The Exchanges

Q And I have to ask then, and sorry, this isn't in the schedule, but it's just a personal one for me. Everyone tells me kind of, you know, to be an established and great investor, Harry, you need to learn the foundational skills of the trade of a VC. What were those skills then you think kind of were foundational to your summit that you learned?

A In a funny way, the skills that I learned there hurt me here, which might sound counterintuitive. But the skills that I learned there were things like building financial models, and being able to build a financial model is a very good way to break down a business and really understand the unit economics and the drivers, but it turns out that those unit economics and drivers are a function of the product, the team, and the market, and understanding the product, the team, and the market is not really a tool that you can acquire. It really just takes many, many years of trying to break down businesses, talk with customers, talk with founders, talk with your partners, all of that at Accumulated knowledge that allows you to do that, so it's not quite as simple as picking up a handful of tools.

AI assessment note: “the skills that I learned there were things like building financial models”

Q And I have to ask then, and sorry, this isn't in the schedule, but it's just a personal one for me. Everyone tells me kind of, you know, to be an established and great investor, Harry, you need to learn the foundational skills of the trade of a VC. What were those skills then you think kind of were foundational to your summit that you learned?

A In a funny way, the skills that I learned there hurt me here, which might sound counterintuitive. But the skills that I learned there were things like building financial models, and being able to build a financial model is a very good way to break down a business and really understand the unit economics and the drivers, but it turns out that those unit economics and drivers are a function of the product, the team, and the market, and understanding the product, the team, and the market is not really a tool that you can acquire. It really just takes many, many years of trying to break down businesses, talk with customers, talk with founders, talk with your partners, all of that at Accumulated knowledge that allows you to do that, so it's not quite as simple as picking up a handful of tools.

AI assessment note: “the skills that I learned there were things like building financial models”

Q ask, is it difficult, and this is, uh, kind of harsh of me to break out the schedule for, but is it difficult for, For you and the Sequoia team, with the incredible success that you've achieved for the past, you know, several decades, is it difficult to retain that kind of humility and underdog mentality that, as you said there in Boys in the Boat made them so successful?

A Very kind of you to, um, to, to compliment us in that way. I think the reality of our business is we can lose to anybody with any company on any day. If you're a founder, yes, it's nice if somebody with a brand like Sequoia shows up at your door, but You are going to choose somebody who is passionate about what you're doing and who you are and what you're trying to achieve. Somebody who really understands those goals and somebody who's going to fight like heck to help you get there. And so I think it is easy enough for us to retain that underdog mentality and that spirit because the reality of our business is even with all the great advantages that we have, the next investment is the one that matters. The founders we're in business with today and the next founder we get into business with Is all that matters. Everything that happened yesterday is in the past.

AI assessment note: “I think it is easy enough for us to retain that underdog mentality”

Q more. I think the CRM story is incredible. You mentioned Jim Getz having the superpower of, like, founder evaluation. Yeah, yeah. I spoke to Julian Beck before, and he actually said that you had a superpower of founder evaluation today, but you said you have a framework for it, and maybe it differs between early and growth. Can you talk to me about that framework, and how does it differ?

A There are kind of two things that I care most about when assessing founders. So one is founder market fit, and two is the vector that describes them. And so for founder market fit, people tend to commingle two distinct variables in here. There's the problem variable and there's the solution variable. The problem variable is, do you understand what problem you're solving? And a lot of times that means, do you have somebody who comes from this domain? And so one example, we're in business with this company, Harvey, which is doing AI for legal services. Winston comes from the world of law, so he understands the problem. The other variable is solution. You may understand the problem. Do you actually know how to build the solution? Well, Winston doesn't know anything about AI. I mean, he does now two years ago. He didn't. Fortunately, his co-founder Gabe comes from the world of AI research. And so Gabe understands how to build the solution. So you put those two things together. You have both the problem and the solution accounted for. That's pretty good founder market fit. The second thing that I mentioned, which was the vector that describes the person, you know, vectors have both direction and magnitude. The magnitude component. People tend to refer to as, you know, the spike around a founder. I don't necessarily need it to be a singular identifiable spike. If it's just a track re…

AI assessment note: “There are kind of two things that I care most about when assessing founders.”

Q What sort of cash was it doing? Just ballparking.

A This is actually funny because we didn't have a full set of financials from them, so we didn't know literally until the last slide in the presentation in the partner meeting on the day that we were going to make the decision when Fred was presenting. 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. So they were unbelievably cash generative, right? Obviously didn't need to raise any money. The reason that they decided to get into business with us, Doug and I went down to visit Fred in San Diego and we were sitting with him and Doug has this amazing discovery process where he kind of teases out everything that might not be going so well with the company, which is not the stuff they want to tell you about.

