uh, you know, the, um I've been intending to upgrade them. When I was in New York was like, I'm gonna go to the flagship Nike story and get, like, the latest latest model. They

don't make them anymore. They don't make the the flying. That's anymore. Would they make finance?

But they don't make the free flight nets. Oh, thank you for your finest. So I think this might be the last bottle. Well, to stock

up. Yeah, I know what I'm doing this weekend. Welcome to Season five Episode four of Acquired The Podcast about great technology companies and the stories behind them. I'm Ben Gilbert and I'm the co founder of Pioneer Square Labs, a startup studio and early stage venture fund in

Seattle. And I'm David Rosenthal. And I am a general partner at We've Capital, an early stage venture fund focused on marketplaces based in San Francisco. And

we, as you know, are your hosts. Today we are talking about the absolutely legendary Sequoia capital and because it would be inappropriate to try to cover sequoias immaculate history in just one episode. This is only part one, and typically I try and throw out some stats in this section about why the company that we're covering on this episode is important. Well, today I'm only going to throw out one. Since its founding in 1972 the firm has helped to catalyze companies that now represent $3.3 trillion of public market value. And for context, the entire NASDAQ is $10 trillion. It is, frankly, absolutely unbelievable that a single firm can be responsible for helping to create so much of our modern economy. David, this is bananas.

Yeah, for comparison sake, What did we say next, which is one of our A plus is, we said generated a trillion dollars in ah market cap value the next acquisition. So here we are talking about $3.3 trillion. Obviously, it's a venture firm, not a company. But ah, this is one of the reasons I've been so excited. Thio dive into this new category here on acquired and can't wait to tell this history of Sequoia Capital.

Absolutely. Now, before we dive in, I want to thank the sponsors of all of Season five Silicon Valley Bank. This wonderful paragraph that I have been given to draw from as inspiration starts out. Big ideas don't fit into standard packages. But before we go on, I want to dive into what that means in practice. And why does it make sense for entrepreneurs to bank with Silicon Valley Bank? Start ups aren't normal businesses at all? I mean, what small 123 person company is going to somehow have millions of dollars in their bank account but have little to no revenue for months, if not years? When you're running a start up, you need a bank that understands the way startups work and is used to something that we all take for granted but is actually a quite recent modern and specialized type of business. Alright, Tangin over.

That's why Silicon Valley Bank has banking and financial solutions tailored for startups that help them reach their next milestones faster. Visit spb dot com slash next n e x t toe. Learn more and things as always, to Silicon Valley Bank. So lastly, are limited partner Bonus show. This week was kind of fun. Flip for me. David interviewed me on what is a startup studio and how does it work? And I dove into our process here at Pioneer Square Labs. If you want to listen and become a limited partner, you can get started with a seven day free trial and listen right here in the podcast player of your choice by clicking the link in the show, Notes are going to glow dot FM slash acquired. I promise. It's very easy

e like that. I like that.

Yep. All right, David. It's time.

It's time. Let's do it. So one thing that is ah oft for gotten these days because it's just a name and is like, uh, reminds me of that quote about fishes and water where you know, you ask a fish like, How's the water and fish says What's water? And that is that Silicon Valley is called Silicon Valley because of silicon. Uh, even though it is mostly software these days on the Internet, Soto set the stage for this episode. We need to rewind back to the origin of Silicon Valley and indeed, silicon. So we go back to 1957 when and this is really the moment. I think you could argue when when Silicon Valley as we know it, both in terms of silicon and in terms of the concept was born. And that was when a group of eight employees leave a company called Shockley Semiconductor Exactly Semiconductor Laboratory and Start a new company that ends up being called Fairchild Semiconductor.

And this group of eight employees goes on to be known as the traitorous eight. And we'll, uh, we'll link to in the show notes to this amazing photo willing to the Wikipedia page of these eight individuals. It's just so great. So 1957 in all the best ways. Why did these eight folks leave Shockley and start their own company? And this was a radical thing to Dio at at the time. Well, Shockley Semiconductor was started by Bill Shockley, and Bill was a genius. He was the co inventor of the transistor that he and helped helped have been when he was a Bell Labs. And for that he won the 1956 Nobel Prize. I mean, he literally helped invent computing, but he did have a dark side,

and that dark side was that he was a terrible manager and people hated working for him. Um, and to help, you can get the picture at this point in time and then, for kind of the rest of his life. He became a white supremacist and was a proponent of eugenics. So this is the sort of AH person we're talking about that would prompt people as brilliant as he was. And as amazing as the innovation that was happening at Shockley would be prompted to maybe leave and do something rash. So who had the traders? Eight. Well, among them. There's some names you might recognize, starting with Gordon Moore of Moore's Law and Bob Noyce, who, of course,

the two of them would go on to found Intel, although that's a story for another day. And Eugene Kleiner, who would go on to help, found Kleiner Perkins, which is another venture firm story for another day. But what was interesting is when they left and they started Fairchild. It wasn't actually a start up in the way that we think about it today. It wasn't an independent company. It ended up that they had a really tough time getting it financed. And so how it ended up being organized was as the West Coast Semiconductor division of an East Coast company called Fairchild Camera and Instrument Corporation. So Fairchild was located back on Long Island in New York, and they owned become

so funny. I always assumed that Fairchild was like, one of the trader is eight.

No, not at all. Ah, yeah. They didn't actually own the company. Believe they had equity in it. But no eso. How did this happen? A man named Sherman Fairchild at this point in time who lived in Long Island, was the largest shareholder in IBM because his father had helped finance Tom Watson, informing IBM many years, many years earlier. So when the traders eight, we're trying to get their new company off the ground, they intersected with a man named Arthur Rock who's gonna come up again in a minute here, who has won a sort of the early proto venture capitalist in California. Uh,

and he was a former investment banker, and he was trying to get financing. It was really hard. And so he ended up going to Sherman Fairchild because he knew Sharman was largest shareholder in IBM. He was interested in technology, and ah Sherman agreed to set this up as a division of his camera and instrument corporation. Wow. Created Yeah, which is which is crazy. So the way it happened, they loaned one and 1/2 $1,000,000 to the company in return for which they got an option to buy all of the stock of a company for $3 million. Ah, imagine if if veces ah structured deals that way today, what founders it wouldn't wouldn't quite set up the rate set

of themselves. But you gotta, you know, crawl before you can walk.

Yeah. Yeah. You know, Fairchild would lead to many, many things, including, of course, Intel. And we'll get into that a little bit leader. I'm into north Iraq. So what was the financing environment for quote unquote startups in in California At this point in time

knowing how markets work, I think we can assume that there wasn't much of it, given the terms of that other

investors you just mentioned. So as you might guess from how Fairchild was financed, the quote unquote venture capital industry or the proto venture capital industry that existed in California at this time was pretty much nothing like we know it today for when it was so small that the individuals who were doing at all of them in California they would meet for lunch once a month at the Mark Hopkins Hotel in San Francisco at like a table regular table, and they would sit around and talk about like the various companies that they were working on. That was that was it. That was the entire industry. And for two, none of them actually came from a technology or a startup or company background. So Arthur Rock, who we mentioned he was an investment banker and a few other folks that were kind of instrumental at this point in time pitch Johnson and Bill Draper Draper might ring a few bells for folks. They had worked in the steel industry and come out to California and started financing companies. There was another gentleman named Tommy Davis. He was a real estate developer who developed an interest in this sort of thing. So that was that was really the state of things. And, you know, as evidence by Fairchild, you know, here you have eight of the most talented scientists and engineers working in the highest growth industry in the world, and it's literally impossible to finance them. They have to get essentially bought by an East Coast company to even get

their company filed. It's so interesting, Like, venture capital falls under the broad asset class today of alternative investments, which always seems a little funny given you know how much, especially today, with all the late stage money coming into start ups, how much money is really invested there, and it's silly to call it alternative. Now, when you look at it in these days is very much you had to be a very alternative counterculture person to believe that this was the best way to go and invest your money.

So it's right at this moment in time that a quite a maverick one might say, Individual comes on the scene and basically basically single handedly writes the playbook of what modern venture capital and alongside it, what a modern startup would look like. And that man's name is Don Valentine. And so Don, of course, goes on and start Sequoia Capital, and we're gonna tell this story here. I cannot recommend highly enough anyone, whether, certainly if you work in, are interested in venture. But even if not, if you're just interested in technology and start ups, go do two things. One. Watch the YouTube video of a talk that Don gave at the G S B at Stanford in 2010.

