The Exchanges

Q The question that I am perpetually stuck by is will the infusion of AI into products lead to an increase in average revenue per user, or will it just lead to a better customer experience?

A I think it's already delivering incremental ARPU. Uh, and I think it'll happen first in companies like Meta, like I said, because you have an auction marketplace, this gets repriced immediately. And so if I look at Meta, we estimate that it's not just delivering revenue. I think it's already delivering about fifteen billion of incremental EBIT, EBIT for Meta, right? Just in, in the form of more content recommendation means you have more time on Meta properties equals more ad inventory and better ad matching equals higher CPMs and higher CPMs just, you know, it's straight flow through to the bottom line. So it's, it's beautiful already for Meta. Now, uh, I look at the software companies and I just think it will take more time because you have to go out to your customer and say, look, I'm delivering you this value. Here's the data. And when your contract comes up again, we're going to raise your prices. It's just a hard conversation. But what you have seen, even since you recorded the pod with, uh, With David, Canva, which you mentioned, has raised prices on its enterprise plan by three X, three X. A lot of flow through, I think.

AI assessment note: “I think it's already delivering incremental ARPU.”

Q The question that I am perpetually stuck by is will the infusion of AI into products lead to an increase in average revenue per user, or will it just lead to a better customer experience?

A I think it's already delivering incremental ARPU. Uh, and I think it'll happen first in companies like Meta, like I said, because you have an auction marketplace, this gets repriced immediately. And so if I look at Meta, we estimate that it's not just delivering revenue. I think it's already delivering about fifteen billion of incremental EBIT, EBIT for Meta, right? Just in, in the form of more content recommendation means you have more time on Meta properties equals more ad inventory and better ad matching equals higher CPMs and higher CPMs just, you know, it's straight flow through to the bottom line. So it's, it's beautiful already for Meta. Now, uh, I look at the software companies and I just think it will take more time because you have to go out to your customer and say, look, I'm delivering you this value. Here's the data. And when your contract comes up again, we're going to raise your prices. It's just a hard conversation. But what you have seen, even since you recorded the pod with, uh, With David, Canva, which you mentioned, has raised prices on its enterprise plan by three X, three X. A lot of flow through, I think.

AI assessment note: “I think it's already delivering incremental ARPU.”

Q In 2016, there was a leadership transition, which I think was a tough moment. Doug told me they did not know whether to keep global equities and made you earn it. I was writing down vociferously. Talk to me about that. What happened there, Jeff?

A So you've probably listened to the Sequoia Crucible moments podcast where Rulof dives into these difficult moments in a company's journey that, you know, require a lot of fortitude, but ultimately set the company in a better direction. That was 2016 for SCG. So I'm, I'm not a founder, um, but I did help guide SCG through what I call a refounding moment. So Sequoia had hired an original portfolio manager for SCG. Um, you know, in, in, in, in, he was a smart, hardworking guy, but didn't really unlock the synergies that we should have within our ecosystem. So, um, really he, he had the same playbook at his prior hedge fund. And so in a lot of ways, he was trying to recreate his prior hedge fund, even investing in, in non-tech areas, for example, as opposed to building something special and unique to Sequoia. And so performance was good. It was not great. And so there's this crucible moment in 2016 where Sequoia decided to part ways with the original PM and actually consider shutting down the business entirely. So as the senior most, uh, partner remaining on the team, I was asked to come up with a business plan and convince the broader partnership why version two would be better. Uh, and for us, it was an incredibly unifying moment. Because we were really fighting for our survival, right? And so the team actually, we actually all left the office. We rented some co-working space dow…

AI assessment note: “I was asked to come up with a business plan and convince the broader partnership”

Q So I, I completely agree with you there. Like, I think there is still a tremendous, tremendous amount of room to run. Is Mag-Seven sustainable? It is carrying so much of this market. Is it sustainable?