AI assessment note: “The very last slide showed that they were generating twenty million of free cash flow.”

Q more. I think the CRM story is incredible. You mentioned Jim Getz having the superpower of, like, founder evaluation. Yeah, yeah. I spoke to Julian Beck before, and he actually said that you had a superpower of founder evaluation today, but you said you have a framework for it, and maybe it differs between early and growth. Can you talk to me about that framework, and how does it differ?

A There are kind of two things that I care most about when assessing founders. So one is founder market fit, and two is the vector that describes them. And so for founder market fit, people tend to commingle two distinct variables in here. There's the problem variable and there's the solution variable. The problem variable is, do you understand what problem you're solving? And a lot of times that means, do you have somebody who comes from this domain? And so one example, we're in business with this company, Harvey, which is doing AI for legal services. Winston comes from the world of law, so he understands the problem. The other variable is solution. You may understand the problem. Do you actually know how to build the solution? Well, Winston doesn't know anything about AI. I mean, he does now two years ago. He didn't. Fortunately, his co-founder Gabe comes from the world of AI research. And so Gabe understands how to build the solution. So you put those two things together. You have both the problem and the solution accounted for. That's pretty good founder market fit. The second thing that I mentioned, which was the vector that describes the person, you know, vectors have both direction and magnitude. The magnitude component. People tend to refer to as, you know, the spike around a founder. I don't necessarily need it to be a singular identifiable spike. If it's just a track re…

AI assessment note: “There are kind of two things that I care most about when assessing founders.”

Q What's your favorite winning story, Pat? You've been at Sequoia now for 17 years?

A In sales parlance, people talk about the difference between making something happen And order taking, right? 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 your hand and say, okay, well, we'd like some, please. That is very different than the way that it often worked 10 plus years ago, where. Companies may not have been raising another round. They might've been generating cash. They might've had no need for money, right? And it was a business of figuring out if there was some reason that they would be better off if they had you as a shareholder, articulating that to them in a compelling way and getting the opportunity to be shareholders. And one that I think of is in 2009, when, um, Fred Luddy was building ServiceNow down in San Diego and nobody had really heard of it. It was just a SAS company that happened to be working. And, um, It was generating cash, and so there was no need to raise any money. There was no round planned.

AI assessment note: “And one that I think of is in 2009, when, um, Fred Luddy was building ServiceNow”

Q keeping the main thing, the main thing. And I guess the question that I have for you is when you look at like the ecosystem fund, when you look at ARC, when you look at scout funds, when you look at the operated talent platform, there's a question of, How do we think about keeping the main thing? The main thing is, is that flying in the face of it?

A It is absolutely the right question to be asking, and I'm a big fan of fewer, better things. I think it is good to experiment, because if you don't experiment, you're not going to be on the bleeding edge, and you're not going to be the ones defining the future. You're going to be getting dragged into the future by somebody else who's defined it for you. So I think it is good to experiment, and I think that we've experimented aggressively, and I'm a big fan of that. 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 keep going. No, unless it's a wild success, shut it down. That doesn't mean it's going to be a home run right out of the gates. None of the experiments that we've done were home runs right out of the gates, but you could find something in there. That allowed you to, you know, craft your thesis for why it was on the track to being a wild success. And I think that's important. So anyway, to directly answer the question.

AI assessment note: “the default for any given experiment is that it gets killed.”

Q Yeah, really loved doing that show. The final element was the harvesting. Um, What have been the biggest lessons in terms of generating value from sales? Because you have the question of, when do I sell? Do I hold? What have been some of the biggest lessons there?

A It's really hard. Um, there are companies that we sold way too soon, and when I say we, the founders, you know, ultimately we are in support of the founders, but YouTube is a canonical example. PayPal is a canonical example. You know, so there are companies that have been sold way too soon. There are also companies that we hold onto, held onto for too long. 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 headed in a very good direction.

AI assessment note: “there are companies that we sold way too soon... also companies that we held onto too long”

Q No, I do get you. Can I ask again, very unfair of me in terms of off schedule. You mentioned the extended period of privatization. How do you think about that today at Sequoia? And does that actually naturally play into your strategy with the larger funds?

