Podcast Summary
Sequoia Capital transitions to a new investment structure: Sequoia Capital moves from traditional 10-year closed-end funds to a single open-ended fund, allowing for more flexibility and long-term support for founders and their companies.
Sequoia Capital, one of the world's oldest and most successful venture firms, is shaking up the traditional venture capital model by transitioning to a single open-ended permanent structure named the Sequoia Fund. This change aims to address the outdated operating model, which has remained unchanged since the 1970s, and the limitations of closed-end 10-year funds. Sequoia, which invests in disruptors and industry reinventors, recognized the incongruity of using a model that hasn't evolved alongside the businesses it supports. The new structure will enable the firm to better support founders building companies that stand the test of time, without being constrained by fund cycles. This shift in approach represents a significant product upgrade for the entrepreneurs Sequoia works with.
Sequoia Capital's New Approach to VC: Patience and Durable Capital: Sequoia Capital is changing its approach by keeping shares post-IPO for more durable capital and better returns, allowing LPs to roll over distributions into the new fund
Sequoia Capital, a leading venture capital firm, is changing its approach to help founders and investors by offering a new fund structure that allows for more durable capital and better returns. Traditionally, venture capitalists distribute shares after an Initial Public Offering (IPO), but Sequoia has realized that the majority of a company's value often comes after the IPO. By being patient and keeping their shares, Sequoia can help founders continue to grow their businesses and generate significant returns for their Limited Partners (LPs), such as universities and nonprofits. For example, Sequoia's investment in Square saw a 9x return at the IPO, but by waiting and distributing later, they made a 90x return. This new structure allows LPs to decide annually what percentage of their distributions they want to roll over into the Sequoia Fund and what percentage they want distributed directly. The current funds will be phased out over time, and when distribution decisions are made from those funds, LPs will have the option to roll over a percentage into the new Sequoia Fund. This approach aims to meet the objectives of both helping founders and generating better returns for LPs.
Sequoia's New Investment Structure: More Control, Flexibility, and Liquidity for LPs: Sequoia's new investment structure provides LPs with control over their capital allocation, simplified capital calls, annual redemption options, and the potential for higher returns through Sequoia's expertise in holding onto successful businesses.
Sequoia Capital's new investment structure offers Limited Partners (LPs) more control, flexibility, and liquidity. The master fund acts as a customizable vehicle for LPs to decide where their dollars go, while also simplifying the complexity of capital calls and providing annual redemption options for liquidity needs. This structure allows Sequoia to maintain its judgment in holding onto successful businesses for longer periods, potentially driving higher returns for LPs. The flexibility and benefits offered by this new investment structure set Sequoia apart, providing LPs with an unfair advantage as they've been part of the business since the early days. However, it's important to remember that past performance is not a guarantee of future results.
Sequoia's deep understanding of founders and product roadmaps: Sequoia's close relationships with founders and long-term perspective enable them to make informed investment decisions, even as they expand into managing public equities, bringing new challenges and opportunities.
Sequoia Capital's close relationship with company founders and deep understanding of their product roadmaps and strategic positions gives them a significant advantage in making informed investment decisions, even as they transition towards managing a larger percentage of assets in public equities. This shift towards public securities brings new challenges, such as increased volatility and potential liquidity issues, but Sequoia is already prepared due to their experience managing public holdings and their patient approach to investing in exceptional founders. Additionally, the new structure will unlock opportunities that were previously unavailable due to regulatory constraints, such as increased participation in secondary offerings, supporting emerging managers, and investing in crypto. These ancillary benefits will not only benefit Sequoia, but also founders and limited partners. Overall, Sequoia's approach to investing, combined with their close partnerships and long-term perspective, will continue to drive successful investments in the future.
Sequoia's unique investment structure benefits founders and companies: Sequoia's new structure allows investing at a company's inception and throughout its lifecycle, aligns interests with long-term compounding, and maintains a fair fee structure for LPs.
Sequoia's new investment structure, which involves managing both private and public funds, sets it apart from traditional crossover funds by allowing the firm to invest at a company's inception and throughout its entire lifecycle. This customer-obsessed approach, driven by competition within the industry, benefits founders and companies they're building. Regarding fees, Sequoia's sub-fund level fees remain the same, but an additional pool of liquid capital comes with a low management fee and an incentive fee structure that only rewards outperformance against a benchmark. This alignment of interests ensures that Sequoia's investment decisions are focused on long-term compounding rather than short-term gains. The public portion of the fund functions as a long-only product, holding onto public positions of companies where Sequoia has a long-standing relationship. This structure is designed to manage risk and maintain a fair fee structure for LPs.