A I think it is for some time. So when, when you think about AI today, Productization of AI is a function of owning the customer and owning the data. Right? We are not in a world where AI has created a new distribution methodology. And so if I think about some of the walled gardens, like a Meta, you own the customer experience, you own the data. And so your ability to productize and roll out AI features and functionality to Instagram users very seamlessly is incredibly powerful. Because Meta has this auction marketplace for ads, you also have the ability to reprice Your AI features very quickly, right? Everyone, all these merchants are getting a return on their ad spend, and if someone is getting better return on ad spend, the CPMs for these ads go up. So, I think there's a massive moat for some of these largest companies. Now, what I worry about Well, we're not, not worried about, but what I think will happen over time is this will start to disperse more broadly, but at least in the initial stages of AI, where your data and distribution are so important, I think the mag seven will continue to do quite well.

AI assessment note: “I think it is for some time.”

Q Jeff, what thesis did you have that proved to be wrong and what did you learn from it?

A So Shopify is, uh, has been one of our biggest winners. It is also one of my bigger regrets in terms of, uh, post COVID. And so coming out of COVID, we simply modeled a baseline That still had the postcode trend continue to go up into the right. And that was the case for a lot of e-commerce companies, right? So I think. One thing that we got wrong is a lot of things return back to pre-COVID. Humans don't really change that much or they change more slowly. And so e-commerce really returned back to the pre-COVID trend line. Shopify is still continuing to gain share against the total e-commerce and the total retail pie in a very nice, solid way. But to model this, you know, 800 basis points step up in a year and to say that that was going to continue from that trend, that was obviously incorrect. And we saw that in the data. We started to see that in the data and, you know, being detached to a company, uh, really liking the management team there, um, having it be one of our biggest winners. I think it's, you have to be dispassionate when you see the data changing and we held out hope for longer that, okay, this is just a blip in the data. It's going to get better again. It's going to return back to this very positive trend line we had. And instead it stepped down. It's still a great business. It's still continue to grow against a very positive trend in e-commerce taking, you know,…

AI assessment note: “you have to be dispassionate when you see the data changing”

Q Is that not a dangerous mindset to take? Because if you're always looking for the opportunity cost of capital increase, In other words, that if I sell here, I can put it elsewhere. It could force you to sell something you shouldn't, or keep something that you shouldn't.

A Yeah, and so our bias is definitely, I'd say, to keep something, because you just know it best. You, uh, you know the team, you have a lot of confidence in what they're doing. I think it is really hard to say Sell something that's 10% too expensive, hope to buy it back when it comes down 10%, and then continue to ride it. That is a very hard discipline. So I don't focus on the short term. I think that those are the small dials. I tell my team, don't tell me if, you know, ServiceNow is 10% too expensive. If we have a three to five year investment hold period, you know, 10%, if you get six months ahead yourself in terms of the pricing, it's not going to impact your IRR that much. Where we have to be careful, though, is if it's now 18 months ahead in a three to five year investment time horizon, because now it really starts to impact your IRRs, and then we have to really think about trimming it back and maybe potentially rotating into something else. But, you know, if it's 10% too expensive, I, I, I don't sweat those details. I think about the big dials, and the big dials are really, are you making the right investments? Are you making, is your investment process working? Is this company going to be A much bigger company over the next five years.

AI assessment note: “our bias is definitely, I'd say, to keep something, because you just know it best.”

Q I mean this respectfully, what's the leap of faith removing the non-tech activities and really staying cool to what Sequoia does best. My question more is why do we need a separate team to do it? This feels just like a continuation fund.

A You know, I think the public markets, especially when you're trading actively, like we do, is actually a very different discipline from a continuation fund. So in a continuation fund, right, you're, what you're typically doing is saying, this company that I've known for a long time, do I, do I, do I sell it or distribute the shares over time? And I think that, you know, most funds, most venture funds can be very good at that. What we do is different. So there is a portion of our business that, our portfolio that is Prior or existing Sequoia portfolio companies, right? That's maybe about a third of the portfolio is that there's a lot of our business that is not there. We own, for example, Shopify was not a Sequoia portfolio company. It's a company that we admired in the private markets, but we did not invest in the private markets. And our first chance to invest is when they go public, right? So that, that is a very different discipline. And then also having, uh, having the discipline to go, uh, Know when to buy and sell specific companies. You know, I was talking to Pat Grady about this the other day. We're not just judged on, okay, did we sell this company at the right time, but then did we go buy something else because we sold this company that outperformed this company that when we sold at that time, right? I mean, it's, you have to be deploying capital all the time. It's no…

AI assessment note: “trading actively, like we do, is actually a very different discipline from a continuation fund.”