And to read this wonderful, wonderful aural history that Berkeley did as part of the history department there with Don, uh, and you will get a sense for what an amazing character this guy is. And a lot of this show is a lot of the history of the show is taken from those two documents

and listeners. The way to think about part one, Part two of the Sequoia story part one that we're gonna focus on here. This is really don story.

Yeah, and, uh, it's really cool, actually. The talk that he gives it Stanford, he holds up towards the beginning of it, the resume of a kn individual who had just doing Sequoia capital that week. That individual is Alfred Lin, of course, friend of the show and former guests.

It's kind of amazing. He printed out Alfred Resume and to this talk

that Alfred like, had a resume at that point, like he was CEO and chairman of Zappa's that had just been acquired for over a $1,000,000,000 but always hustling. Okay, so who is don? So he was born in 1933 in Yonkers, New York. Back on these coast, his father was a Teamster. So a delivery truck driver at a union member. Ah, if you can imagine it, which Don took a ends up taking a very, very different path in life. Um, his parents were completely uneducated, both of them. Neither of them had finished grade school. Um,

dollars went out like, not like hadn't gone to college like

hadn't finished grade school? No, literally, like, had not finished elementary school. But in good Catholic fashion, they do value education and especially Catholic and religious education. And so Don grows up in in New York going to Catholic schools. And then he does. He ends up going to Fordham University, a Jesuit university graduates in the early 19 fifties and promptly as most folks did back then, at least most men gets drafted into the army. This is, I believe, rape either during or right before when the Korean War is going on. According to Don, he quote had a terrible attitude about the millet military he didn't like and doesn't like regimentation.

And this is gonna become very clear. Done. Does things his own way. But one thing that he loves is electron, ICS and technology. And he ends up getting put in charge in the Army of, in his words, trying to teach senior officers to use modern technology instead of the way that they were inclined to fight wars, you know, which was with, like, horses. And, you know, in cavalry all that said the army and done still don't really mix. So he transfers to the Navy,

and this is a major major moment for him because he gets stationed in California. He comes out to California and he steps off the boat, and he's like, I have reached the promised land. It doesn't snow here in the winter. I'm never going back to the East Coast. I love this place. His goal is he wants to find employment at a West Coast electronics company. Um, so he gets out of the Navy, it ends up taking a little while. He first gets a job at Sylvania Electric, which was actually based in Pennsylvania. I believe he was working for them

in New York. Is that the? Is that the vacuum cleaner

company? Uh, what's the vacuum tube company? So this is how he gets into technology? Because this was still, you know, the semiconductor believe had been invented by Exactly. And others. At this point, most computing such as it was, was being done with vacuum tubes. You remember the any acted like this is what we're talking about back in

these. Yeah, I guess. I know Sylvania is a lighting company, I think. Did they make light bulbs? I've, like, logo around. Like Home Depot? Yeah.

I think they make like lightbulbs. Now who knows what they corporate structure of the company is these days? At the time, they're making vacuum tubes and selling them as as computing components, mostly to the Defense Department. And, of course, down had come from the military. Eso don ends up jumping ship to Raytheon and moving to Los Angeles. So here he is. He's finally, he's achieved his goal. He's living in L. A out in California, love in life surfing. Ah, he was a big water polo player and he's working in what at the time was the high technology industry selling computing solutions to the Defense Department in the military,

he starts taking part time courses at the business school at U. C. L. A. Focused on sales and marketing because it was really interested in, of course, sales, which is his job, but also the marketing component, like Who are we selling to and why? And he has a great quote, he says. You know, where is the decision making process in a great company? The answer is, it's in marketing in a well run company,

the marketing department, in conjunction with the science department. Science, being engineering at the time decides based on what their capabilities are, what the problems they can solve, what sequence they should solve them in and how much money they can spend they can spend on building that product. And how big is the market? Who's going to buy this stuff and all that happens within marketing in a primary position? This really becomes dons life passionate and that eat those Sito ends up informing everything he does and everything. It's quiet. Capitalist. Well, see, um, so after a short stint at Raytheon, uh, he ends up getting recruited to move up to Northern California and joined a fresh start up in the really hot semiconductor company up there. Fairchild Semiconductor

was Fairchild independent At this point, where they still a part of the bigger umbrella?

No, they were. They were. This was still very early. They were part of of Cameron Instrument, as we'll see. So Don joins. He's not part of the traders say, but he joins. He's like employee number 40 or 50. They're doing a couple $1,000,000 in sales, but still really small. And at first they put him in charge of selling fresh out summit conductors to defense firms back in Southern California. So they sent it back down to Southern California,

and she's kind of funny. It's It's exactly what is doing in the Army, right? It's educating about modern technology that, you know, t people who had been doing things an older way and tryingto basically do a very complex sale.

Yeah, I mean, it's kind of amazing that, like, you know, dons history from Yonkers, New York Everything basically, you know, sets him on. It's like the Steve Jobs quote of like You can't connect the dots looking forward, but looking back, everything you've done, you know, prepares you for what you're doing now, Don, you know, basically knocks it out of the park,

selling selling to defense contractors down in L. A. He takes the company from this couple $1,000,000 in sales when he joins to over $150 million in annual sales in just a couple of years. And, um, and it's over that time he gets promoted, ends up running all of sales and marketing for Fairchild, and he starts using everything that he's learned in his passion for marketing toe tap into like, Hey, maybe we should be selling to other markets to and which other markets should we be selling to? And are there things that we can do to customize the chips that were making to make them more applicable to these other applications and other rockets? The quota is here is business was so good. I mean, this was like I got to be at this moment in time. It was like it was like to be there in, you know,

the the mid mid nineties, when the Internet was taking off for the mid two thousands when Webb to data was taking off, and it was literally just like you could see the road map of what all the applications were gonna be and it was just, like, Go build them first and best.

Yeah, Not only did the semiconductor have perfect product market fit, but it scaled horizontally across tons of industries. I mean, everybody was going to need equipment that required semi conductors. And I think you know that now we sort of, like, take it for granted. Who, actually, we're in this phase where we're sort of moving forward from I t departments into, you know, companies that don't have I t department. But this was the development of I t. You know, this was ever every company that was starting to embrace technology. Would he use something with semiconductor products in it?

Yeah. I mean, we're going to see this here in a minute with the personal computer and apple, but then with the Internet, then with Web 2.0. Then with mobile like you have this tectonic shift, and then it's like, Okay, we know what the applications are. Let's go build the applications. And Don is really the first person in technology to recognize that these air. This is the dynamic of how the broader technology ecosystem works. Um, so he says business was so good that we had more opportunities than we had engineers. And we devised a bit of an ad hoc technique for evaluating different companies, companies that Fairchild could potentially work with and and sell to before we would commit. Our engineering resource is toe work on them on a specific project. We had to understand the nature of the application and understand the size of the market. There a number of kind of highlight things that we did before we committed engineering and you could think about that and think Felt like Gosh, man, that sounds a lot like writing an investment memo for of Inter gavel

over. It's also what? What an incredible privilege, Teoh be in a position where you get to pick your customers based on who you think is gonna be the most successful with your product.

Yeah, yeah, totally. So remember, though, um, dons working at Fairchild. He's taken them from a couple 1,000,000 in revenue to over 150 million in revenue, and this is like, you know, the early 19 late fifties early 19 sixties. So 150 million wasn't just 100 and 50 million. Back then, I remember the Fairchild. You know it isn't an independent company. It's a subsidiary of this Long Island based East coast, you know,

conservative camera and instrument Corporation. So every time that Don is working on building a new customization an application Newmarket that Fairchild wants to enter, he asked to go to this board of the company and get their approval for what they're doing. And don sets, You know, that goes well enough like incentives. Airline. Of course, Fairchild wants wants the company to grow and do well. Um, but Don gets this idea. He's like, you know, we could really accelerate our market and our partners that were working with, ah lot of these applications cos are I do entities that air integrating our technology into a full solution for a given industry. They're getting off the ground.

We could really accelerate things if we invested in these companies and help to them help them build themselves, because the bigger that they get and the faster that they get bigger, the more sales they're gonna have, the more sales were gonna have, right?

That's this ecosystem mindset. You know, we need to We did help invest to build the ecosystem around

our products. Totally eso he thinks this is brilliant. He takes this idea to the board, and the board has, like, absolutely not. That's a crazy idea. Whoever would want to do that s o you know, Don and typical down fashion, he says, Well, screw it. Like, if the board's not gonna do this, I'm just gonna start doing this on my own with my own money. When he would be working on the technology and marketing road maps for Fairchild and working with startups toe help build applications, he would just start investing small amounts of money personally in these start ups that he would knew that he was gonna make them into big companies.

