Sequoia 的 Roelof Botha：风险投资为何失灵，以及伟大公司如何建立

Sequoia is the most sought-after name in the venture capital business. The firm has made over a thousand investments now worth in the trillions in public market value. There's a list of five VCs who I think can really transform a company and you're one of those five. When I joined Sequoia, it was clear that if I wanted to make it as a partner, you needed to produce meaningful gains. YouTube, Instagram, Square. This is a list of amazing amazing startups. Our ambition is to build a partnership that endures and that means we need to leave it in a better place than we found it. Ladies and gentlemen, please welcome Sequoia Capital's Roelof Botha. What's up, bro? How are you? Good to see you. Welcome, Roelof. There's a question.

What's that?

Where did Sacks go?

He had to go pee-pee. He had to make a wee-wee.

Come on. Yeah, exactly. You guys did work together 25 years ago, and he just abandons us right now.

He's had enough of you.

Everybody wants to know: who's your favorite Sequoia Scout of all time?

Let's go through it. Jason Calacanis.

It is hilarious. When you think about it, you came to me, gosh, 15 years ago, and you said, “I have an idea for a program. It's called Sequoia Scouts. We'd like to have you go around and invest in some companies.” And—

No good deed shall go unpunished.

Absolutely. Created a monster. But that program—

Sorry, before you ask your question, how far are you going to insert your head up Roelof's ass? We sat him that far away for a reason. I mean, sorry, bro. Jesus Christ. Go on with your question.

Let me land the question.

What's your question, D?

That first cohort of individuals wound up being a pretty interesting group of folks. Maybe you could tell everybody just a little bit about the program you conceived of, and who were some of the first folks in it and the first investments?

We conceived of this program, as you mentioned, in 2010, when we launched it. The idea was that there were a bunch of contemporary founders who had very interesting access to up-and-coming founders who were turning to them for advice, but these founders didn't yet have money. At the point that you became a Scout, you didn't have the net worth you have now, where you could write a check on your own.

We thought it would be a great program for us to provide the capital for founders like yourself to be able to invest in those companies. Hopefully, we would get an introduction to those companies and be able to make an investment, too. You were in that program, and you helped us with the investment in Uber. Sam Altman was in that group as well. He helped with an investment in a little company called Stripe.

They did. Okay.

So, at this point, that fund is a 26x fund.

Wow. That's up there.

It's pretty good.

Speaker 1 What's the best fund in the history of Sequoia? Was it the Google fund, the WhatsApp fund? Which one has the highest multiple in history?

The highest multiple in history is, I think, Venture 12, which has Airbnb, Dropbox, Natera, AdMob, and a couple of other companies. And then Venture 13, which is the fund right after that, has Stripe and Square, now called Block, and a bunch of other companies. So those were both north of 20x funds.

Tell us about the venture industry, actually. We're at a point in the cycle where there's been a lot of specialization, both at the stage level and at the sector level. There's been all kinds of experimentation and approaches in strategy. Can you just level-set on what you've learned, what the industry has learned, and where we are?

I'm glad you called it an industry, not an asset class. I listened to one of the shows you guys had recently, and I think there's a huge problem with the venture industry: there's too much money, and you guys have talked about this before.

The venture industry as a whole invests between $150 billion and $200 billion a year, based on the last numbers I saw. If you think about reasonable assumptions for returns, let's just say 12% per annum net, which isn't great—you might as well invest in an index fund—the math basically implies that you need 3.5x to 4x funds to make that math work over a reasonable time frame.

So, if you're investing, let's just say, $200 billion a year, the industry needs to give back $700–$800 billion a year. VCs don't own 100% of the company, last time I checked, so that means that the aggregate exit value is north of $1 trillion a year. Figma went public recently. They're worth $25–$26 billion. You need 40 Figmas a year for the industry to make the returns work, which means that they don't.

In my opinion, investing in venture is a return-free risk. You shouldn't. There are basically only about 20 companies.

You said—

Return-free risk.

Risk.

Exactly. If you look at every single decade, there are only about 20 companies that end up getting exit values north of $1 billion—actual IPOs or M&As north of $1 billion, not the paper write-ups, only 20 companies.

More money doesn't create more great ideas or more great founders. So I think there is way too much money in the industry. The industry does provide a lot of value. It provides some of the know-how for entrepreneurs to succeed and obviously leads to job creation and all the attendant benefits for America. But there is too much money and too many people who want to be investors.

How does the money get level-set, then, and right-sized for what is needed?

I've been wondering that for 20 years. This problem was a problem 20 years ago.