Sequoia Capital's commitment to supporting causes: Sequoia Capital chooses not to charge more despite market demand to support causes. Low-interest-rates pressure returns but tech's global reach & growth make it exciting for entrepreneurs. Investors' expertise & support impact success.
While Sequoia Capital could potentially charge more for their services given the market demand, they deliberately choose not to due to their commitment to supporting causes like medical research, education, environmental protection, and poverty alleviation. The current low-interest-rate environment puts pressure on returns in all asset classes, including venture capital, but the potential for global reach and rapid growth of tech companies makes it an exciting time for entrepreneurs. However, entrepreneurs should carefully consider the role of investors beyond just funding, as the expertise and support they bring can significantly impact a company's success.
Ambitious, Patient, and Mission-Driven Founders: Today's founders have global aspirations, longer time horizons, and are more deliberate about their teams and products, leading to a new era of company building and fantastic outcomes.
Today's founders are more ambitious, patient, and mission-driven compared to those in the past. They have global aspirations and longer time horizons, leading to a different approach in building their companies. Founders are being more deliberate about the composition of their management teams and investing in the next generation of products. This shift in mindset can be seen as a "founding moment" for companies, where ideas are encouraged to blossom and examples from successful businesses serve as templates for future entrepreneurs. The investment landscape is seeing more businesses being built and talented people with access to capital, resulting in fantastic outcomes. This change is not limited to the US but is also noticeable in Europe. Founders are no longer satisfied with small-scale success and are aiming for companies of consequence. This shift in behavior requires a different approach from investors and board members in guiding companies during their early years, as the horizon and goals are different.
Striking a balance between asking questions and building trust with young companies: Understand founders' motivations and unique value proposition, avoid judgment, focus on value creation, and prioritize compelling value proposition over business model.
When meeting with young companies and their founding teams for the first time, it's crucial to strike a balance between asking diligent questions and building trust. The goal is to engage the founders, understand their motivations and the unique value proposition of their business, while avoiding coming across as overly critical or judgmental. The emotional connection and mission-driven mindset of the founder often reveal valuable insights about the problem they're addressing and their dedication to solving it. While understanding the business model and revenue potential is important, it should come secondary to the value creation aspect. The unique and compelling value proposition is what sets a company apart from competitors and can turn a good business into a great one. Common disqualifiers include a lack of clear value proposition or a solution that doesn't offer a unique advantage over competitors.
Identifying missionary founders and innovative payment technologies: Investing in missionary founders with a passion for solving problems and innovative payment technologies can lead to significant returns and positive impact on the economy.
The passion and motivation of the founders are crucial factors in investment decisions. A mercenary mindset, where the focus is on building a business for wealth, can lead to wilting in the face of adversity. Conversely, a missionary approach, where the founders are passionate about solving a problem, can lead to remarkable success stories, like Square's ability to evolve from an SMB focus to a consumer-facing business. Payments, as a technology, have the power to make commerce easier and more seamless, and the future of payments lies in the integration of smart contracts and DeFi technology, which can lower transaction costs and make the payment process fully embedded in the user experience. Overall, the ability to identify and invest in missionary founders and innovative payment technologies can lead to significant returns and positive impact on the economy.
Technologies democratizing access and lowering costs: Unity's open ecosystem fosters creativity and prevents metaverse from being a closed ecosystem, enabling real-time 3D interactive experiences for a wider audience across various industries and devices
Technologies like Unity, MongoDB, and YouTube have a common thread of democratizing access and lowering costs, making them more accessible to a wider audience. Unity, in particular, plays a significant role in the metaverse trend by enabling real-time 3D interactive experiences, powering 70% of the top 1,000 games on the App Store and various use cases in manufacturing, auto design, and gaming. Unity's commitment to an open ecosystem is crucial for fostering creativity and preventing the metaverse from becoming a closed ecosystem dominated by a few big companies. The openness of Unity's platform allows developers to create applications that work seamlessly across various hardware devices and operating systems, leading to a more innovative and diverse technological landscape.
YouTube's success from offering superior end-to-end experience for creators: Open systems thrive when they prioritize user experience and enable creators to monetize their content, as seen with YouTube's growth and MongoDB's shift to Atlas.