Um, the only problem that was like, he's doing this personally. He doesn't have enough capital to really get these companies all the way to working. You know, it's so funny how, like we don't care away of that. Like, you know, you're raising money for a new start up. And even today in 2019 like the answer for how much capital you need always comes back to, like, you know, somewhere between 123 million to get off the ground. And that was the case even back then

is this is totally amazing. This is like my one of my biggest tech themes, but it is crazy looking at their 1st 5 investments, two of them were at two million, and one of them was a two and 1/2 1,000,000 ended it like it is today's seed round. And yet what they're doing is they're building freakin, you know, semiconductor physical applications, like they're using semi conductors to make another product physically manufacture it like it is.

Yep, they're sending manufacturing, like, totally yes, even back in the sixties. You know, a couple of 1,000,000 back then was a lot more in today's dollars, but you had to do all this really hard stuff. Don Stew starts doing this fast forward to 1967 and there was another company in the Valley that had been around for a long time. It was kind of found a ring called National Semiconductor and National makes a big play there. Already a public company, I believe they poach a number of people from Fairchild, including Charles Sprock, who becomes the CEO of national, and Pierre Lamond from Ah name that's gonna come up again. Racine. Perelman from Fairchild,

Who becomes the chief chip designer and head of engineering there. Um, so Charlie Sprague and CEO, he does a couple really interesting things. First, is so everybody in Silicon Valley at this point, remember, it's called Silicon Valley because they're making silicon chips. They're making the chips. They're in Northern California. Fairchild's producing them. They're all these companies that dons investing in there, doing manufacturing right there. Charlie and National. He off Shore's chip production to Asia. And he reasons that like,

hey, the intellectual property that we're building here we could just do all the design and building here, and we'll just outsource the actual production of these. These chips of the silicon is a commodity, um, so that creates a huge price war in the industry and massively lowers the cost of silicon, which then it ends up enabling all the things that come shortly thereafter, including the PC.

We should also say that the incredible growth and demand for silicon is Fairchild's fault, because Fairchild was the one who pioneered the idea that silicon was actually the most effective material to use four semiconductors that wasn't the

case before, I believe before Fairchild, people were using germanium semiconductors, which is a rare precious metal. Yep. National would actually go on later to acquire Fairchild. And Ah. Then do you know who would ultimately become the CEO of National Semiconductor? This is you know, this is like the beginning out of Alley being a small place and and all of these dynamics enabling the personal computer. Gil Amelio.

Oh. What? Yes, As Apple Fame.

Yes. Future CEO

of Apple. First floundering CEO

of Yeah, I believe his first CEO gig was taking over for Charlie as CEO now. Yeah. So all of this is going on. Fairchild is on the ropes in 1960. Gordon Moore and Bob Noise leave Fairchild. So Don Valentine still there, Fairchild? And they start Intel. And Don sees the writing on the wall, and he's like, Oh, man, Fairchild is cooked Rain drain. Yeah, Brain drain. Uh,

it's just like Silicon Valley today. These things started happening, like the key leaders. And really smart people start leaving. You know, the writing's on the wall. Uh, he leaves. He moves over to national as head of sales and marketing and national now This is where serendipity completely strikes. If Don hadn't made this move, I seriously doubt that there would be a Sequoia Capital. And there may not be a modern venture capital industry as we know it today. So Charlie is obviously brilliant, and this move of outsourcing production of chips is revolutionary to the industry, quite prescient and quite prescient. But there's one thing that he's absolutely terrible at,

and that is public speaking. And that's one thing that Don is not afraid of. So remember Nationals, a public company, and they have to do earnings calls with Wall Street even back in 1968. Charlie's terrified of this. He doesn't want to do them. And so as soon as Don shows up, he says, Great Don, your head of sales and marketing. You lead the earnings calls eso,

which would be unheard of today for me. It's your CEO in your CFO, basically without, you know, without exception.

Yeah, yeah, and you have other executives on there from time to time, but

but leading

it don starts leading the earnings calls, um, through that he gets to know a lot of the shareholders of National, and it turns out that one of their largest investors is on Enormous Public investment fund, based in Los Angeles, back and downs old stomping grounds called at the time called the American Funds. And that was part of this institution called Capital Group, which I think a lot of people don't know about. But Capital Group still today is one of the largest, uh, uh, mutual funds and pools of mutual funds of money managers in the world. I believe they have well over a trillion dollars in capital under management across many many fund's capital group. They had been seeing what was starting to happen up in, you know, the new proto Silicon Valley. They'd seen the intel I po that had happened, which had it was the first in Intel was the first true venture backed company that had gone public and all the wealth that it created

and who originally backed intel,

uh, I believe, is Arthur Rock. Arthur Rock organized a syndicate that backed Intel with equity. Well, it was a convertible instrument was a convertible debt. Ah, a story for another day. So Capital group, they'd seen this and they actually funded a M D on a m d also came out of Fairchild, which I didn't know until doing research for this for this story. So yeah, both intel on a m. D. Both were Fairchild alumni. I mean, the,

uh, really young goes back to the traders stayed in this legacy of, like, hate leaving dying companies and starting new ones out of them that propels Silicon Valley to its day. To this day,

that is so much like all these other industries we've talked about. I mean, Verizon and 18 t basically both coming out of the original massive 80 and tea company that feels like chip companies are not unique in this characteristic of of, you know, both modern giants coming from the same source.

Yeah. Yeah. So Capital Group, they've invested a privately funded a m. D. They're a big investor in national, so they're like, you know, especially as a public investment vehicle, they're at the forefront of being investing in Silicon Valley and its growth. They get to know don and they learn from don, about all this private investing he's doing. And so they approached him with an offer. How about he do this full time, leave national and come and start working with them. A capital group, they'll give him,

you know, certainly capital. And they have more capital than probably just about anybody in the world at this point in time, our access to capital and take him from, you know, the a couple $1000 personal checks that he's able to write to finance these companies up to enough that he can actually support them to get Thio, get to a public offering where they need to get to, um so Don jumps at this chance. Uh, this is his true passion. He loves this. And this is a chance to, um, you know, take all of these row maps and marketing and market analysis, this skills that he's developed and just have this b is full time job.

This is, of course, the birth of the illustrious send. Ah, and name we all know today, Capital management service is ink.

Well, it was part of capital group, so we'll get into the structure in a second. I want to throw in a few great quotes from from down here. He talks about why he had the courage to think that you could do this full time, and this is crazy like nobody is investing full time in private technology companies of this point time, it's It's, you know, a bunch of folks who made money in other industries having lunch at the Mark Hopkins Hotel, remember? And Don is gonna make this his full time job. So he said, I had a sense that my system of selection would work far more than it wouldn't, but I didn't have. The resource is personally to play Texas Hold'em and put up more chips. Thea opportunity to have a large discretionary pool of money to continue to support the investment ideas was the difference in the environment I was in and the environment I was interested in going to. And after 12 or 13 years in the semiconductor business,

I had a very high profile reputation in this community. And again, he was already doing the investing privately. Ah, so he says. So people who were interested in starting companies often gravitated to me to help them start their companies. From their point of view, I had some money. I knew how markets worked and how to help them position their company in the market. So I had a bit of an unfair advantage in those two respects. But the most unfair advantage I had was I knew what the future was and very few people knew what the future was. Nobody else. Nobody else in the venture capital industry at this point was from the semiconductor business. Nobody else knew marketing, and nobody else knew the microprocessor. Uh, so it's kind of amazing, like Don has this,

as we've talked about, Rose three pretty valuable things to be good at

this point in time. Exactly, exactly. So, like if you think about what what he's saying, so it maps pretty exactly to the core functions of a venture capital firm. So on sourcing, he has a network of super talented technical people in scientists with the right experience to start technology companies. You know he is. I mean, his name is Don. It's It's perfect. He's like the original Silicon Valley Mafia. Don, uh, that's one that's like top of the funnel, that sourcing.

But then, too, he has this unique experience that he knows all the road maps of Fairchild and National and the whole semiconductor industry. He knows what markets to attack, so he has, like the selection judgment of which founders and ideas to invest in. And then he has the ability to actually help them, unlike anybody else in the industry at the time. Actually help them build their companies through, you know, certainly recruiting management teams, but also strategy and decisions in the early days, because he's lived through it so we can help them build their companies. And now, finally, through Capital Group, he has access to essentially an unlimited pool of capital, which again nobody else in the industry had. People were having to go back to the East Coast of Fairchild to finance that companies.