A Everything that we do here is reverse engineered off of that mission. And so again, we want to help the daring build legendary companies from idea to IPO and beyond. If founders want to stay private longer, then we'll end up raising vehicles that can support them when they're at pretty decent scale. So it all comes from what the founders want to do. A related question, people ask, how do you advise your companies around IPOs? Different founders have different reasons to go public or not go public. I think at the end of the day, to steal a line from Frank Sloopman, who is the CEO of ServiceNow and recently became CEO of Snowflake, accountability brings out the best in people. And I think that at some point, it's good for most companies to be public companies because that does Have a higher level of accountability and transparency. And I do think that that helps to bring out the best in people.

AI assessment note: “If founders want to stay private longer, then we'll end up raising vehicles that can support them”

Q What sort of cash was it doing? Just ballparking.

A This is actually funny because we didn't have a full set of financials from them, so we didn't know literally until the last slide in the presentation in the partner meeting on the day that we were going to make the decision when Fred was presenting. 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. So they were unbelievably cash generative, right? Obviously didn't need to raise any money. The reason that they decided to get into business with us, Doug and I went down to visit Fred in San Diego and we were sitting with him and Doug has this amazing discovery process where he kind of teases out everything that might not be going so well with the company, which is not the stuff they want to tell you about.

AI assessment note: “they were generating twenty million of free cash flow”

Q What's your favorite winning story, Pat? You've been at Sequoia now for 17 years?

A In sales parlance, people talk about the difference between making something happen And order taking, right? 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 your hand and say, okay, well, we'd like some, please. That is very different than the way that it often worked 10 plus years ago, where. Companies may not have been raising another round. They might've been generating cash. They might've had no need for money, right? And it was a business of figuring out if there was some reason that they would be better off if they had you as a shareholder, articulating that to them in a compelling way and getting the opportunity to be shareholders. And one that I think of is in 2009, when, um, Fred Luddy was building ServiceNow down in San Diego and nobody had really heard of it. It was just a SAS company that happened to be working. And, um, It was generating cash, and so there was no need to raise any money. There was no round planned.

AI assessment note: “And one that I think of is in 2009, when, um, Fred Luddy”

Q Is it hard to inspire that humility in new joiners?

A I was talking with this guy named Ben Jacobs the other day who was, used to be the CIO of Viking, and he left to start his own firm four or five years ago, and one of the comments he made really stuck with me, which was 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. That really stuck with me because 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. Like we have to work to earn it today. And I do worry that we may have adverse selection. When we try to find people, because they're attracted to the name brand, and they're attracted to a place that's already been built, versus being attracted to a place where they feel like they can build. And I think we, I think we screen for that reasonably well, and I think if you look at our team, for the most part, they are hungry, ambitious, chip on the shoulder, overachiever types. And so I, I think we have pretty good DNA, but it is something I worry about.

AI assessment note: “I think we screen for that reasonably well, and I think... it is something I worry about.”

Q in the cold. And you just said, like, it was another level. And I guess I just think it, I think about if you've got Marc Andreessen and Ben Horowitz doing the hard fucking sell, and then you have Doug Leone doing the hard fucking sell. I mean, I'm obviously green. Doug's gonna win all day. But when Doug starts pulling away, how does one think about losing a weapon?

A I don't think people have gotten to see what made Doug so effective 10 or 15 years ago because 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 here, right? That's more what he's been asked to do recently. 10 or 15 years ago, he was the tip of the spear. He was in the first meeting. He was leading the charge. He was asking the questions. He was doing the work. And in that capacity, he was the best there's ever been because he would fully, fully, fully commit to being present, understand that person to a degree that nobody else has ever understood them, understood their business to a degree that nobody else could possibly achieve in 45 minutes. And by the time that conversation was over. There was no question that they wanted to be in business with him. Doesn't matter who else comes into the room. Could be anybody. But like, nobody could be Doug at that point.

AI assessment note: “That's more what he's been asked to do recently.”

Q we go along the lifecycle of, like, fund investing, the next is, like, actually helping companies be great. Yeah. Sequoia has big, big teams now. And then I have the alternative, which is your founders funds of the world that say, the best founders, they make great companies. And so my question is, to what extent does the investor really move the needle in enterprise value creation, do you think?

A Well, first off on big teams, you know, 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. So our team is, I think, fairly small relative to our market presence. The thing that has changed a bunch is when I joined, we had two people, uh, that I would call kind of front office operators. Um, so not compliance, finance, all that good stuff, but Two people, one in marketing and one in talent, um, who were there to amplify the efforts of investors and serve the portfolio. That number two has grown to almost 60 today. And so that's where we've really invested. And the reason we've done that is largely a reflection of the market. So one of the nice things about technology, it's kind of this democratizing force, right? Like any founder, a founder could come from anywhere in the world and focus on any vertical. And so the, the venture capital market is subject to something that people used to, used to use in relation to the big data world, 10 years ago, when that was a thing, which is the three V's volume, variety, and velocity. There is a higher volume of founders coming from more places, coming at us faster than ever before. And we have to react to that as a business. One way to react is to staff up the investment team, right? We could have a hundred investors. We chose not to do that because we want to do is c…

AI assessment note: “amplify the efforts of investors and serve the portfolio. That number two has grown”

Q keeping the main thing, the main thing. And I guess the question that I have for you is when you look at like the ecosystem fund, when you look at ARC, when you look at scout funds, when you look at the operated talent platform, there's a question of, How do we think about keeping the main thing? The main thing is, is that flying in the face of it?

