't have to see a clear line of sight to ten billion or a hundred billion or some grandiose figure. We do need to see a clear line of sight to good returns with an exceptional founder who could maybe find some upside from…”
Grady: Sequoia's main threat is arrogance and complacency, not market shifts
“And so the premortem for Sequoia has nothing to do with the financial markets or technology platform shifts or competitive dynamics out in the market. And it has everything to do with staying hungry, staying humble and pretending like To use the Amazon termino…”
Grady: Companies get better returns improving core products than expanding
“Most of the time when a company that we're involved with wants to go do a bunch of new things, it seems to me that the better use of resources is to make the thing you already do better. The thing that you already do Unless it is absolutely heads and shoulders…”
Grady: 10 years of Sequoia data shows consensus doesn't drive startup outcomes
“So we have actual data on this going back to 20 14 where we started recording the votes numerically on every single investment. So we have about 10 years worth, which believe it or not is not conclusive because there are so few outliers that have emerged even …”
Grady: Salesforce was garbage compared to on-premise Siebel in 2007
“Salesforce.com circa 2007 was garbage compared to on-prem Siebel system.”
Grady: Freezing current AI models would still create tens of trillions in value
“I don't know if the data supports this or not, but I think that even if you were to freeze the capability set of the current foundation models and turn all of your attention to optimization and tuning and developer ecosystem, it would revolutionize trillions o…”