So, David, you're saying an unlimited pool of capital? How does that really break down? And how much money from the capital group could don't really invest in

startups? Exactly. So this is 1972 Don leaves. He starts working with Capital Group and Capital Group, sets up a new $5 million fund for their clients who want to invest in this high risk high return start up in the semiconductor industry and in in Northern California, and Capital Group calls it the quote unquote Sequoia Fund. Ah, and this is

the beginning Capital Group came up with the Sequoia and,

well, I don't I don't know if Capital Group or Don did, but it is. It is within Capital Group. This 1972 $5 million fund is called This Coil fund, and so Don starts working on this on behalf of Capitol Group in Capital Group's clients. But, you know, again, Don is kind of like a maverick, and he does things his own way. He really he's not super interested in just working for Capital Group forever. He really wants to do this himself and end Capital Group totally supports him in that. So he starts making investments on behalf of them. But he also starts working in parallel on creating his own fund and own firm, that he's gonna call Sequoia Capital and raising an outside fund. And you would think this would be easy,

right? I mean, Don has this amazing track record. He has a brilliant strategy that nobody else can replicate. He knows what's gonna work. He has the hay

has there are no

LPs. Well, he has the stamping imprimatur of capital group, you know, one of the most storied money managers um, you know, in the world at that point in time and Don, Hey, he learns a lesson that Ah, you know, generations of people who start new firms have learned again and again we learned it wave, which was that even with all that starting, raising a first time fund is really freaking hard, like, really freaking hard.

Yeah. And what Don was doing was raising a first time fund for an asset class that didn't yet exist. So for Don, there weren't a group of investors who were used to putting money in this risk return profile. It was going in convincing them. Hey, like, there's not really historical data on this, But you should take a flyer, Not only on me, but on this entire concept.

Yeah, totally. I mean, you got to remember, this is pre, you know, for for listeners who know about David Swensen at Yale, the chief investment officer at Yale, he really pioneered this. Um, this approach that large pools of capital, especially tax exempt nonprofits, pools of capital, should should put a lot of their assets in alternative investments where they can get extremely high returns over a long time horizon and because their tax exempt, they can compound those returns at a much higher rate than than ordinary folks. This concept didn't exist. So most pools of capital,

you know, university endowments, foundations, family offices and the like, You know, all of capital

bonds, its Treasury bills. It's fixed a little bit of stock.

Yeah, they're investing in, you know, And these folks, they're targeting across their investments a 10% i r r. Which you know is great and better than like the, you know, average market returns. But it's nothing like what Don thinks he can generate in what the venture capital industry promises. So he goes out, he makes this pitch about like, Hey, I think I can at least double 10%. I are. And if you look at my personal track record like, it's much more than that. And indeed sequoias first few funds would be,

well, well above 10%. I are many multiples above that. The reception he gets is lake. Well, this doesn't sound like the investing business, you know, this isn't fixed income. This isn't, You know, and and downs like you're exactly right. This isn't the investment business. This is the company building business. I'm in the business of starting and helping build great companies, and and he's so right. I mean,

that is what true early stage venture is. It's not, you know, investing, allocating money and seeing what happens. It's really digging in and helping start something from scratch. And that's where to this day, you know, the deep the true outlier returns are, um, but the LP community is just like they don't get it. So Don tells this great story. He goes to see Salomon Brothers in New York story investment, which I believe in the Solomon Brothers. That was the subject of Ah, Liars Poker,

Michael Lewis's first book and, um, and he sits down with the folks there. He gives him the pitch and they say, uh, I see that you didn't go to Harvard Business School and he says, Right, I didn't go to Harvard Business School. I went to Fairchild Semiconductor business, and they didn't like laugh it all there like we're not going to invest with anybody who didn't go to Harvard Business School. Ah, so it ends up taking him almost three years while working with Capital Group to raise the first independent Sequoia fund. But finally, in 1970

anything that that was like single digit, like how big was that fund?

I couldn't get the exact data. Well, I saw a couple of conflicting sources, but I believe it was somewhere between 3 to 5 million. So quite, quite small. And that's what three years of work on

it. Just think about the tenacity. I mean, most people

would give up. Yeah, totally. Think of Sequoia Capital today and then think back to the early seventies and one man, you know, Don Valentine scraping together for three years just cause he believes so deeply in this vision of the future. Thio to put you know 3 to 5 million together and start investing. Click it Really Dislike tells you a ton about you. Look at their clothes today, and this is where it comes from. Once you get started, he sets what he calls a few ground rules for investing. So these air This is the original Sequoia Capital investing checklist. One must be in a very big market. The potential investment, too, must be in Northern California.

That's changed. Three. Must be in advanced technology. Four. Must have high gross margin ability that has also changed, and five must have the potential for Sequoia to make $100 million on the investment. I mean, that's incredible, like a 3 to $5 million fund, and he's still like he's on Lee, aiming for shooting for the moon. Sequoia alone could make $100 million on these investments,

which is basically by today's standards, saying it has to be a unicorn because in general ah, on early stage, call it a series. A investor is going to get diluted to around 10% ownership by the time there's an exit is sort of the finger in the air way you would think about this stuff. Sequoias had some examples where they've bought up Maur think Dropbox. And there's also examples that we're about to go into where the terms were much different and you didn't just by 15 to 20% of a company you bought much more in these early days,

and the company's most of them weren't raising multiple rounds, so Sequoia was financing. That was the only private capital that they're raising, and then they were going achieving profitability and going public. But still like, you know, you think about today people talk about, um you know, Oh, VC investment. You gotta underrate 10 x returns. You know, even from day one dons underwriting to 20 x plus returns. And if he doesn't see that, and still to this day, I mean, I think one of the things Sequoia is really known for is they will only attack markets that truly have the potential to be large.

Like a $1,000,000,000 market is not enough for them. You need a multibillion dollar, you know, ideally, 10 plus $1,000,000,000 market, because again, like they're aiming for each of their investments to make 20 x plus and then the final. I love this. The final item on the checklist for downs criteria for investing is must be positively responsive to our active participation. Uh, you know, which is good? No head. And, you know, obviously Donna developed quite a reputation as we as we talked about with trip on the episode,

being very active and being very active. Not only governance, but ah influencing management of the companies.

This is really critical Lake Don. He has the credibility to be very active in these companies because he has helped build the previous generation of you know, of defining companies that are setting the road map for everything that's going forward. The other thing that he develops is is a methodology for kind of assessing entrepreneurs,

David. But before diving into the entrepreneur side of things, the thing that struck me on these ground rules and as we've danced around a couple of times here Don plays by his own rules, and he sort of has this ethos of this. This early stage investment business is a subjective business. It's not a highly analytical, data driven business like it's ah, it's a feeling business. And yet in these ground rules, it's it's interesting to see what hard and fast financial things jump out. So even in this high area of subjectivity and gut feel must have high gross margin ability is in. There is one of these precious few rules, you know as an early stage investor that that's like really ringing home to me and and and thinking about how important that is in the ability to sort of, of course scale of company, but but generate outsized returns. The only number that you see in here? Is that that 100 million? And then the only other thing that sort of close to resembles a number is high gross margin ability. It's interesting to think about

what makes the cut. Yeah, well, this this also leads into the his methodology for assessing entrepreneurs. But, um, don, you know, as as so many other things in pioneering the venture capital industry, like, I think he I don't think he would put it in these words. But he recognized that this is a business that is both art and science, and that is what is so incredibly awesome and fun and rewarding about working in this industry in an early stage, venture capital. But again, you know, if you think back to the folks that were doing this before,

it was all art, you know? And if you think to a lot of the entrepreneurs who were starting companies like the traitorous eight, it was all science, like they weren't thinking about the art of like, how How do we make this until, like a huge wealth generating vehicle for ourselves and for the ecosystem, it was like, I just want to go to do science you know, and let's, like, find some way to do science. And Don is really the first person I think to bridge this gap. The methodology for assessing companies, entrepreneurs he can't he goes back to, and I assume this he was doing this while he was working at companies to you remember,