It's an incredibly sexy asset class. I mean, look, Jason writes a bestselling book. It doesn't dissuade people. It incentivizes more people to say, “Oh, I can try this. I'll be like him.” It's just a self-fulfilling prophecy.

Yeah. Everybody wants to go to Vegas and strike it rich. It doesn't happen.

Yeah.

That's part of the dynamic: you get a firm that has 1 success in their fund, and then they attract more capital because people think it's repeatable, and it's not. And you don't know that until fund 3 or 4. Often, they raise funds 2, 3, 4, and 5 before even fund 1 is really fully distributed.

So what could change? One of the things that I thought was transparency, but nobody wants to publish their returns. You could publish your returns. I publish my returns, but I'm not taking outside capital. Would that help? Is it working with people like Cambridge so that these things become more public and more understood?

It seems like there's an education element here that's missing on behalf of the industry to the potential LPs.

I think people will still hide behind the J-curve effect, and they'll say, “Yeah, my fund is only at 1.5x right now, but it's only 4 years in, and the winners are going to emerge.” I think this hope-springs-eternal dynamic, and such a long period of gestation before the companies get realized, means that it won't change that dynamic, unfortunately.

There's also been this really interesting effect where it's been this industrialization of venture capital, I will call it. If you look at the organization that General Catalyst has built, it's about this girthiness across many different things. How has Sequoia reacted when you've seen those movements? I'm sure 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 same thing? Are we doing something different?”

That is a great question. The industry has changed a lot since I got into venture just over 20 years ago. If you go back to the proverbial 1990s venture firm, it was a dozen people sitting around a table making investment decisions with very lightweight staff. It was much more of a cottage industry.

I think the industry has professionalized, and really the founders are the ones who benefited from it because all these firms have built larger operating teams to be able to help those founders with talent and go-to-market. I think it's really helping founders. That's probably the main takeaway I have from that.

We've decided not to build as big an organization. Most of the operating teams we have at Sequoia help us. We have about as many developers at Sequoia as we have investors, and they're building products for us so that we are much more effective and productive than we might have been 20 years ago.

What's an example of what they're building for you?

My phone can pull up an app. If you give me any company name, I'll be able to tell you who my team last met, how we rated it, and give you data on what's happening with their hiring. I'll tell you how many vouched employees they have, how good we think their engineering team is based on their history, their academic profiles, and so on. All this information is at my fingertips.

If we get business-plan submissions, we have an AI system that will summarize them for me. I get a very quick read on the company, a quick summarization of the quality of the team, and a very quick analysis of the competitive dynamics and the other companies I should consider alongside them. These are just small examples of the things we do.

We just had Joe Tsai on. We were talking a bit about the relationship between America and China. You had a fabulous business in China for 2 decades, I believe, with Neil.

Yeah.

And it did absolutely fantastic.

But then the government of the United States said, “Hey, we cannot, as venture capitalists, invest in China anymore.” So, what’s your take on the opportunity in China? Will that return? And just the experience you had with all those incredible hits at the time.

When we first went into China, it was 2007, I think. “The world is flat” was the moniker at the time. China gained admission to the World Trade Organization in, I think, 2001, and we all believed that it would integrate into the global economy. That premise proved wrong.

And so we had a period where it was really interesting to share knowledge and share ideas and figure out how we could build a globally interconnected set of systems and companies. Life just got too hard for that, honestly, and we saw more division between the 2 countries.

So, we embarked on global separation just over 2 years ago, and what used to be China is now an independent business called HongShan, and they’re off to the races. I think there’s a real challenge in China right now. Some statistic I got recently: in 2018, there were 51,000 companies started in China. In 2023, it was 1,200.

Wow. How many?

1,200. You had a 98% reduction in the number of companies founded in China. Because if you’re an entrepreneur in China, why would you want to start a company when the government regulations are so uncertain?

Which, by the way, is an interesting warning sign for us in America as we think about AI policy and AI regulation. The more uncertainty we create for founders, the more difficult it is for them to actually take that risk, take that leap, and start a business.

Chinese entrepreneurship is still strong. You see many Chinese entrepreneurs now operating in Latin America. They move to Singapore, they’re in Japan, and they’re moving to Europe. You can’t repress that spirit.

Roelof, there’s an interesting dynamic that I observed. You have the early-stage venture companies that have had an incredible track record—you guys, Benchmark, Khosla—and then what happens is you have these late-stage firms. But many of the companies they fund need so much money that the late-stage firms can’t service them.