Q that. I don't know if my compliance allows this. I thought your compliance was going to be the pain. My compliance may be harder on me now, but like I sold it a lot, but it's still hard to sell. And I remember one of my oldest mentors told me, Harry, be greedy when others are fearful and fearful when others are greedy. Very famous saying. Do you buy that?

A I definitely buy that. I think it's really hard to do in practice. I think most people are fearful when other people are fearful and most people are greedy when other people are greedy. I try to combat that. I mean, you can do, you could try to be as dispassionate as you can and do all these, do all this analysis and try to make sure that, but ultimately I think the best way to do it is just to be really long-term about it. This really long-term let's not trade all the time. You know, there was that day, uh, I think it was just last month where The Nikkei was down 12% in a day. I mean, we just don't trade those days. You know, you just sit there, try to figure out what's going on, be long-term about it, and not overreact. I think it's hard in those moments, but it's also hard to act in those moments, right?

AI assessment note: “I definitely buy that. I think it's really hard to do in practice.”

Q What were you selling them? Consistency? Absolute returns?

A I think it's really just to be the best tech public private crossover firm in the world. And with our advantages, I think we can go deliver on that. We still got to go execute. The other thing that we're not selling though, is we are not selling, we're not Citadel Citadel. I have a ton of respect for Citadel and Ken Griffin. We're not selling a product that is not volatile. We're selling a long-term product because I think our advantages are long-term, right? It's seeing these long-term themes that will play out over the next 10 years. And so we measure ourselves on a short-term basis. I don't think that is productive. One other thing that we did to set up, uh, the structure is because we have this long-term investment horizon. We have a long-term capital base. We also have long-term incentives, and I think that's really important. So three or more year investment time horizon, three-year minimum capital base, i.e. it takes LPs three years to take your money out.

AI assessment note: “We're not selling a product that is not volatile. We're selling a long-term product”

Q Can I ask, on the infrastructure layer, do you agree with, with David in terms of like the six hundred billion dollar question and the divergence between revenue and capex? What, how do you feel about that?

A I do agree with it. Where I share his view is that there is a six hundred billion dollar AI problem in the sense that ultimately application companies need to deliver positive ROI from these massive investments. Where I'm probably more optimistic is, is, uh, in the pace that these application companies can actually realize that ROI. We've already talked about Meta. We've already talked about Canva. I think ServiceNow will start to really flow through some of the ProPlus price increases later this year and into next year as well. I think you're starting to see the initial hints that AI is going to come through in terms of, uh, incremental ARPU. For a lot of these companies. Now it's happened probably a little bit more slowly than I would have guessed. I probably would have been more first half this year as opposed to back half this year, but I definitely think you are starting to see it. And I think you're starting to see it because you see the features that can be productized. And the clarity from other companies. What I mean by that, so if you look at what Meta has done is really just take what ByteDance has done, right? With a recommendation engine now, like I'm plugging a bunch of GPUs into it. I'm copying the same thing and I'm just rolling out to my customers. Co-pilots, I think you will be able to use what you see at GitHub and be able to roll it out across many different…

AI assessment note: “I do agree with it. Where I share his view is that there is”

Q Um, he said that you then showed this specifically nose for longs and had this unique ability to make the transition between the two. How did you make the transition so successfully between the shorts to longs? And how do you assess that today?

A The way we short is a bit different from how other hedge funds do it. So we are not looking for frauds. We're not looking for valuation arbitrage. We're looking to further express a disruptive thematic viewpoint that we hold on the long side, albeit on the short side. So it's really important to see these trends early. And so the view into the private ecosystem is actually quite valuable for that. So for example, If you hold a positive view on SpaceX and Starlink, what does that mean for other satellite businesses? What does that mean for rural telcos? If you are bullish on AI, what does that mean about call centers? So our shoring is really expressing further conviction in the longs, albeit in the other direction.

AI assessment note: “our shoring is really expressing further conviction in the longs, albeit in the other direction.”

Q Okay, so that was one. What, what were the other reasons? Sorry, I interrupted you.