he has this Jesuit education and bad Catholic school upbringing background, and he goes to Ah, he goes to the Socratic method, you know, still, to this day, I think this is a lot of how Sequoia runs their interactions with entrepreneurs. They ask questions, and then they just listen to the answers. This is such a key to being a great VC. One thing that I struggle with a ton is like you can. The temptation is always to insert yourself into what's going on. Don recognizes that, like what you need to do is listen to what the entrepreneurs air, saying you made, agree or disagree or like, understand or not understand, but like you need to understand how they think about things, not how you think about things,

and it's it's not about their answers, but why they're thinking that answer is the right answer and how they arrived there and what the thought

processes. Yeah, and so you know, Don talks a lot about it. If you watch the YouTube video of him at Stanford, how formulating a question he believes is the most important thing in his business, And so he has a rule that questions can only be 20 words or less. And, uh, uh, Woody only solicits questions from the audience at Stanford. He says, 20 words a lesser I'll kill you. It's great, but that's how he approaches things, because he's really interested in the storytelling technique of the entrepreneurs because, he says,

it's about the building of the idea, the size of the market, the degree of technical risk to get this product finished, who's going to care and explaining that in a very simple way, we can tell that that person who could do that explain it in a very simple way is somebody we want to be in business with, people who are instead complex, rambling all over the place. They're not. You know, Donna's realized that the value, the only competitive advantage that startups have is focus and speed and stealth. And so if you're all over the place. You're not gonna be able to execute on those things, and that's still true today.

So, David, how do you square all of this with Dawn's sort of ah off stated principle that he invests in markets, not founders had How does this assessment of founders fit into that notion? Well, you know, and I'm asking you is as technology historian, not Yes, obviously you're not in doubt, Dante.

Yeah, exactly. Well, I think, of course they're interrelated. And like all investing, it is it is early stage investing. It is about both the market and the team. But I think that's this is the key is like the market is the important thing. But you need a team. This gets back to dons. Last point on his cheque list of must be receptive to our active participation. You need a team that's gonna be focused and able to quickly get the right solution into the market. And so he has this this really great quote that I think encapsulates this says so. Our view has always been preferably give us a big technical problem. Give us a big market when that technical problem is solved so we can sell lots and lots and lots of stuff. Do I like to do that with terrific people?

Sure. Are we willing to invest in companies that don't have them? Sure, you can augment management. You can help them with more people that are highly qualified. We invest in the size and the dynamics of the market. I don't care if Genghis Khan is running. The company will give Genghis Khan Cem health and give me a giant market. Always. I think you know, Steve Jobs is gonna come up in a minute here. But I think you know his point about Genghis Khan. Is that Genghis Count? Maybe Genghis Khan. But he was focused on, you know, winning and speed and conquering on. That's what they're looking for

and that to just beat this metaphor to death and that Genghis Khan also has weaknesses and therefore must have a team that surrounds and compliments. And I think Don has some quote. I don't have it exactly, but about how the most critical thing for an entrepreneur, when sort of listening to these questions were you listening for, is is really this self awareness of what they're good at and what they're not. And exactly Point number six. How receptive they're going to be to to being helped with those weaknesses.

Yeah. I mean, again, think back to this moment in time. The people that were starting these companies, they were engineers. They were scientists, by and large. And, uh, dons superpower was he was able to augment these companies in these teams with folks like himself who were able to do sales and marketing and go to market. And then Sequoia could help argument hug men with finance and accounting and everything around that and and the outsourcing of all that. What he couldn't have was folks who thought they knew everything. So what, actually, did they end up investing in once they close this the first Sequoia Capital Fund in 1975. So it turns out,

Don makes his first investment in indeed, a quite giant market enabled by semiconductors, But ah, one a little off the beaten path and certainly different than the defense contractors that he started his career selling to. And that was Atari. Ah, and we're gonna talk much more about Atari later in the season, Iran acquired, but it was the very first independent Sequoia Capital Investment Down invests $600,000 in the company in 1975 and the very next year the company ends up getting acquired by one of communications for $28 million. At Sequoia makes a quick for X return, which is great, Great. I are, Ah, but does fall short of the 20 X that Don is helping to underwrite to

Did I find a different source on that? I thought it was a $2 million initial investment. Or was that? Did you do a follow on for two million?

I believe the initial investment was 600 now. Atari had also already

been around for quite, I think, Donnie, three years they had gotten without before raising.

Yep. And Ah, Don had known Owen Nolan Bushnell the CEO for for many years. So I have to assume this was one that he had kind of waiting in the wings, Uh, until until he closed the fund, which which

every good ah venture capitalist should have went out raising their

first fund is who is going to be your first investment? Oh, way did that to that we have. It's amazing. It's amazing how much the industry is still the same. So then, in 1977 Sequoia bakes, Um, what could have been was their biggest and most important investment ever and unfortunately, becomes perhaps their biggest and most important lesson,

just a pile. One more thing on before the big reveal, which everyone probably already knows, is responsible for about a trillion of that 3.3 trillion number that I quoted of public market value

today. Yeah, yeah, well, it's a good thing they still have another 2.3 trillion that they're part of. So in 1977 as Tripoli did, too. On every episode, Sequoia invest in another little company that was founded by an early former Atari employee. That was Apple Computer. So Steve Jobs had worked for Nolan Bushnell at Atari. Ah and Ah, Don had had gotten to know him a little bit then, and they so Jobs and Woz had started the company, and they brought on Mike Scott as the first president

of the company. We should say Doug got to know jobs a little bit at that company, but did not have the impression that this was a venture back. Couple guy.

This time I believe his quote on Steve Jobs was that he looked like Coach Eamon. Yes. Uh uh, s so, Mike, Uh, the two Steves had brought on as the first president. And it turns out Mike used to work for Don Back and Fairchild in national, and, ah, so don gets wind of the company. He meets with them. And Don also knew a very important guy in Apple's history. Mike Markkula also used to work for Don back in the semiconductor days. And don quote unquote sends him to the company with the intention that Markkula is gonna replace Mike Scott. Is the president run the company? Ultimately,

though, you know, his trip talked about Markkula. Makes a brilliant decision. Says, you know, I don't actually want to run this thing day today. I'm gonna beat the chairman and really help these guys. But regardless, with you know, this is, you know, in a perfect example of dons company building at work and management team recruiting on the back of this apple raises their first venture capital round of just over half a $1,000,000. Interestingly, the lion's share of the capital comes not from Sequoia, but from Venrock,

which does a little over $250,000. Don and Sequoia do $150,000 Arthur Rock does the balance. So Apple is off to the races and they really you know, as we've chronicled many times and will continue to chronicle the future, really invent the personal computer and usher that wave of technology in two years later, though, and this is this is

the David Sai there comes

through This is just so painful, so painful and clearly has left its mark on on Sequoia. Two years later, I couldn't find all of the circumstances around this, but to the best of my understanding, So, uh, the first Sequoia Fund did not have on Lee tax exempt nonprofit LPs in it. It also had, I believe, you know, individuals and maybe corporations And, uh, not Solomon brothers better there folks like in certainly Capital Group. As a result of that, those folks needed to pay taxes, and apparently some of these l peas were encouraging.

Don Thio make a distribution of some of the gains in the fund so that they could pay their taxes on the gains. And so Apple had grown quite a lot. It's now 1979 and Don, before the AIPO sells sequoias steak, which they had invested 100 $50,000 for $6 million to make this tax distribution to help ease. Now that's ah, enormous return. Phenomenal. Yeah, phenomenal return. But oh, my goodness. $6 million compared to what Apple you know would shortly become and then ultimately, in the long term, of course, become And it's this lesson you don't that drives Sequoia in subsequent funds to take to take their capital on Lee from nonprofit tax exempt sources,

which becomes, you know, really not certainly the norm across the industry. But, ah Golan. And the lion's share of money that moves into venture capital is ends up being university endowments, foundations, folks that are super long term inpatient and aren't going thio four species to make things terrible. Decisions like this.

Yeah, and another you consort of Check me on this, David. But my understanding is sequoia more so than your average venture firm holds the stock in companies longer after they go public and often sticks with the companies for a very long time, I think. Probably also inspired by this

lesson this and and others that we're gonna that we're gonna talk about here, uh, in short order. You know, we're gonna talk about Sequoias playbook and a little bit. But one of the key lessons that they learn is like when things were going well, go along. You know, like value creation in these companies that are building and creating enormous park. It's takes a long, long, long time. I mean, just look att. You know, Airbnb, Look at Google.