A It is absolutely the right question to be asking, and I'm a big fan of fewer, better things. I think it is good to experiment, because if you don't experiment, you're not going to be on the bleeding edge, and you're not going to be the ones defining the future. You're going to be getting dragged into the future by somebody else who's defined it for you. So I think it is good to experiment, and I think that we've experimented aggressively, and I'm a big fan of that. 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 keep going. No, unless it's a wild success, shut it down. That doesn't mean it's going to be a home run right out of the gates. None of the experiments that we've done were home runs right out of the gates, but you could find something in there. That allowed you to, you know, craft your thesis for why it was on the track to being a wild success. And I think that's important. So anyway, to directly answer the question.

AI assessment note: “it is really important that the default for any given experiment is that it gets killed.”

Q in the cold. And you just said, like, it was another level. And I guess I just think it, I think about if you've got Marc Andreessen and Ben Horowitz doing the hard fucking sell, and then you have Doug Leone doing the hard fucking sell. I mean, I'm obviously green. Doug's gonna win all day. But when Doug starts pulling away, how does one think about losing a weapon?

A I don't think people have gotten to see what made Doug so effective 10 or 15 years ago because 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 here, right? That's more what he's been asked to do recently. 10 or 15 years ago, he was the tip of the spear. He was in the first meeting. He was leading the charge. He was asking the questions. He was doing the work. And in that capacity, he was the best there's ever been because he would fully, fully, fully commit to being present, understand that person to a degree that nobody else has ever understood them, understood their business to a degree that nobody else could possibly achieve in 45 minutes. And by the time that conversation was over. There was no question that they wanted to be in business with him. Doesn't matter who else comes into the room. Could be anybody. But like, nobody could be Doug at that point.

AI assessment note: “I don't think people have gotten to see what made Doug so effective”

Q we go along the lifecycle of, like, fund investing, the next is, like, actually helping companies be great. Yeah. Sequoia has big, big teams now. And then I have the alternative, which is your founders funds of the world that say, the best founders, they make great companies. And so my question is, to what extent does the investor really move the needle in enterprise value creation, do you think?

A Well, first off on big teams, you know, 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. So our team is, I think, fairly small relative to our market presence. The thing that has changed a bunch is when I joined, we had two people, uh, that I would call kind of front office operators. Um, so not compliance, finance, all that good stuff, but Two people, one in marketing and one in talent, um, who were there to amplify the efforts of investors and serve the portfolio. That number two has grown to almost 60 today. And so that's where we've really invested. And the reason we've done that is largely a reflection of the market. So one of the nice things about technology, it's kind of this democratizing force, right? Like any founder, a founder could come from anywhere in the world and focus on any vertical. And so the, the venture capital market is subject to something that people used to, used to use in relation to the big data world, 10 years ago, when that was a thing, which is the three V's volume, variety, and velocity. There is a higher volume of founders coming from more places, coming at us faster than ever before. And we have to react to that as a business. One way to react is to staff up the investment team, right? We could have a hundred investors. We chose not to do that because we want to do is c…

AI assessment note: “Well, first off on big teams, you know, when I joined 17 years ago”

Q You are more than welcome in London, Pat. My mojitos are always ready for you. Tell me, Sequoia never seems to miss anything. What's been your miss?

A Uh, we miss so many things. So we are lucky enough to get to know pretty much all of the interesting companies out there, and so you can basically just go through the list of companies that have been successful in the last five or 10 years. And if you don't see Sequoia as a major shareholder, it means that we screwed up. So we've, we've missed so many things. We try like heck to be in business with the best founders, but nobody's perfect. It's never obvious at time zero. We make plenty of mistakes. And fortunately, there are founders who are kind enough to give us another chance. If we screw up on the A, maybe we get to lead the B. If we screw up on the B, maybe we get to lead the C. So being able to participate at every point along the founder's journey actually helps us fix our own mistakes over time.

AI assessment note: “if you don't see Sequoia as a major shareholder, it means that we screwed up”