So, you have to go direct. You go right to the Saudis, you go right to the Qataris, you go right to the Emiratis, you go right to Norway—to these sovereign wealth funds that are writing these big checks. And so it creates this really weird dynamic where you almost become this kind of glorified placement agent.

There’s this part of the curve, and then there’s all this money that goes over here. How do you adapt the business in the face of that dynamic?

We stick to our knitting. The funds we operate today—our seed, venture, and growth funds—are no bigger than they were 5, 6, or 7 years ago. We realize that there’s money to be made for some people writing very large checks in very late-stage companies.

But our aspiration is to be the number-one investment manager for our limited partners. We literally want to be the best net IRR and net multiple for our LPs, and we’re not interested in maximizing fees or maximizing our share of industry value creation. That’s the game we’ve chosen to play.

And so there’s no path where Sequoia, for example, tries to go public or take the— you know, that’s just not in the strategy of the business?

No. Actually, we’ve structured ourselves to be a private partnership in perpetuity, to the extent possible under California law. We have a sense of stewardship. You have to leave the partnership in a better place than you found it.

Don Valentine didn’t call it Valentine Ventures when he started it. He handed the partnership over to the next generation with Mike Moritz, Doug Leone, and Jim Goetz. And we’re now part of a third generation, our team currently running the partnership.

We didn’t have to pay to get the partnership from the previous generation, nor will we charge the next generation. That’s our motto.

How would you describe the culture that’s driven the success, Roelof? When you select partners, what do you look for? How do you value those partners? How do you assess the performance of those partners? And how do you guys operate? That kind of defines the culture.

I think probably the most important characteristic we look for is an insatiable curiosity in the individual. We look for people who are extremely driven, but they need to have a heart of gold.

One of the things we talk about at Sequoia is that we cherish individualism and teamwork. You need an individual to be able to have a keen insight and propose an investment, but you’ve got to work with a team. The whole teamwork aspect is really important for us.

So, when you make investment decisions at Sequoia, it’s a consensus decision, which blew my mind when I first got there.

Meaning everybody has to agree?

Everybody has to agree.

So, if one person says no, it doesn’t happen?

Correct.

So, one person can veto an investment?

Correct.

And does that happen often?

It has. Sometimes it was a good decision and sometimes not.

What do the statistics tell you? What’s the worst thing somebody killed?

Oh, jeez.

It’s okay. We’re all friends here. What is that list called when you have that?

You would call it your anti-portfolio.

Anti-portfolio. But in this case, somebody wasn’t just an anti-portfolio. It’s like everyone agreed we should do it except the one.

Yeah. And so you think about that responsibility, and it weighs on people.

But it means that you need to show up with your best game every single day.

Part of what we’ve done is look at the vote distribution these days. If somebody shows up and everybody’s really positive—there are a bunch of people who are 8s and 9s out of 10, and there’s one person who clearly woke up in a bad mood and is a 3—at some point, that person will probably say, “Listen, maybe I just don’t get it.”

This actually happened to me. We listened to a company in late November. This company is thriving right now. It’s pretty exciting, isn’t it? This company is benefiting from stablecoins, and the GENIUS Act that he helped put in place is really benefiting from that.

I didn’t quite get this company at the time, and I was the only person who was below the line. I said, “Listen, there’s something I’m missing in this particular company. I think we should proceed with the investment,” even though my intuition walking in was that we shouldn’t.

And I’m really glad that we proceeded. So, can you tell us about the holding-company transition that you underwent and the role of being a venture capitalist in making an exit decision?

We had this conversation on the show a few weeks ago and pulled up some analysis. The biggest winners continue to compound as public companies. Ninety-nine percent of the returns are as a public company, or whatever it is. So, it looks like an amazing exit when a company goes public.

It would. Yes. We backed a bunch of very interesting companies over our 50 years. The companies in which we were private investors when they were little companies today account for over 30% of the total value of the NASDAQ.

Wow. There’s no other 30%.

Over 30% of the combined value of the NASDAQ.

Apple, NVIDIA—

Apple, Cisco, NVIDIA, Google, Palo Alto Networks, ServiceNow—the list goes on.

Pretty good.

One of the things we realized, which is what you’re alluding to, is that in 2022, we launched something called the Sequoia Capital Fund. We realized that the great companies continue to compound, as you talked about in that episode. It was an excellent episode, obviously.

Even in more recent memory, if you look at the last 10-ish years, Palo Alto Networks, ServiceNow, HubSpot, and MongoDB have all been 10Xs as public companies. And so we’ve realized that when we distribute shares prematurely to LPs, they don’t know any better because they run a big endowment. They suddenly get $5 million worth of company ABC. They don’t know any better. They sell the shares.