Open systems can flourish when they offer a superior end-to-end experience for users, as evidenced by YouTube's success. This platform, which began as a small startup with friends from PayPal days, became an unbelievable asset for Google due to its ability to give a voice to creators and enable them to monetize their content. The collaboration between the founders and Google's support played a significant role in YouTube's growth into a global success. Moreover, the rise of developers and the tools available to them is a significant trend, as they build the technology we use daily. Companies like MongoDB, which focus on making developers more productive, have experienced remarkable growth. The success of second acts, such as MongoDB's shift to Atlas, can be attributed to a continued focus on the developer experience and the ability to adapt to changing market needs.
Identifying Crucible Moments in a Company's Growth: Board members play a crucial role in guiding companies through significant growth decisions, such as transitioning to the cloud, by identifying crucible moments and leveraging diverse skills to navigate strategic shifts.
The founders of MongoDB, Dwight and Elliott, faced challenges with traditional relational databases and sought to create a more flexible solution. Their inspiration came from the need for a schema that allowed more freedom in application building. They started during the era of cloud computing, initially using an open-source approach. However, they encountered a crucial decision point, or a "crucible moment," to transition to the cloud. As a board member, identifying and guiding the company through such moments is a focus for Jason Cox. He believes that a board is a collection of diverse skills, and his strength lies in strategic moments. Identifying crucible moments requires experience and the ability to translate past experiences to current situations. These moments can significantly impact a company's future.
Great investors have insatiable curiosity: Great investors are deeply interested in new ideas, people, and technologies, which fuels their ability to make informed decisions and invest in game-changing companies.
Great investors, like those at Sequoia, possess an insatiable curiosity that drives their success. They are deeply interested in new ideas, people, and technologies, and this curiosity fuels their ability to make informed decisions and invest in companies that have the potential to change the world. A great investment memo, in turn, should be clear and convey conviction. It should be able to explain complex concepts in a simple, understandable way and take a definitive stance on the investment opportunity. Some of the most memorable investment memos come from Sequoia's legendary investors, such as Jim Getz, Grady, and Mike Moritz, who have a gift for boiling down complicated ideas into clear, compelling arguments. Ultimately, being a great investor requires a combination of analytical skills, judgment, intuition, imagination, and, above all, curiosity.
Managing People and Teams at Sequoia: Leading a VC firm requires effective people management and a focus on serving founders and LPs, with a brand built on a partnership model to last generations.
Leading a venture capital firm like Sequoia involves more people management than investment focus. With the growth of the business and the addition of various teams, the role of a leader is to ensure these teams work harmoniously and effectively. The firm's ambition has evolved to support the most interesting and enduring businesses, and the focus is on serving founders and LPs. The brand, built on a partnership model, is designed to outlive its founders and serve future generations. Curiosity lies in the realm of genetic engineering and its potential impact on the world.
Navigating the Brink of a Genetic Engineering Revolution: To achieve a sustainable future in genetic engineering, we need accurate measurement and pricing of externalities, sound institutions, and a long-term perspective that enables compounding growth for innovation and progress.
The world is on the brink of a technological revolution in genetic engineering, which holds the promise of making our planet a better place for humanity. However, there are significant roadblocks to achieving this goal, including the lack of accurate measurement and proper pricing of externalities like pollution. Technology, especially in the realm of biology, is asking for sustainability and the ability to improve the lives of most people. The market system doesn't always solve these problems, and we need to complement it with sound institutions that enable it to flourish. The difference between an accountant's mindset and that of an actuary is that accountants focus on the past, while actuaries think about the future. This long-term perspective can help businesses make better decisions and imagine compounding growth, which is essential for innovation and progress.
Emphasizing teamwork and complementarity for business success: Respect and appreciate diverse talents, clarify focus through pre-mortem and pre-parade exercises, and innovate to adapt in a changing world. Personal resilience and forgiveness also crucial for success.
Building a successful business requires both talent and genius, with an emphasis on the importance of teamwork and complementarity. The speaker emphasizes the need to respect and appreciate different talents, just as in rugby where a winning team consists of players with varied positions. He also introduces the concept of pre-mortem and pre-parade exercises to help businesses clarify their focus and adapt to changes in the environment. Ultimately, the key to success is innovation and the ability to evolve in a constantly changing world. The speaker also shares a personal story about the kindness of his wife, highlighting the importance of forgiveness and resilience in both personal and professional life.
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