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[Music] Sequoia is the most soughta name in the venture capital business. The firm has made over a thousand
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investments now worth in the trillions in public market value. There's a list of five VCs who I think
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can really transform a company and you're one of those five. When I joined Sequoia, it was clear that
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if I wanted to make it as a partner, you needed to produce meaningful games. YouTube, Instagram, Square. This is a
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list of amazing amazing startups. Our ambition is to build a partnership that endures and that means we need to leave
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it in a better place than we found it. Ladies and gentlemen, please welcome Seoia Capitals Rolloff Botha.
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See you. See you. What's up, bro? How are you? Good to see you. Welcome, Ralph. There's a question.
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What's that? Where did Saxs go? Get to pee pee. He had to make a weiw wee. Come on.
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You Yeah, exactly. You guys did work together for 25 years ago and he just abandons us
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right now. He's had enough of you. Um, everybody wants to know who's your favorite
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Sequoia scout of all time. Let's go through it. Jason Calakanas. It is hilarious. Um, when you think
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about it, you came to me, gosh, 15 years ago, and you said, "I have an idea for a
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program. It's called Sequoia Scouts. We'd like to, um, have you go around and invest in some companies."
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And, uh, no good deed shall go unpunished. Absolutely. Created a monster. Um, but
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that program Sorry, before you ask your question, how far are you going to insert your head up
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Roloff's ass? [Applause] We sat him that far away for a reason. I mean, um, sorry, bro. Jesus Christ. Go
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on with your question. That's Let me land the question. What's your question, D?
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That program, um, had some that first cohort of individuals um, wound up being a pretty interesting
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group of folks. Maybe you could tell everybody just a little bit about that program you conceived of and then who
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were some of the first folks in it and the first investments. We conceived of this program as you mentioned in 2010
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when we launched it and the idea was that there were a bunch of contemporary founders who had very interesting access
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to upand cominging founders who are turning to them for advice but these founders didn't yet have money at the
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point that you became a scout. You didn't have the net worth you have now where you could write a check on your
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own. And so we thought it'd be a great program for us to provide the capital for founders like yourself to be able to
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invest in those companies and hopefully we would get an introduction to those companies for us to be able to make an
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investment too. So uh you were in that program you helped us with the investment in Uber. Sam Alman was in
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that group as well. He helped with an investment in a little company called Stripe.
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They did. Okay. So at this point that that fund is a 26x fund at this point. Wow. That's up there in the
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It's pretty good. What's the best fund in the history of Sequoia? Was it the Google fund, the WhatsApp fund? Which
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one has the highest multiple in history? Uh the highest multiple in history is uh
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I think Venture 12, which has Airbnb, Dropbox, Nera, ADM Mob and a couple of other companies.
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And then venture 13 which is the fund right after that has stripe and square now called block and a bunch of
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other companies. So those were both north of 20x funds. Tell us about the venture industry actually. So we're at a
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point in the cycle where there's been a lot of specialization both maybe at the stage level at the sector level. There's
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been all kinds of experimentation and approaches in strategy. Can you just level set on
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what you've learned and what the industry's learned and where we are? I'm glad you called it an industry, not
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an asset class. Um, I listened to one of the shows you guys had recently and I think there's a huge problem with the
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venture industry that there's too much money and you guys have talked about this before. Uh, venture industry as a
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whole invests right now between 150 to $200 billion a year was the last numbers I saw. If you think about reasonable
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assumptions for returns, let's just say 12% peranom net, which isn't great. Might as well invest in an index fund,
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the math basically implies that you need three and a half to 4x funds to make that math work over a reasonable time
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frame. So if you're investing, let's just say $200 billion a year. The industry needs to give back 7800 billion
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a year. VCs don't own 100% of the company last time I checked. So that means that the aggregate exit value is
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north of a trillion a year. So Figma went public recently. They're worth 25$26 billion. You need 40 Figmas
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a year for the industry to make the returns work, which means that they don't. So in my opinion, investing in
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venture is a returnfree risk. You shouldn't. They're basically only about 20 companies.
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You said return return free risk. risk. Exactly. If you look at every single decade, there are only about 20
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companies that end up getting exit values north of a billion dollars. Actual IPOs or M&As north of a billion.