So, for the companies that we believe have the ability to compound longer term, we have a different fund structure. Six, 12, or 18 months after the IPO, we can move those shares into this fund called the Sequoia Capital Fund. This now becomes the vehicle through which we fund all our next underlying investment vehicles.

To give you a sense, since we launched this 3.5 years ago, we’ve accumulated another $6.7 billion in gains.

By doing nothing except being patient.

$6.7 billion in gains that our LPs would not have seen if we had just distributed those shares outright.

Yeah, you’re making him moan. He’s moaning.

I like it. I’m getting warm, and he’s getting emotional.

The counterargument is that, as a public company, you as venture capitalists—who are excellent at interrogating early-stage technology, early-stage metrics, founder personalities, and all the things that might make a good venture capital investor—maybe, as a public company, quarter to quarter, are they growing 12%, 14%?

There’s a different analytical skill set, some might argue. That belongs in that investment domain, and frankly, it’s very hard to beat the industry indices doing that.

What's the argument to be made to the counterargument, and why would you counter that argument?

One of the things for us is that, in most of these cases, we're involved with these companies literally at inception. Palo Alto Networks was incubated inside our office with one founder and my partner, Jim Goetz. So we've known these companies since their earliest days. Why should that relationship end at the IPO?

In most of these cases, as you pointed out, the founders are still there, and there's so much more innovation taking place. One of Jack Dorsey's favorite quotes to me was, “Companies have multiple founding moments.” When you're in a company where the founder keeps reinventing the business—you know, a company like Square—half the revenue today comes from a product called Cash App that hadn't launched for the first 5 years of the company's life.

If you can find these special companies where the founders keep pushing the boundary on innovation and are relentless, then it works.

Google buying YouTube.

Don't remind me.

Do you think it would have been the same? Would YouTube still have had the same outcome if it wasn't acquired? To be clear, Roelof wrote, in his first year or two at the company, the deal memo to invest in YouTube, and it got bought for $1.6 billion. The standalone business today would be worth $400–500 billion.

Google then invested quite significantly in infrastructure, enabling scalability, building out a team, and building out an ad revenue system.

We've got Neal Mohan here tomorrow to talk about the current state of YouTube, but do you think it could have taken the same path?

Hard to say. I think a lot of credit should go to Google for the way that they managed YouTube after the acquisition, both in the resources and leadership they provided, and how they've enabled it to thrive.

This is one of my favorite things that Peter Thiel says: when an acquisition like this happens, one side was orders of magnitude off. It was just a zero, or it was 100 times more than what they paid. Something is always off.

Don Valentine, the founder of the firm, drew a 4-quadrant chart at one point to explain the founders that perform extremely well in terms of returns. Maybe you could explain that to the audience.

Yes. Don pulled me aside in the early days when I joined Sequoia, and he said, “2×2 matrix: people are exceptional, not exceptional; easy to get along with, not so easy to get along with. Roelof, we normally make money in 1 of those 4 quadrants. Your job is to figure out which one.”

And it's the exceptional people who are not so easy to get along with. So then let's talk about the next generation. I'm sorry, can we just double-click on that? Why do you think that is?

These people change the world. They don't take no for an answer, right?

How does that—why does that make them hard to get along with, per se?

I think he was saying that a little tongue-in-cheek, right? But this is a guy who backed Steve Jobs when Steve would walk around Sand Hill Road without shoes. He'd come back from a trip to India. Allegedly, he didn't smell too great. He was unusual, and nobody wanted to back him. Don wanted to find these underdogs.

Atari. Well, apparently some of the Atari board meetings took place in hot tubs.

Yes. By the way, that's how he got to Steve, because Steve had worked at Atari. That's how Don got the introduction to Steve.

I think part of the point he was trying to make is: don't look for the people that went to all the right schools and wear the right clothes—all the conventional stuff. Founders are unconventional. These people change the world.

Most of us encounter challenges every single day, and we accommodate. This thing isn't quite to your liking; you adapt. Founders don't. Founders see things and go, “Hmm, I think the world can look different,” and then they go and try to fix it. They just don't take no for an answer.

Let's fast-forward to your 2 mentors, Michael Moritz and Doug Leone. Two very different characters when the story gets told—maybe a rivalry there between the 2 of them. What did you learn from each?

Sure. From Doug, I learned heart.

Unpack it.

Doug has an incredible heart.

When did you see that most? What was the moment that's coming to your mind right now that you probably shouldn't talk about?