Look, ATT. It'll look at apple. Uh, you know, you can still be getting enormous enormous value creation a decade. Plus, after these companies were founded, regardless of whether they're private or public

Yep, So it's fascinating to think about, you know, the first couple of investments. Our 1st 2 out of a handful of investments being apple in Atari in total returned a profit of about $10 million or a max of $10 million. It is wild to think that that is the sum total of sequoias returned on those two companies.

I know, I know. But at the time, I mean, like even, you know, pulling it into context today. Like if we within, you know, 2 to 3 years of starting wave. If we could be sitting on two ex cash distributed like, I would feel great about that, you know? But the lesson here is like That's not the game where the business we're in or the game we're playing. The game we're playing is like 10 x plus cash distributed. And to do that, you really need to be in it for the long haul. Especially when you're investing early.

Yeah, the other thing to know here and David as you. Ah, as you foreshadowing, you'll be smiling a little bit. We'll get into this much more later this season. But with Atari, the Atari boom that we all sort of know of in the eighties was after it had sold to Warner. And so, you know, it's like we don't even have an option in participating in that upside unless they were gonna block the sale.

Yeah, yeah, totally on. And that also leads to another part of the square playbook, which is like when things are going well, really. Try and convince these companies to stay independent and not sell. I mean look at Instagram right? Selling Instagram to Facebook was was a terrible, terrible mistake by the founders and the investors. Even though you know it netted them great returns at the moment and was interesting. Sequoia ended up investing right before that deal happen.

That is a debatable topic, but we can you think that's debate over there? I think if it had gone a lot longer than Facebook would have had to pay out lot more like in the dozens of billions of dollars to acquire purely because there is a very, very high user account social network that is a threat to them. However, do I think that Instagram would develop the business that they have today? That is billions of dollars of revenue flowing through them by advertisers? Maybe, but that's not a sure thing. I mean, that's all because of what Facebook had had done funneling all their existing advertisers there.

I think that's true, and certainly they helped accelerate it, grow it more quickly. But at a minimum, Instagram should have waited you no longer and then had a What's that acquisition at a bare bare minimum? Uh, you know, and I get it so hard to. It's easy to armchair quarterback this now and hardened to be sitting in the seat of you know Kevin and Mike when they have a $1,000,000,000 offer in front of them. But this is the value. I mean, Sequoia has learned these lessons over so many decades and seeing a time and time again. So the other lesson that they take from Apple is what Don in Sequoia, call an aircraft carrier approach that they start taking to these big markets. They realized on realizes that Apple has created this PC market and it's not just gonna be Apple that's going to succeed in the PC market. They're gonna usher in all of these other enabling companies that you need around the PC. So,

like Apple is the aircraft carrier, but you need all the destroyers and the you know the ships around it. And like all the planes on the ships and all that stuff, so they start financing component companies around the PC industry. Apple and Don help start a company called Tandon Corporation that makes disk drives. They are first investors, and tendon tendon goes public after a couple years, reaches a market cap of over one and 1/2 $1,000,000,000. This is in the early eighties, um, company called print tronics that makes printers a company called Priem that makes disk drives a company called Dyson that makes magnetic disks for the disk drives. Uh, all told, I believe Sequoia ends up making about 15 investments kind of in this aircraft carrier strategy around Apple, and it drives much of their returns in these early funds. Some other notable investments that they make during the seventies and eighties.

In 1981 they invest in a company called L S I Logic, which makes it go again around PC and competing. They make storage networking products in 1983. So just two years later, Ellis, I goes public in the largest AIPO on the NASDAQ in history. At that point, raising $153 million in the I P. O, which is, you know, $153 million. That's like a solid dude. Oh, Softbank size around today. This is two years after Sequoia invested in the company,

and, yeah, inflation adjusted. I mean, that's in the sort of 500 to a 1,000,000,000 range holding on the way to think about how much they

raised totally. Uh, 1982 as we chronicled they invest in Trip and Electronic Arts are amazing software. In the beginning, they also invest in three com. In 1982 folks might remember three com, which is made networking gear and eventually bought Palm and the PalmPilot. Three comment Realize came directly out of Xerox Parc s. Oh, that's the other thing that Sequoia you know, kind of on the back of Apple starts doing is they start reading Xerox, PARC and IBM, West Coast Division and all of these old school East Coast companies that had been training thes technologists and developing, you know, advanced technology. And they just start commercializing them left, right and center. 1983. They invest in Oracle and also Cypress Semiconductor, both of which become massive successes. And then in 19 eighties

11 point. I want to make on on Oracle before breezy, because we of course, we need to do an episode on Oracle Larry at some point. But there's a crazy thing here that Oracle went six years before raising money from from Sequoia, and I think they had bootstrap off of $2000. And if you think about it like Oracle is really one of the first true software companies, they were wildly capital efficient. And Larry was very out spoken against, you know, pushing back against this rising venture capital industry and speaking all kinds of ill tongues of the venture capitalists and what they do and come in and try and control companies and raid that all these things and, of course, ends up partnering with with Sequoia six years in. But ah, very different start than a lot of these other companies which required much more capital to get going.

Yeah, and the reason I didn't want to dive too deep into it is that I might be speaking a bit out of school, not having done the deep dive on Oracle in their history yet, but to jump in and speculate a little bit. I think part of the reason why I said that said, I'm gonna speculate wildly. I think part of the reason why Larry was so anti V. C was VC was anti software and anti lay like this was like didn't understand, Don didn't understand software, you know, like he was a semiconductor guy. All of these companies were talking about, with the exception of the A are hardware applications Cos. And so I don't think Oracle could raise venture capital when they got started. They were the first riel real software company.

It's the highest gross margin of them all, you know. I know, I know. It fits that thesis so well,

But it wasn't, You know, the adventure world hadn't woken up to that just yet. They would, they would. And Sequoia would, too, of course, but but so much of the DNA comes from this hardware world, the last kind of great. And for Sequoia, certainly the greatest hardware investment that they make is in 1987 Don invest two and 1/2 $1,000,000 in a little company called Cisco for 30% of the company started on the campus, actually, at the G s B had add, Stanford started on the campus of Stanford, Sandy and land where, um,

I can remember which was which. One of them was the idea administrator for GSB, and one I think was elsewhere on the campus. And networking was just becoming a thing, and they were married. They're sending messages to one another.

And this is this amazing romantic story that they had had Jerry rigged the network to be able to send messages to each other. And that turns into Cisco

and that turns into Cisco. I mean, it just goes to show you how these companies start and, you know, don having laying the lesson from Apple of like, you know, hey, we'll finance Genghis Khan. You know he doesn't care. Like most veces would look at this team and be like, we're not gonna finance this team. But he cares about the market in the application. At the time, there were no routers, so networks like local networking, was just becoming a thing. But networking networks was impossible.

And so Sandy and Len developed the first rounder. And just, you know, such a brilliant still uses this example today of like the very, very best, most elegant expression, simple expression of what a company does. It's three words for Cisco we network networks. That turns out to be, uh, not just an enormous, enormous market, but really the enabling technology

for the interview. Cisco stock was the tracker for the Internet hype in the in the dot com era. I mean, it was like if you wanted something that was emblematic of people's excitement about this new technology, it was Cisco.

And so now we're in 1987 where 12 years after the kind of independent Constitution of Sequoia Capital Don has learned all these lessons, he's not letting this one go. So not only does he fully finance the company upfront with two and 1/2 $1,000,000 gets 30% of the company, the company that goes public shortly thereafter. Uh, I believe there is 160 some odd 1,000,000 in the AIPO. Don stays on the board. Don doesn't distribute the shares. He remains chairman of the board, I think, until the mid nineties, and they ride Cisco up and make enormous, enormous returns on this company, and that is that really becomes the playbook for for Sequoia Capital going forward. Amazing Run. Also just such a great example of like Sandy and Len worth thinking about the Internet. Nobody was thinking about the Internet when they started Cisco,

but things just kept the market kept evolving and kept getting bigger and expanding and down again. You know it's cool. You're being so focused on the market. They knew that, like, even though this company was public, there were still enormous returns to be had because the market was nowhere near penetrated. So alongside all these investments that they're making the funds kind of steadily grow in size from that first fund of 3 to 5 million. It stabilizes at around 150 million per fund in the 19 nineties that Sequoia's raising every three years or so. Ah, and having that be their investment period along the way there, of course, to do that, you have to not only build these companies, but you have to build. You have to build the firm.