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Not the paper writeups, only 20 companies. More money doesn't create more great ideas or more great founders.
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So, I think there is way too much money in the industry. The industry does provide a lot of value. It provides some
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of the knowhow for entrepreneurs to succeed and obviously leads to job creation and all the attendant benefits
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for America. But there is too much money and too many people who want to be investors.
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How does the money get level set then and right sized for what is needed? I've been wondering that for 20 years.
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Uh this problem is a problem 20 years ago. It is only it's an incredibly sexy asset class. I
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mean look, Jason writes a bestselling book. It doesn't, you know, dissuade people. It incentivizes more people to
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say, "Oh, I can try this. I'll be like it." I mean, it's just a self-fulfilling prophecy. The more successes there are,
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there's just um Yeah. Everybody wants to go to Vegas and, you know, strike it rich. It
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doesn't happen. Yeah. That's part of the dynamic is that you get a firm that has one success in their
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fund and then they attract more capital because people think it's repeatable and
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it's not. And you don't know you don't know that till fund three or four. Like often they
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raise fund three before they've even oh they've raised fund two, three, four, and five before even fund one is really
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fully distributed a lot of times. So what could change for one one of the things that I thought was transparency
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but nobody wants to publish their returns. You could publish your returns. I publish my returns but you know I'm
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not taking outside capital but would that help? Like is it working with people like Cambridge so that these
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things become more public and more understood? It seems like there's an education element here that's missing on
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behalf of the industry to the potential LPS. I think people will still hide behind the J curve effect and they'll
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say yeah my fund is only at 1.5x right now but it's only four years in and you know the winners are going to emerge and
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so I think this this hope springs eternal dynamic and such a long time period of gestation before the companies
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get realized that I don't think that uh will change that dynamic unfortunately there's also been this really
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interesting effect where it's been this industrialization of venture capital I will call it so if you look at the
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organization that has built the organization that General Catalyst has built. It's about this girthiness,
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right, across many different things. How has Sequoia reacted when they've seen those movements? And I'm sure
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you've had to sit down as a partnership and say, are we matching this? Are we copying this? Are we going to do the
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same thing? Are we doing something different? That is a great question. The industry
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has changed a lot since I got into venture just over 20 years ago. If you go back to the proverbial 1990s venture
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firm, it was, you know, a dozen people sitting around a table making investment decisions with very lightweight staff.
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Uh, and it was much more of a cottage industry. I think the industry is professionalized and really the founders
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are the ones who benefited from it because all these firms have built larger operating teams to be able to
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help those founders with talent, with go to market and so I think it's really helping founders. That's probably the
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main takeaway I have from that. We've decided to not build as big an organization. Most of the operating
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teams we have at Sequoia help us. So we have about as many developers at Sequoia
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as we have investors and they're building products for us so that we are much more effective and productive than
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we might have been 20 years ago. What's an example of that that they're building for you?
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Uh so you know my phone I can pull up an app that I if you give me any company name I'll be able to tell you who my
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team last met, how we rated it. I'll give you uh data on what's happening with their hiring. Uh how many vouched
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employees they have, how good do we think their engineering team is based on their history, their academic profiles,
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etc. All this information is at my fingertips. Uh if we get business plan submissions, we have an AI system that
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will summarize it for me. So I get a very quick read on the company, a quick summarization of the quality of the team
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and a very quick analysis of the competitive dynamics and the other companies I should consider alongside
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them. So these are just small examples of the things we do. We just had Joe Saiion on. We're talking a bit about the
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relationship between America and China. You had a fabulous business in China for
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two decades, I believe, with Neil. Yeah. And it did absolutely fantastic. But then the government of the United States
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said, "Hey, we cannot as venture capitalists invest in China anymore." So, what are your what's your take on
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the the opportunity in China? Will that return? and and just the the experience you had with all those incredible hits
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at the time. When we first went into China, it was 2007 I think. Uh the world was flat was
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the moniker at the time. China gained admission to the World Trade Organization in I think 2001
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and we all believed that it would integrate into the global economy. That premise proved wrong. And so we had a
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period where it was really interesting to be able to share knowledge and share ideas and sort of figure out how we can
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build a globally interconnected set of systems and companies. Uh and life just got too hard for that honestly and we
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saw just more division between the two countries. So we embarked on global separation just over 2 years ago and
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what used to be China is now an independent business called Hongchan and they're off to the races. I think
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there's a real challenge in China right now. Uh some stat I got recently in 2018
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there were 51,000 companies started in China. In 20123 it was 1,200. Wow. How many?