I'll give you 2 examples. One was in 2009, when I was in a funk. I nearly quit the business.

I didn't know this, really.

YouTube was a great success, and I felt very good about that. Then, in venture, after a few years, you walk through the valley of despair, and you start to realize the things you should have invested in that you didn't, and the lemons start to drop—the things that you did invest in that are not working out.

There was the one great quick exit, but then a bunch of other things, and I was really having a lot of self-doubt. Doug showed up at my house with a jar of homemade pesto, and he didn't need to. It was on a Saturday afternoon. He knocked on my door. “Who's this person at my house?” He just wanted to tell me that he was there to support me through this dark period. That was one example.

Another one was when my son was in the hospital, and Doug showed up. He didn't have to. That meant a lot to me.

And Michael—

Michael's imagination. Michael just has an unbelievable ability to imagine how a company can succeed. When I thought about my mistakes as an investor, every single time it comes down to a failure of imagination: I didn't think big enough. I didn't think about how this company could progress from where they were.

You first introduced me to Twitter in 2007.

I have the emails.

It was before smartphones launched, and it was an SMS app. I got tired of getting all your “I'm having a cappuccino” messages on Twitter at the time.

On your BlackBerry. Yeah.

I didn't quite imagine that it could be what it is today.

I remember an early meeting with Yelp, with Jeremy Stoppelman and Max Levchin, in our offices. Yelp hadn't launched a web app; they were going to be an email newsletter thing. Michael, in this meeting, said, “I imagine that one day restaurants will put a Yelp sticker in the window, just like a Zagat rating or a Michelin star.” He saw that.

He saw that.

He saw that. I mean, 10 years before that became a reality, he had the imagination to think about that. That, to me, is amazing.

So now Doug is still there and Mike has transitioned out completely. Doug has stepped back from day-to-day investing. Is that the—

Yes, Michael has transitioned out completely. Doug has stepped back from day-to-day investing, so he's no longer in partner meetings routinely, but he continues to serve on several boards.

And you're in charge.

I'm the leader of a team. I think of it more like being captain of the team. You play team sport; we play team sport at Sequoia. We are equal partners.

Was it hard to see those 2 guys go, seeing how legendary they were, and to succeed them?

No.

Well, both to succeed them, but also just to see them walk out the door. Is there a tendency to want to keep them around as long as possible?

I understand the question. Firstly, it is very hard to succeed them. I think every single person at Sequoia feels this enormous burden and responsibility to try to match the performance that we've been known for.

But we have this great generational transition at Sequoia. Michael stepped back from day-to-day activity in 2012.

And he was—

Moritz did in 2012. Michael stepped back for personal health reasons. He continued to serve on the boards that he was on, and we had him for another decade, where I would ask him for advice.

As we were going through the global separation that we talked about earlier, I would ask Doug and Michael, “What do you think? What should we be doing here? Do you have advice for me?” We have this benefit of intergenerational knowledge transfer.

Doug was on a call earlier today. We had a difficult conversation, and I wanted his input on an important question. It's not because he has the authority to tell me what to do; it's because I seek out his advice.

You were investing in traditional software and internet services for years, and then a couple of years ago you started investing in some life sciences. Does life sciences work as a venture investment today? What's been the challenge in biotech and life sciences investing generally over the last few years?

There's a lot of notoriety about the collapse of the market. Even Dave Ricks today was saying most public biotech companies are trading below cash. What are your observations on the business model, what you've seen, and the types of businesses you've invested in there?

The business we invested in that has done really well is a company called Natera. We made a seed investment of $1 million in 2007 in this company.

It's a $20 billion market cap now, right?

A $22 billion market cap. It was 2 people with a very raw idea, and today they're the leading provider of prenatal testing, oncology recurrence monitoring, and organ transplant rejection testing.

That company has been a huge success. Diagnostics—genetic diagnostics—has been a huge success. You think about the dividend we're still collecting from the Human Genome Project 25 years ago.

It's incredible. And you've obviously seen that in some of the businesses that you've helped build as well.

We did make an investment in a company called BridgeBio, which is helping with rare genetic disease drug development. But other than that, I think we just don't have the expertise for biotech. You know, we don't have any—

But there are still winners.

There are still winners, but we have no MD PhDs on our team at Sequoia. And I think it's very dangerous when people think that your success in one domain just naturally gives you the right to compete in other domains. I have tremendous respect for the people who understand that. I do not.

I learned that one the hard way. Ladies and gentlemen, Roelof.

Thank you. Thank you. Thank you so much. Thank you, sir. I appreciate you coming out. Thanks.