A Yeah, so I think also having a perspective on these companies from a competitive standpoint also helps us inform public market investing and vice versa. And then we're also able to allocate between publics and privates based on where we see the best opportunities at that specific moment. And so right now, for example, we do not see for SCGE as many opportunities in the private markets And so most of our attention is actually on the public markets. And so we can flex between those depending on where we see the opportunity set. And then I'd say one other thing is over the last few years, there have been a lot of tourists, as you know, a lot of tourists, uh, mostly on the hedge fund side who've dabbled in private markets and they've gotten burned. Those tourists are out of the market. We don't see them anymore. And so I do think the crossover market is getting more attractive and it's getting more attractive. It's just one tourist exit and two as the IPO markets open up again.

AI assessment note: “having a perspective on these companies from a competitive standpoint also helps us inform”

Q What were you selling them? Consistency? Absolute returns?

A I think it's really just to be the best tech public private crossover firm in the world. And with our advantages, I think we can go deliver on that. We still got to go execute. The other thing that we're not selling though, is we are not selling, we're not Citadel Citadel. I have a ton of respect for Citadel and Ken Griffin. We're not selling a product that is not volatile. We're selling a long-term product because I think our advantages are long-term, right? It's seeing these long-term themes that will play out over the next 10 years. And so we measure ourselves on a short-term basis. I don't think that is productive. One other thing that we did to set up, uh, the structure is because we have this long-term investment horizon. We have a long-term capital base. We also have long-term incentives, and I think that's really important. So three or more year investment time horizon, three-year minimum capital base, i.e. it takes LPs three years to take your money out.

AI assessment note: “We're not selling a product that is not volatile. We're selling a long-term product”

Q So how does that experience impact your go forward mindset?

A It just makes you focus on being dispassionate in a way that I think if I can get help from data science, if I can get help from my partners, I think that helps us be better. And so one of the things that we do is we have a quarterly review of the entire portfolio where we do a re underwrite of every single position, because unlike the venture world, we can buy and sell. Every day, every minute, typically the re underwrites driven by the teams that the team, the, uh, individual partner and the analyst who are supporting a particular investment in the controversial investments. One thing that we will do is we will have a fresh underwrite from a different partner where you have a devil's advocate position. I think that's important for helping us be dispassionate.

AI assessment note: “It just makes you focus on being dispassionate”

Q Can I ask you, what did you not see that you should have seen?

A One of my bigger regrets, and one of our bigger losers, Is, um, is in a company called Twilio. So Twilio initially was a very good investment for us and actually ended up being a decent investment overall. It could have been a legendary investment. Um, we held on for too long. Um, and as competition started to eat away at the business and we actually saw some signs of it. So gross margin was off a few points here or there. A couple questionable acquisitions, key executive departures. And I think each one of those things you can explain in a vacuum, right? You can pro forma analysis for this gross margin, this specific quarter, or you can say this executive left for a really good opportunity. But I think when you take them all together, I think clearly something was a little off. And so again, that's why I think it's important to regularly re underwrite these investments each quarter and have a discussion with the full investment team. And so Again, I think that's where one of the, one of the ones where the devil's advocate, uh, point of view actually was really helpful to get a fresh dispassion perspective.

AI assessment note: “when you take them all together, I think clearly something was a little off.”

Q So I, I completely agree with you there. Like, I think there is still a tremendous, tremendous amount of room to run. Is Mag-Seven sustainable? It is carrying so much of this market. Is it sustainable?

A I think it is for some time. So when, when you think about AI today, Productization of AI is a function of owning the customer and owning the data. Right? We are not in a world where AI has created a new distribution methodology. And so if I think about some of the walled gardens, like a Meta, you own the customer experience, you own the data. And so your ability to productize and roll out AI features and functionality to Instagram users very seamlessly is incredibly powerful. Because Meta has this auction marketplace for ads, you also have the ability to reprice Your AI features very quickly, right? Everyone, all these merchants are getting a return on their ad spend, and if someone is getting better return on ad spend, the CPMs for these ads go up. So, I think there's a massive moat for some of these largest companies. Now, what I worry about Well, we're not, not worried about, but what I think will happen over time is this will start to disperse more broadly, but at least in the initial stages of AI, where your data and distribution are so important, I think the mag seven will continue to do quite well.

AI assessment note: “I think it is for some time.”

Q Yeah. Have you, have you gone into, Really the data center deployment space?