Uh, you can't do. You can't invest in all these companies and give them the time and attention that you need to do true early stage company building alone. So Don starts adding partners to Sequoia and and he talks about the process of doing this and again, remember back when they start like the number one requirement for being an investor quote unquote was going to Harvard Business School, not Fairchild Semiconductor Business

School. To be clear, investor in this sense was generally a public market investor or perhaps some other alternative investment but not investing in startups. I mean that the Salomon Brothers folks probably looked at this more like gambling, like what you're doing is investing in. You're not a person that looks like an investor so that we're even talking about here. You know, I think that

the irony of it all is it's the exact opposite of gambling. It's building. Yeah, yes, Okay, so So Don has this great, Cody says. Adding New talent wasn't remains a continuous process. Conventional education was never a high priority. You know, plenty. Folks have gone toe. Harvard and Stanford Business school, you know, worked at and work at Sequoia. But that's not what they look for. We look for people with functional experience in a start up I e.

Designed an application engineering, product, marketing, sales, aspects of outsourcing manufacturing. Our investment decision making process requires very self confident people able to be challenged publicly. I look for people that are as far different as possible than I am because we do things here on the basis of consent among the partners, and I don't like having a modernized set of opinions Don wants people to be, he says. I want as much confrontation and different thinking as possible, and he wants people that are gonna be confident and comfortable enough to put their thoughts out there and debate as part of the group. One of these lessons that Dons learned is that sometimes the most amazing companies like Apple like Cisco, they look crazy, and so you need somebody that's willing to see the potential behind the craziness and stand up for them. And oftentimes that's not Folks are coming from Harvard Business School. I believe the first partner,

ironically, the Jonestown. It Sequoia, um, does come from the investing world. In 1979 Gordon Russell joins Joins Don. He had worked with Don at Capital Group, so he comes from Capital Group, comes in and joins Sequoia, and he builds sequoias, healthcare and biotech investing practice so kind of in parallel, even from the seventies. Back in Sequoia, they're not only investing in technology and hardware and semiconductors, they're also investing in healthcare and biotech. But of course,

it's it's technology that the firm finds its its true success in and, ah, and in 1981 we mentioned Pierre LaMonte earlier. Don convinces. Pierre already had amazing storied career as a chip designer and architect. It at Fairchild in a national to come in and join him at Sequoia as a partner. And, uh, Pierre has an amazing run. He stays as an active investing partner. It's quiet for almost 30 years, and then this is incredible. He moves to coastal Ventures and joins the node over a Costa in the mid 2000. And then he goes and he joins formation it, and he's now after formation. A doubt eclipse.

He is still an active general partner, making and leading investments today. He just turned 89 years old. This is incredible. He was born, I believe, in 1930 in France. Ah, he is a true true legend in the industry. But that's the kind of folks that you know Don is looking for Is people who are literally going to die in the sea because their their lifeblood is building technology. Companies on Pier absolutely fits that to a T. So then, in the late eighties, to very, very important people join Sequoia from interesting backgrounds. So in 1986 a gentleman a true gentleman by the name of Michael Moore.

It's now Sir Michael Moritz, who was from the UK and had come over to America and had become quite a famous journalist for Time magazine. I believe he wrote a book on Apple while he was still a time right little kingdom. I think it was called sounds right, And that's how he gets really interested in Silicon Valley and technology and sort of the people behind Apple and Venture Capital. He leaves time and he starts a VC newsletter with the goal of he wants to break into the venture capital industry. Remember, Dick?

What's old is new again,

you know, other than this VC newsletter companies never built a company here, worked in technology at his life, remember dons looking for these Mavericks, and he has a soft spot for people that kind of do things their own way. Don decides to take a chance on Mike and invite him into Sequoia and to join the partnership. And, uh, that ends up being just a incredibly, incredibly prescient decision that leads to Yahoo and Google and anybody crazy.

Other comfort is this is this count is howto hack your way into the scene as the first example of Started saying Yeah, actually, probably still work today. E. I think there's a quote about Moritz, which is he had the journalist instinct to go for the jugular and not hold back on. A friend said that about him. David, we've started a podcast and have ah, love for media, but I have this sort of reverence for really good journalists who not only are able to really tell a great story, but sort of get the truth out there. You know, it's it's a special talent for someone to be able to cover it industry and yet have their respect in this way.

You know, we talked about the Socratic method of questioning that Don holds so dear, and I think this is what he saw in Mike. I will save a lot of this for part two of our Sequoia journey here, too, but, um but that's what Mike was so great at as a journalist. Ah, and Don actually says, you know, he says the two people that he's met in his life, who are the best questioners are Mike and Steve Jobs High Company. The other very important person who joins Sequoia Capital in the late eighties, is a relatively young, brash sales guy. Comes from Hewlett Packard and son that ah also is an Italian immigrant, decides that he wants to work in venture capital.

He just calls down up one day cold, calls him and says, Hey, I want to go into, uh and if you know anything about the person that we're talking about, this is exactly in character. And this gentleman is Doug Leoni, who today, of course, is runs all of Sequoia and all of their operations globally and, I believe will be the person that ultimately advocated for and took Sequoia into becoming a global firm. We're gonna talk much more about both Mike and Doug next time on part two, but just a wrap up part one, which again is really you know, the story of Don. And I mean you can't extricate don not only from Sequoia,

but from venture capital on the whole industry. In total. In 1996 after it had become clear that that Mike and Doug, where amazing investors and not only amazing investors but, um, had internalized all of these things that it meant to be Sequoia and then built on them themselves. Don does something pretty amazing. He literally hands the keys of Sequoia over to Mike and Doug. Doug talks about this in an interview with them with Dan Primerica. Naxos, Uh, that, um I don't have the exact quote here, but he says Don one day in 1996 invited Mike and dug into a conference room. He sat them down and he said, I'm giving this firm to you and there are three things.

One, you're going to run the firm. I'm not gonna run the firm anymore to you. Get to decide what I do. You can keep me around. I can continue making investments or I cannot. It's completely up to you. And then three. If you do want me around, here's the things I'm willing to do and not willing to dio. But women things I'm not willing to do is run the firm. So, like you guys make all the decisions about what's gonna happen from now on, and that's just like, even today, that's so rare.

I mean, this is the first very successful Well, not the first in the industry, but the first successful generational transfer. Its Koya most venture firms and most founders of venture firms don't have the ability to do this. Ah, and it's so hard. I mean, Don created all of this. And he's willing to say, You guys of the future changes part of not only what we invest in that part of the venture industry, too, and like you guys are the people that are gonna leave the

change, It takes a lot to do something like that. It reminds me a lot of, Ah, another great venture firm that we may also cover. Benchmark

was a very different way of doing this.

Very different, yes, but ah, you know, equal partnership. There's a great sort of interview with Andy Radcliffe and and Patrick O'Shaughnessy on Invest like the Best, where You and he talks about how, at the peak of their power of the original partners handed us the keys, and I think it's ah, while done very differently. There's there's definitely common elements between both of these these

great firms. Yeah, and if you look at the firms that have managed to survive, you know, generation after generation and wave after wave of you know, the technology industry and venture capital's evolution all excited. It's the firms that do this well, the firms that don't don't make the transition and Don has a great quote about that. Sees. You know, when Sequoia was started, the Positioning Waas LP is was we're gonna deliver vastly superior returns to anything else you can get out there, and that proved, well, we'll talk about it in greeting, but I think that proved, too.

But the positioning of Sequoia is now two things, and he says this. It's this stability that comes with generational transfer races. The stability is part of why we have had the same limited partners for almost 40 years. When Donna saying this now almost 50 years, stability and returns is how Sequoia is positioned for the type of LPs that they're trying to attract, which our patient very, very long term capital you actually need both of those things returns isn't enough. You need the stability that accompanies those returns so that people will have confidence that like hey, you can get great returns. But if the firm blows up, then you're you're useless

to me. Do you want to go into what would have happened otherwise. Yeah, let's do it. It's the listener is the way that we want to do. This section on this unique episode is, uh, what would the world be without Sequoia? And there is a very sequoia centric view of the world, which is all of the technology industry looks very different. And without building this sort of aircrafts carrier strategy around Apple on dhe financing all of that in a very scarce capital environment like there was then, Ah, we may not have, you know, the apple that we have today. We may not have some of the other tech giants that we have today. There is a alternative you that you could take to that that says, Look, capital is capital and the 99% of the value, or maybe maybe 110% of the value that comes from receiving investment from a venture capital firm is the capital itself. And everything else is either hullabaloo or valued attraction.

And capital will always expand to fill all attractive opportunities.