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1,200. You had a 98% reduction in the number of companies founded in China. Cuz if you're an
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entrepreneur in China, why would you want to start a company when the government regulations are so uncertain?
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Which by the way is an interesting warning sign for me for us in America as we think about AI policy and AI
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regulation. The more uncertainty we create for founders, the more difficult it is for them to actually take that
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risk, take that leap to start a business. So, but Chinese entrepreneurship is still strong. So,
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you see many Chinese entrepreneurs now operating in Latin America, they move to Singapore, they're in uh Japan, they're
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moving to Europe. I mean, you can't repress that spirit. Rolof, there's a interesting dynamic that I observed
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which is you have the early early stage venture companies who have had an incredible track record. you guys,
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Benchmark, Kosla, and then what happens is you have these latest stage firms, but many of the
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companies that they fund need so much money that the latestage firms can't service them. So, you have to go direct.
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You go right to Saudi, you go right to the Qataris, you go right to the Amiradis, you go right to Norway, you
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know, these sovereign wealth funds that are writing these big checks. And so, it
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creates this really weird dynamic where you almost become this kind of glorified
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placement agent almost. So there's this part of the curve and then there's all this money that goes over here. How do
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you adapt the business in the face of that dynamic? Well, we stick to our knitting. Uh the
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funds we operate today, our seed venture and growth funds today are no bigger than they were 5, six, seven years ago.
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We we realize that there's money to be made for some people writing very large checks and very latest stage companies.
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But uh our aspiration is to be the number one investment manager for our limited partners. We literally want to
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be the best net IRRa and net multiple for our LPS and we're not interested in maximizing fees or maximizing share of
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industry value creation. That's the game we've chosen to play. And so there's no path where Sequoa for
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example tries to go public or take the you know that's like it's just not in the strategy of the business. No,
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actually we've structured ourselves to be a private partnership in perpetuity to the extent possible under California
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law. We have the sense of stewardship. You have to leave the partnership in a better place than you found it. Don
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Valentine didn't call it Valentine Ventures when he started it. He handed the partnership over to a next
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generation with Mike Meritz and Doug Leone and Jim Gett. And you know, we're now part of a third generation, our team
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currently running the partnership. We didn't have to pay to get the partnership from the previous generation
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and nor will we charge the next generation. That's that's our motto. How would you describe the culture
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that's driven the success rolloff? So when you select partners, what do you look for? How do you value those
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partners? How do you assess the performance of those partners? And how do you guys operate that kind of defines
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the culture? So I think the probably the most important characteristic we look for is
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an insatiable curiosity in the individual. We look for people who are extremely driven, but they need to have
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a heart of gold. So one of the things we talk about at Squay is um we cherish individualism and teamwork. You need an
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individual to be able to have a keen insight and propose an investment but you've got to work with a team and that
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the whole teamwork aspect is really important for us. So when you make investment decisions at Sequoa it's a
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consensus decision which blew my mind when I first got there. I meaning everybody has to agree.
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Everybody has to agree. So if one person says no it doesn't happen. Correct. So one person can veto an investment.
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Correct. And that happens often or it has. Sometimes it was a good decision and sometimes not.
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What do the statistics tell you? What's the worst uh thing somebody killed? Oh jeez.
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It's okay. We're all friends here. What is that list called when you have that? Yeah, you would call it your anti
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portfolio. Anti portfolio. But in this case, somebody wasn't just an anti portfolio. It's like
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everyone agreed we should do it except the one. Yeah. Yeah. And so you think about that
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responsibility uh and it weighs on people, but it means that you need to show up
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with your best game every single day. And you know, part of what we've done is we look at the vote distribution these
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days and look, if somebody shows up and everybody's really positive, there a bunch of people that are eight nines out
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of 10 and there's one person who clearly woke up at the, you know, in a bad mood
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and is a three, you know, at some point that person will probably say, "Listen, maybe I just don't get it."