A You know, we haven't because I don't know that these ultimately are better businesses, uh, after, right? So what you know now is that there's an incredible amount of demand. That demand is growing at very high levels. But if I'm talking about a power electronics company or a company, a construction company that builds data centers, Let's say, let's say there's incredible growth over the next two years. That's going to attract incremental competition. Are these really great sustainable businesses with deep moats? I think they're okay businesses. I think the stocks may work over the next two years, but in year two or three, do I still want to own them? And, and I just want to think about these things as a long-term investor. I don't want to be trading in and out of stocks, uh, as quickly as, as I can.

AI assessment note: “You know, we haven't because I don't know that these ultimately are better businesses”

Q So how does that experience impact your go forward mindset?

A It just makes you focus on being dispassionate in a way that I think if I can get help from data science, if I can get help from my partners, I think that helps us be better. And so one of the things that we do is we have a quarterly review of the entire portfolio where we do a re underwrite of every single position, because unlike the venture world, we can buy and sell. Every day, every minute, typically the re underwrites driven by the teams that the team, the, uh, individual partner and the analyst who are supporting a particular investment in the controversial investments. One thing that we will do is we will have a fresh underwrite from a different partner where you have a devil's advocate position. I think that's important for helping us be dispassionate.

AI assessment note: “It just makes you focus on being dispassionate in a way that”

Q I mean, that's a mic drop. I mean, you can, you left me, you left me with a lot to go with that. I have to ask with the crossover in mind, do you think private markets ultimately are going to compete and overtake public markets when it comes to volume depth of activity in various asset classes?

A I'm not sure because the public markets are still the biggest, I mean, they're the biggest capital markets. It is freely tradable. Liquidity is important for a lot of institutions, and I do think there is still For companies, still a big branding event when you go public. I do think there will be value to companies going public. I don't know when some of these big companies that have stayed private for a long time are going to go public, but look, I look at say a Klarna. I mean, Sebastian clearly wants to go public. There, there are a lot of reasons for that. And, and I think employees want these companies to go public, right? They're excited about it.

AI assessment note: “I'm not sure because the public markets are still the biggest”

Q Have you ever had this combination of long and short be very wrong? And what did you learn from that?

A There are definitely moments in time where the markets will say, we used to love growth. We now love value. And if you think about how we are positioned as a fund, it's generally long growth and short value, right? The value companies are in general, the ones that the growth companies are disrupting. So There are moments in time where the markets rotate and that's typically a function of say rates or maybe macro scares where you want to be in more defensive companies. And that's, uh, that is tough for our portfolio, but that's why I think about performance over the longterm. Those, those rotations are very painful, but they happen in a typically pretty short period. Let's say it's three months. We may have a very rough three months, but if I look out over the span of Now we've been in business now, 15 years. We've had one down year over that 15 year timeframe. And, and I think you build your business in a way that you can weather these storms. So one of the, one of the key things for us is we, uh, partner with an LP base that is long-term oriented. A lot of them, as, as I mentioned, are Sequoia LPs. And so they know how we invest. They know our product. Uh, they know that technology can be volatile.

AI assessment note: “There are definitely moments in time where the markets will say, we used to love growth.”

Q Okay, so that was one. What, what were the other reasons? Sorry, I interrupted you.

A Yeah, so I think also having a perspective on these companies from a competitive standpoint also helps us inform public market investing and vice versa. And then we're also able to allocate between publics and privates based on where we see the best opportunities at that specific moment. And so right now, for example, we do not see for SCGE as many opportunities in the private markets And so most of our attention is actually on the public markets. And so we can flex between those depending on where we see the opportunity set. And then I'd say one other thing is over the last few years, there have been a lot of tourists, as you know, a lot of tourists, uh, mostly on the hedge fund side who've dabbled in private markets and they've gotten burned. Those tourists are out of the market. We don't see them anymore. And so I do think the crossover market is getting more attractive and it's getting more attractive. It's just one tourist exit and two as the IPO markets open up again.

AI assessment note: “having a perspective on these companies from a competitive standpoint also helps us inform”

Q How do you think about position sizing on a per company basis?

