The Exchanges

Q What do you think that means for being a founder in a highly Competitive or highly, it could go both ways because they're both, you know, like extreme environments, either highly competitive or highly turbulent. What do you think that means to be a founder? Like what kind of, what do you need to, how do you need to show up?

A I think you show up with a vision and a north star and you, you measure your, uh, speed in, in the right direction. So we don't love the word speed at Sequoia. We love the word velocity. Velocity is a vector. It has a direction and the magnitude, and you want to go in the direction that you want to go in and you want people aligned to that direction. Um, Motion does not equal progress. And you've heard that before from a variety of different people. And getting a company to align and march in the same direction is what is really important during turbulent times. Because it's very easy to run around with as if your head was cut off during a crisis. It's very easy to see every little shiny Penny that pops up because there's so much change in AI and trying to go after a thousand different things. But your leadership as a founder is to make sure the company is focused in the right direction.

AI assessment note: “I think you show up with a vision and a north star”

Q Going to Carta Data, They had a question to the market and to all the companies that are on the platform. Do AI companies command a premium? AI software companies that raised in the first half of 2025 saw 30.9% higher valuation. So this is about a fifty five million dollar valuation versus forty two million dollars.

A It is a hot market for AI. And the one thing that, um, I'm somewhat concerned about is many of these companies that we call AI companies, They're software companies, they're security companies, they're customer service companies. In probably two or three years, we will not call them AI companies. Just the same way that, uh, internet companies over time, yeah, there were native internet companies, but over time, every company became an internet company. Every company became a mobile company. And so we try to think about whether the premium is deserved, um, Or not. And these premiums that are being paid, probably some of it is because we believe that the market and the market sizes are expanding. And if you told people back all the way in the internet that online advertising was going to be as big as it is today, they would laugh at you. And so right now, I think there's a lot higher premiums, 20%, 30%, is because we believe that the market sizes are going to be much, much larger. And we've given some of this data, um, our partner Pat Grady and, and Sony Huang, when they hosted AI Ascent, they showed this map of when SaaS was created, we had a certain size of the software market, and we thought SaaS was going to be A big portion of the size of the software market. It turns out that SaaS is even bigger than all of the software market in the past. We grew the software market. What …

AI assessment note: “right now, I think there's a lot higher premiums, 20%, 30%”

Q I hope I don't get in trouble by saying this. Both Tanay and Tariq said throughout the time you've been very supportive, but now it seems like you understand, okay, we caught something and we have to go hard on it. And so the relationship is much more focused and a little bit more intense. How do you think about that?

A I think I've, I've been pretty intense with them the whole time. They just don't realize it. Um, I think this is a very Sequoia Um, characteristic of board members. We partner with the founders and we know to be shock observers during bad times and to be sparring partners during good times. And so there's no point when the company is down, if something goes wrong, there is no point to beat someone when they're down. You actually, the best thing you can do is roll up your sleeves, pick up the pieces and help the company get through that hardship. And that's what we do at Sequoia. And then when things are going well, you want to be a sparring partner. You want to, you want to take things to the next level. You want to take, you have something that's working. Well, it can work even better. Um, and one of the things I, I always reflect on is companies, when things are going well, they, they get a little arrogant. And the first sign of why companies fail is the hubris of much success that Jim Collins wrote a book There's a small book about why the mighty fall, and the first sign is the hubris of much success, and the second is the undisciplined pursuit of more. Those things, when I see that, I try to nip it in the bud.

AI assessment note: “shock observers during bad times and to be sparring partners during good times”

Q Can you explain experimental revenue a little bit more? Like, are teams aware it's experimental or is it just, we're going to try out different business lines?

A I think the teams are where they hide the fact that it's experimental. Pilot revenue is experimental, right? So would you like to sign up for this pilot? If the pilot goes well, we'll sign a larger contract. That's very standard thing that has happened in enterprise, uh, sales. You go in, it's like, this is a new product. You've never used this before. Why don't you try it? And, uh, And if we can hit a bunch of ROI metrics, then the customer was like, okay, well, you hit a bunch of ROI metrics, I'm going to extend. Um, and so the, Counting pilot revenue and counting it as ARR and annualizing it is kind of a joke, which I think a lot of founders know it's a joke, but they don't have any problems just taking whatever month's revenue is, that's all pilot revenue, and multiplying by 12. But they, you're laughing, you know it's a good joke, but they do it anyway, and they call it ARR, like as if it was recurring.

AI assessment note: “I think the teams are where they hide the fact that it's experimental. Pilot revenue”

Q Investing across different cycles, what exactly is different about this cycle?

A Well, things are just moving a lot faster. You can do things with fewer resources, and yes, a lot of the resources go into compute, but you can, you can start a company with way fewer resources and get started much, much faster, and the revenue ramp and the revenue retention are just much faster than in previous generations. We used to talk about how long it takes to go from zero to one, and zero to one, most often we refer to that as product, You go, you, you find product market fit. Then we rename zero to one as zero to one million in ARR. But you see companies today going from zero to ten million in ARR in very, very fast, ah, time frames, which we have not seen in the past. So, this is very, very exciting to see how quickly companies can develop, and I think one of the things that, um, We forget is that when we become more productive, we just do more. And so there's a lot of dystopian messages about how, ah, we might have high unemployment. There, there's going to be a shift. There's going to be some things that are going to be out of favor or in, you know, in favor or out of favor for some period of time. But if you look over the long period of time, what we've done is just, we continue to be able to do more and more with computers, with software, and that's not changing. And, you know, right now there's this big narrative that, um, AI is going to do to SAS what SAS did to…

AI assessment note: “things are just moving a lot faster. You can do things with fewer resources”

Q But one thing you mentioned about these cycles, which I thought was just, it was like encapsulated so well, is you said things that happened three months ago are not relevant today. Things that are happening today are not going to be relevant in three months. Do you think that's going to continue? Do you think it's going to compress more? How did you get to that framework of thinking?

A In the beginning of any technology cycle, it does feel frenetic. There's just so much changing. People are experimenting. People are trying new things. Um, and I think the things that I observed was the things, the interesting papers, the interesting research in AI That we're talking about today. We didn't talk about three months ago, which by definition, we're not going to talk about whatever we're talking about today, what we may not be talking about three months from now. It's very hard for founders in that timeframe, because what you want to do as a founder is to have a vision of, of, of a company that matters 10 years from now, right? If you're going to start a company today, And it takes a decade to build a interesting company. You want something stable over time. And the thing that's stable right now may be that AI is going to transform the world, but how it does is very, very tricky. And so I think the great thing about that is startups are a lot more nimble than large companies, and they're going to be able to serve experiments and do different things that large companies are Are not able to do. And so we're seeing more innovation. We're seeing more younger founders get into the game because experience is not as important as, uh, just innovation. Um, and I stand by that. And for a period of time, there's going to be a lot of innovation. There's going to be a lot of com…

AI assessment note: “In the beginning of any technology cycle, it does feel frenetic.”