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This actually happened to me. We listened to a company in late November. This company is thriving right now.
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They're in the it's pretty sax isn't here because this company's benefiting from stable coins with the genius act
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that he helped put in place is really benefiting from that and I didn't quite get this company at the time and I was
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the only person who was below the line and I said listen there's something I'm missing in this particular company. I
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think we should proceed with the investment even though my intuition walking in was that we shouldn't
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and I'm really glad that we proceeded. So can you tell us about the holding company transition that you underwent
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and the role of being a venture capitalist in making an exit decision? So we did this conversation on the show
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a few weeks ago. Pulled up some analysis. The biggest winners continue to compound as public companies. 99% of
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the returns are as a public company or whatever it is. So it looks like an amazing exit goes public.
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But that's not the end of the value creation. True compounders compound for decades. Especially founders are still
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in the seat. Amazon, Nvidia was a Sequoia investment. I think Google, I mean, these are multi-trillion dollar
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companies that if you guys held your position to today, I'm assuming things would look a little bit different.
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It would. Yes. So, so we backed a bunch of very interesting companies over our 50 years. Uh, the companies in which we
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were private investors when they were little companies today account for over 30% of the total
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value of the NASDAQ. Wow. There's no other 30% over 30% of the combined value of the
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NASDAQ. Apple, Nvidia, Apple, Cisco, Nvidia, Google, Pala Network, Service Now, uh I mean the list
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goes on. So pretty pretty good. So So one of the things we realized, what you're alluding to is in 2022, we
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launched something called the Sequoa Capital Fund. And so we realized that the great companies continue to compound
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as you talked about in that episode. It was it was an excellent episode obviously. Um, and by the way, even in
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more recent memory, if you look at the last 10-ish years, Palto, Service Now, HubSpot, MongoDB, these companies have
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all been 10 X's as public companies. And so, we've realized that when we distribute shares prematurely to LPs,
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they don't know any better because, you know, they run a big endowment. They suddenly get $5 million worth of company
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ABC. They don't know any better. They sell the shares. So, what we've decided to do is for the companies that we
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believe have the ability to compound longer term, we have a different fund structure. And so 6 12 18 months after
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the IPO, we can move those shares into this fund called the Sequoa Capital Fund. And this now becomes the vehicle
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through which we fund all our next underlying investment vehicles. Now to give you a sense, since we launched this
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3 and a half years ago, we've accumulated another 6.7 billion in gains by doing nothing except being patient.
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$6.7 billion in gains that our LPs would not have seen if we had just distributed
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those shares outright. Yeah, you're making him moan. He's moaning. I like it. I'm getting I'm getting
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getting warm and he's getting emotional. But what is but what is the So the counterargument is as a public company,
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you as venture capitalists who are excellent at interrogating early stage technology, early stage metrics, founder
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personalities, all the things that might make a good venture capital investor. Maybe as a public company, quarter to
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quarter, are they growing 12%, 14%. There's a different analytical skill set some might argue like you know that that
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belongs in that investment domain and frankly very hard to beat the indust indices doing that. What's the argument
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to be made to the counter and why would you counter that argument? So see one of the things for us is that
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the I mean most of these cases we're involved with these companies literally at inception. I mean Palo Alto Networks
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was incubated inside our office with one founder and my partner Jim Gates. So, we've known these companies since the
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earliest of days. Why should that relationship end at the IPO? And in most of these cases, as you
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pointed out, the founders are still there and there's so much more innovation taking place. Um, Jack
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Dorsey's one of Jack Dorsey's favorite quotes to me was companies have multiple founding moments. And so when you're in
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a company where the the founder keeps reinventing the business, you know, a company like Square, half the revenue
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today comes from a product called Cash App that hadn't launched for the first 5 years in the company's life. And so if
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you can find these companies, these special companies where the founders keep pushing the boundary on innovation
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and they are relentless, then it works. Google buying YouTube. Don't remind me. Do you think it would have been the
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same? Would YouTube still have had the same outcome if it wasn't acquired? To be clear, RUF wrote in his first year or
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two at the company, the deal memo to invest in YouTube and it got bought for 1.6 billion. Standalone business today
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would be worth 400500 billion. And then Google then invested quite significantly in infrastructure and
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enabling scalability and building out a team and building out an ad revenue system, etc. We've got Neil here
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tomorrow to talk about the current state of YouTube, but do you think it could have taken the same? It's hard to say.