A We have a pretty concentrated portfolio, so about 15 to 20 longs. I want to make sure that the top longs can really move the portfolio in a major way, and as As I mentioned, I think the power law still exists in the public markets, obviously to a lesser extent than, than the private markets, but we want to have the top side of the portfolio be pretty chunky. And so about 15 to 20 longs about, uh, top five or about 35, 40% of the portfolio. So it's pretty meaningful. And then what we'd like to do is to, um, you know, have the shorts just essentially fall out of that. Again, it's really, How much more conviction do we want to express on our longs, albeit on the other side? We're not necessarily trying to solve for the short side in a, you know, target a particular gross or net.

AI assessment note: “about 15 to 20 longs about, uh, top five or about 35, 40%”

Q Yeah. Have you, have you gone into, Really the data center deployment space?

A You know, we haven't because I don't know that these ultimately are better businesses, uh, after, right? So what you know now is that there's an incredible amount of demand. That demand is growing at very high levels. But if I'm talking about a power electronics company or a company, a construction company that builds data centers, Let's say, let's say there's incredible growth over the next two years. That's going to attract incremental competition. Are these really great sustainable businesses with deep moats? I think they're okay businesses. I think the stocks may work over the next two years, but in year two or three, do I still want to own them? And, and I just want to think about these things as a long-term investor. I don't want to be trading in and out of stocks, uh, as quickly as, as I can.

AI assessment note: “You know, we haven't because I don't know that these ultimately are better businesses”

Q I pay them a lot of money to say stuff like things, and that's, that's a big spend. Uh, listen, I want to start in the early days, which is how did you come to join SCGE? And just take me to that offer moment and the joining.

A So we started SCGE or Sequoia Capital Global Equities in 2009. Uh, and it was really hatched actually by Jim Getz originally. So he worked with Michael, Doug and Rulof to really get it off the ground. And I joined a year later in 2010 before we externally launched and raised money from LPs. And I think I joined for the same reason that most people join a startup. So I believed in the mission, uh, and this was to build a world-class public equities business partnered with Sequoia Capital, which, which I believed at the time and still consider to be the best venture capital firm in the world. And so I joined as an early employee. Uh, we had fifty million of internal capital. Uh, we now manage about nine billion of mostly external LP capital, but that internal capital amount is also now about a billion. Uh, the portfolio is about two thirds public and then one third private. And that one third private is almost exclusively co-investments with Sequoia. And so when the SCG opportunity came along, I was super intrigued because it was a chance to go build a public equities business that had true ecosystem advantages in technology. And I believe those advantages would translate into the public markets. And then I was also encouraged by the support and backing that SCG had from Sequoia's most senior leaders like Jim and Doug and Michael and Ruloff. On the flip side though, uh, I was tak…

AI assessment note: “And I joined a year later in 2010 before we externally launched”

Q How does the rest of the business do it then? I'm sorry. I'm just, I don't understand that.

A So I think that's why most hedge funds fail. It is really hard to go build a, a real business. If you are one of the large hedge funds like Citadel, you have strong LP relationships, you have lockups, you've, you've got an incredible long-term track record. That Makes it a lot easier when you have periods that are not up to your expectations. But if you are a One hundred million dollar hedge fund today. You don't know if you're going to be in business in a year. It's hard to go recruit. It's hard to go spend money and say, we're going to go build out a data science team. And you don't know how much time do I spend on recruiting? How much time do I spend on management, business building LP relationships? And that's before you get to the investing, right? So I, I think it's very hard. I have a lot of respect for, for folks who Are trying to do that. It is not easy. We obviously had to do it. And look, there's, there's a bit of, I think for us, one of the things that was most helpful actually in going through that period is that Sequoia does a great job of injecting Sequoia DNA while also allowing these individual businesses to grow up in a way that fits their specific area. So, uh, the Doug and Michael, and I give them a lot of credit for this, the way they set up the various businesses. So SCG, Sequoia, China, now Hong San, Sequoia, India, now peak 15 and Sequoia heritage was to…

AI assessment note: “So I think that's why most hedge funds fail. It is really hard”

Q Have you ever had this combination of long and short be very wrong? And what did you learn from that?