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Hard to say. Uh I think a lot of credit should go to Google for the way that they managed YouTube after the
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acquisition, both in the resources they provided, the leadership um and they've enabled it to thrive. This is one of my
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favorite things that Peter Thiel says is uh you know when you make it when an acquisition like this happens one side
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was orders of magnitude off like it was just a zero or it was 100 more than what
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they paid. Something is always off. Anyway, Don Valentine um the founder of the firm
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drew a four quadrant chart at one point to explain the founders that uh perform extremely well in terms
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of returns. Maybe you could explain that to the audience. Yes. Uh Don pulled me aside in the early
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days when I joined Sequoia and he said 2x2 matrix uh people are exceptional not exceptional easy to get along with not
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so easy to get along with. Ruof we normally make money in one of those four quadrants. Your job is to figure out
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which one and it's the exceptional people who are not so easy to get along with.
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Uh so then let's talk about the next generation. I'm sorry. Can we just double click on
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that? Why do you think that is? These people change the world. They don't take no for an an for an answer,
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right? They are How does it Why does that make them hard to get along with, per se?
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Well, I think he was he was saying that a little bit tongue and cheek, right? But this is a guy who backed Steve Jobs
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when Steve would walk around Sand Hill Road without shoes. He'd come back from a trip to India. Allegedly, he didn't
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smell too great. Um, and he was unusual and nobody wanted to back him. And you know, Don wanted to find these
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underdogs, these unknown Atari. Well, apparently some of the Atari board meetings took place in hot tubs.
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Yes. Uh he told, by the way, that's how he got to Steve because Steve had worked at Atari.
00:21:42
That's how Don got the introduction to Steve. So, so I think part of the point he was trying to make is don't look for
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the people that, you know, went to all the right schools and wear the right clothes, all the conventional stuff.
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Founders are unconventional. These people change the world. I mean, most of us encounter challenges every single day
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and we accommodate. you know, this thing isn't quite to your liking, you adapt. Founders don't. Founders see things and
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go, hm, I think the world can look different and then they go and try to fix it. They just don't take no for an
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answer. So, let's fast forward to your two mentors, Michael Moritz and Doug Leone.
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Two very different characters when the story gets told, maybe a rivalry there um between the two of them. What did you
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learn from each? Sure. From Doug, I learned heart. Unpack it. Doug has an incredible heart.
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When did you see that most? What was the moment that's coming to your mind right
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now that you probably shouldn't talk about? Well, the I'll give you two examples.
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One was in 2009 when I was in a funk. I nearly quit the business. Um I didn't know this really.
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Well, we'd had the YouTube was a great success. Uh and I felt very good about that. And then you in venture after a
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few years you val you walk through the valley of despair and you start to realize the things you should have
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invested in that you didn't and the lemons start to drop the things that you did invest in that are not working out.
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So yes there was the one great quick exit but then a bunch of other things and I was really having a lot of
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self-doubt and Doug showed up at my house with a homemade pesto jar and he didn't need to. It was on a
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Saturday afternoon. He knocks on my door. Who's this person at my house? and he just wanted to tell me that he was
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there to support me through this dark period. That was one example. Another one was when uh my son was in hospital
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and Doug showed up. Didn't have to. Um that meant a lot to me. So, and Michael, Michael's imagination.
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Michael just has an unbelievable ability to imagine how a company can succeed. And when I thought about my mistakes as
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an investor, by the way, every single time it comes down to a failure of imagination, that I didn't think big
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enough. I didn't think about how this company could uh progress from where they were. You first introduced me to
00:23:52
Twitter 2007. I have the emails before smartphones launched and it was an SMS app. I got tired of getting all
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your I'm having cappuccino messages on Twitter at the time. I remember on your Blackberry. Yeah.