A There are definitely moments in time where the markets will say, we used to love growth. We now love value. And if you think about how we are positioned as a fund, it's generally long growth and short value, right? The value companies are in general, the ones that the growth companies are disrupting. So There are moments in time where the markets rotate and that's typically a function of say rates or maybe macro scares where you want to be in more defensive companies. And that's, uh, that is tough for our portfolio, but that's why I think about performance over the longterm. Those, those rotations are very painful, but they happen in a typically pretty short period. Let's say it's three months. We may have a very rough three months, but if I look out over the span of Now we've been in business now, 15 years. We've had one down year over that 15 year timeframe. And, and I think you build your business in a way that you can weather these storms. So one of the, one of the key things for us is we, uh, partner with an LP base that is long-term oriented. A lot of them, as, as I mentioned, are Sequoia LPs. And so they know how we invest. They know our product. Uh, they know that technology can be volatile.

AI assessment note: “you build your business in a way that you can weather these storms”

Q I mean this respectfully, what's the leap of faith removing the non-tech activities and really staying cool to what Sequoia does best. My question more is why do we need a separate team to do it? This feels just like a continuation fund.

A You know, I think the public markets, especially when you're trading actively, like we do, is actually a very different discipline from a continuation fund. So in a continuation fund, right, you're, what you're typically doing is saying, this company that I've known for a long time, do I, do I, do I sell it or distribute the shares over time? And I think that, you know, most funds, most venture funds can be very good at that. What we do is different. So there is a portion of our business that, our portfolio that is Prior or existing Sequoia portfolio companies, right? That's maybe about a third of the portfolio is that there's a lot of our business that is not there. We own, for example, Shopify was not a Sequoia portfolio company. It's a company that we admired in the private markets, but we did not invest in the private markets. And our first chance to invest is when they go public, right? So that, that is a very different discipline. And then also having, uh, having the discipline to go, uh, Know when to buy and sell specific companies. You know, I was talking to Pat Grady about this the other day. We're not just judged on, okay, did we sell this company at the right time, but then did we go buy something else because we sold this company that outperformed this company that when we sold at that time, right? I mean, it's, you have to be deploying capital all the time. It's no…

AI assessment note: “trading actively, like we do, is actually a very different discipline from a continuation fund”

Q Totally get you. What do they bring that you didn't have without them?

A What we have as investors is a thesis, right? We have a thesis on the private side. You can get a lot of data to go verify that thesis, right? You're under NDA or you're on the board. And you have depth of information that you can then go verify a thesis. We don't have that in the public markets. The data that you have in the public markets is the same as every other investor. That's reg FD, right? So the smallest investor to the largest investor in a company, you don't have any different information. So to the extent that we can from the outside in verify a thesis that is very helpful for validating how big do we want to make that position is, is that thesis actually still holding true? Has something changed? Has. Competition come in and knocked us off, off the top seat. So I think that is very helpful for our investment process.

AI assessment note: “from the outside in verify a thesis that is very helpful for validating”

Q How do you think about position sizing on a per company basis?

A We have a pretty concentrated portfolio, so about 15 to 20 longs. I want to make sure that the top longs can really move the portfolio in a major way, and as As I mentioned, I think the power law still exists in the public markets, obviously to a lesser extent than, than the private markets, but we want to have the top side of the portfolio be pretty chunky. And so about 15 to 20 longs about, uh, top five or about 35, 40% of the portfolio. So it's pretty meaningful. And then what we'd like to do is to, um, you know, have the shorts just essentially fall out of that. Again, it's really, How much more conviction do we want to express on our longs, albeit on the other side? We're not necessarily trying to solve for the short side in a, you know, target a particular gross or net.

AI assessment note: “top five or about 35, 40% of the portfolio”

Q Totally get you. What do they bring that you didn't have without them?

A What we have as investors is a thesis, right? We have a thesis on the private side. You can get a lot of data to go verify that thesis, right? You're under NDA or you're on the board. And you have depth of information that you can then go verify a thesis. We don't have that in the public markets. The data that you have in the public markets is the same as every other investor. That's reg FD, right? So the smallest investor to the largest investor in a company, you don't have any different information. So to the extent that we can from the outside in verify a thesis that is very helpful for validating how big do we want to make that position is, is that thesis actually still holding true? Has something changed? Has. Competition come in and knocked us off, off the top seat. So I think that is very helpful for our investment process.

AI assessment note: “from the outside in verify a thesis that is very helpful for validating”