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And I didn't quite imagine that it could be what it is today. And so that to me was an example. Uh, I remember an early
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meeting with Yelp with Jeremy Stppleman and Max Lechin in our offices and I mean
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Yelp hadn't launched a web app that were going to be an email newsletter thing and Michael in this meeting said I
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imagine that one day restaurants will put a Yelp sticker in the window just like a Zagat or a Michelin star. And he
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saw that. He saw that. He saw that. I mean 10 years before that became a reality he had the imagination
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to think about that. That to me is amazing. So now Doug is still there and Mike has transitioned out. Is that the
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what is Yes, Michael has transitioned out completely. Doug has stepped back from
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day-to-day investing. So he's no longer in partner meetings routinely, but he continues to serve on several boards.
00:24:49
And you're in charge. I'm the leader of a team and I think of more like being captain of the team. You
00:24:55
play team sport. We play team sport at Sequoia and you know we are equal partners and you know it's
00:25:01
Was it hard to see those two guys go just seeing how legendary they were? to succeed them? No.
00:25:08
Well, both to succeed them, but also just to see them walk out the door. Like, is there a tendency to want to
00:25:11
keep them around as long as possible? I understand the question. Um, well, well,
00:25:15
firstly, it is very hard to succeed them. I think every single person in Sequoia feels this enormous burden and
00:25:20
responsibility to try to match the performance that we've been known for, you know, but we have this great
00:25:26
generational transition at Sequoa. So, Michael stepped back from day-to-day activity in 2012
00:25:32
and he was Morris did in 2012. of Michael stepped back. He had personal health reasons and
00:25:36
he stepped back. He continued to serve on the boards that he was on and we we had him for another decade where I would
00:25:43
ask him for advice. You know, as we were going through global separation that we
00:25:46
talked about earlier, I would ask Doug and Michael, you know, what do you think should we you know, what should we be
00:25:51
doing here? Do you have advice for me? And so it's a we have this benefit of intergenerational uh knowledge transfer.
00:25:57
Uh Doug was on a call earlier today. Actually, we had a difficult conversation. I wanted his input on an
00:26:02
important question and it's not because he has the authority to tell me what to do. It's because I seek out his advice.
00:26:08
You were investing in traditional software, internet services for years and then a couple of years ago you
00:26:14
started investing in some life sciences. Does life sciences kind of work as a venture investment today? And what's
00:26:21
been the challenge in biotech and life sciences investing generally over the last few years? There's a lot of
00:26:26
notoriety about the collapse of the market and even Dave Ricks today was saying most public biotech companies are
00:26:31
trading below cash. What's your observations on the business model, what you've seen, the types of businesses
00:26:37
you've invested in there? So, so the business we invested in uh that has done really well is a company called
00:26:41
Nater. Uh and we made a seed investment of a million dollars in 2007 in this company.
00:26:46
It's 20 billion now, right? Market cap. $22 billion market cap. It was a million
00:26:50
dollars. two people uh with a a very raw idea and today they're the leading provider of prenatal testing, oncology,
00:26:56
recurrence monitoring, organ transplant projection testing. And so that company's been a huge success.
00:27:01
Diagnostics, genetic diagnostics, has been a huge success. And you think about the the dividend we're still collecting
00:27:08
from the human genome project 25 years ago. It's incredible. And you've obviously seen that in some of the
00:27:12
businesses that you've helped build as well. uh we did make an investment in a company called Bridge Bio which is
00:27:17
helping with rare genetic disease drug development. Uh but other than that I think we're we just don't have the
00:27:22
expertise for biotech. You know we don't have any M but there are still winners.
00:27:26
There are still winners but we have no MD PhDs on our team at Sequoia. And I think you know it's very dangerous when
00:27:31
people think that your success in one domain just naturally makes you uh gives you the right to compete in other
00:27:36
domains. I think I have tremendous respect for the people who understand that. I do not.
00:27:40
I learned that one the hard way. Ladies and gentlemen, Roloff. Thank you. Thank you.
00:27:50
Thank you so much. Thank you, sir. I appreciate you coming out. Thanks.