Exactly exactly that we, despite some friction points we live in an efficient market, and if it's truly a great opportunity than capital will flow to toe go and fund that thing. And so, um, the world would look no different today if ah, you know, if there was no sequoia. Um, I think I fall slightly toward the former part of that scale. And I'm not willing to say that we, you know, we wouldn't have some of these amazing technology innovations without Sequoia. But I do think in just pouring over the hours and hours of reading that you know, that we found about Don and and really learning about the history of this firm. Don played a very active role in been building a lot of the companies that they invested in and deserves a lot of credit for that.

Well, listeners let us know how you like this type of episode focusing on venture firms. Uh, we, of course, love it as, ah, venture investors ourselves. But we've been talking all about Sequoia on this episode. There is really along the exact same time line. There is a perfect example of what would have happened otherwise, and that is collected. Perkins, which over this time frame that we're talking about, was equally, if not arguably more successful than Sequoia. But what's really interesting and we'll dive into when we ultimately do an episode on Cleaner.

Their philosophy was quite different and was a lot more interested in the entrepreneurs on the background of the entrepreneurs then necessarily down in Sequoia where so I think, to my mind, what would have happened. Otherwise, of course, Silicon Valley would've happened, of course, the modern technology, modern venture capital industry and start up in the street would have happened, you know, even though Don helped catalyze all of it, somebody would have an certainly Kleiner would have ended kind of Perkins would have ended, but I don't think there would have been as many chances taken. An opportunity is given to, you know, the quote unquote ho Timmons out there that Sequoia was willing to fund.

Uh, and you know, it wasn't just in those days. I mean, look at Airbnb in their early days, and Sequoia is extremely prescient. Early investor investment in you know, the three Airbnb founders. They didn't look like what you know. A prototypical founder looked like at the time, far fire from it. You know, I think it's Sequoia and dons DNA coming from a true, you know, incredible marketing background and markets focus that, um, you know, maybe wouldn't have developed in the same way without

Sequoia. Yeah, And you One way to look at this is like, if you're the Kleiner Perkins in 1978 you know, you are backing founders and outsourcing a lot of your judgement to them and you're just saying you run, you know, obviously they weren't hands off, but you run the company. And the reason I'm investing in you is because I trust you, too, you know, figure out how to run this company. And what Don was looking at is you're really on to something in this killer market. We're going to go build this thing together, and I'm gonna help you do that. And the downside of that that we haven't painted yet is if you're a founder, that believes that you need to be the CEO of that thing forever.

And you're in a market that deserves a team to really go and value maximized the way to tackle that opportunity. Like the terms of these investments, especially at this time, were that you know, often firms would own 33 to 51% of the company. They would have the rightto by the rest from you, they would have the right to replace you. They would have been all these rights. Of course, much of this still exists today. The job of a board is to hire and fire the CEO. But it was much more prevalent back then. Especially within dons. View of the world is that, um I'm building this company with you right now and like this company may out last year. Leadership?

Well, the unspoken words in ah Dunn's you know, quote we said earlier about management could be augmented. Is management, of course, can also be replaced. Uh, now, you know, there's upsides and downsides that right? Like if you're focused on, if your focus is building a great company, sometimes that's the right thing to do on. And, um, you know, sometimes course down and score.

We get that wrong. But sometimes it is the right thing to do. Thinking back to our conversation with trip and what attracted trip and e. A to Don was this knowledge you were getting what you saw with Don and he was going to force you to build a big company one way or the other, you know, with you or without you.

All right, we are in tech themes now, but to officially call it that and and and move through it here, the thing that really jumped out at me. Ah, and of course, you know, being in this industry knowing folks funded by Sequoia knowing folks at Sequoia, you you know some of this tangentially, but it's worth taking a fresh look when preparing for these episodes to really ground yourself in. In what assumptions am I making? The thing that jumped out at me was Sequoia, and all of their copyrighting never says investment, but rather partnership. It's not. We let an investment, you know,

it's not. It's, it's We decided to partner with that company and they have ah statement on their website called Their Ethos, which says we're serious about our work and carefully choose the words to describe it. Terms like deal or exit are forbidden, and while we're sometimes called investors, that is not our frame of mind. We consider ourselves partners for the long term. It immediately jumps out at me as David, you so often say, company builders, you know, we are partners in the way that we do. That is, we've got this, you know,

huge funded, that we manage that. Of course, we have a fiduciary responsibility to our LPs to maximize the value. The way that we decided to partner is through investing in you. But, you know, we are your partners in this business. 567 years ago, I always thought that was when I heard we were so excited to partner with this venture firm on this thing. I was like, Oh, God, here it comes the seas. They invested money. And you just say it.

I finally am sort of like seeing I think, what firms like Sequoia. You can't really say firms like so quick because there's no firms like But what Sequoia means when they say partnership rather than investment. It is a very different frame of mind it's not. I'm looking for opportunities to get a multiple of my cash. This looks pretty good. So I'm gonna throw it in and hope that I get a multiple out of it. It's for some reason I believe that this is going to be a society defining company in the next, you know, coming decades. And I'd like to be a part of that with you.

Well, it gets back to you. I think I've talked about on the show before. Um, but when we were starting weight, if one of the first people we talked to was Greg McAdoo, who is a longtime partner, it's Koya and lead their investment an initial investment in an Airbnb and and was on the board for many years. And it was a big part of the reason why my partner, Riley, joined Airbnb and he said to us something always stick with me He said that doing venture extremely well and at the highest levels early stage venture, it's all about alignment. And I think this is what you know, do this history. We've told how Don and Sequoia came to understand what this alignment meant. The alignment is around building long term big, great companies,

and so if your focus is that you need help ease. Unlike the original set, LPs who wanted a tax distribution and forced them to sell their stake in Apple need LPs who are willing to sign up for an essentially infinite, not infinite but decades to multiple decades long time horizon, because when there's true opportunity, the mass, the lion's share of the value, gets built at the end, you know, think about the run that Amazons had or even apples had in the last 10 years in their market cap relative to the 1st 10 to 20 years of the company. So that's the LP aspect. But then to this company building aspect, like if you truly aligned around that, you're optimizing for those outcomes, which means you aren't just like sitting on the side and letting things like Play out. You are helping make the decisions and build the company and build the culture that is going to enable a super long term great company to be built like that on.

I think that really is there ethos Now that's that's not the only way to do investing it Well. We've talked about, and we'll talk about many more on this show, but it's a really, really unique one that, um, I think it's been cool doing this episode to see like exactly how this was developed.

All right, My 2nd 2nd tech theme is that it's called Sequoia, not Valentine Capital or Valentine and Co. And Valentine Perkins. Exactly. The way that Sequoia thinks about themselves is that Sequoia exists behind the founders. It's not about Sequoia, it's about the founders. You know, it's it's more importantly about the companies

and yet not the founders.

And and even more so. It's not about the person, but it's about Sequoia. So even when you pop up that one level, it's not. Hi, I'm Don and you know, uh, I'm, you know, extremely public and loud and writing op. EDS all the time and doing all this kites. If you want to talk about the investment company, let's talk about the investment company and that Sequoia and I happen to be a part of that. But, you know, it's it's not all about me all the time.

And it's interesting, you know, you talk to people and you say, Do you think sequoias low ego and people would say No, absolutely not like that. That is not not the way that I would use to describe them, but I think you talk to folks at Sequoia. You talk about companies that have been funded by Sequoia, and they do take that very, very seriously, where were one of the best firms in the world? But it's at this level. It's about the firm, not the not the partners.

Well, I think it all comes back to this super long term orientation. Like, you know, does Sequoia have ego around that? Of course they do. Go look at the website like, you know, but it's all about long term. It's not about like, look at this deal we just did. It's a valve like look at this company that was built over decades that we were part of, um and look at all of these companies. And look, it's coy itself, which we're gonna get into much more in our next part of this of this Siri's here. So I tried to go for the section kind of catalog and and crystallized like,

What are the elements of if you had to distill the Sequoia playbook from this history and from from Dan's experience, I think these are the keys of the points that I would put in it, you know. One first and foremost, of course, is focused on the market, but the size of the market and whether the dynamics of the market will lead to rapid adoption by a new entrant. Second is that change equals opportunity. This also didn't make it as much into the history of facts. But Don has this great, great quote about this, he says. One of our theories is to seek out opportunities where there is a major change going on, a major dislocation in the way things are done. Wherever there's turmoil, there's indecision.

And wherever there's indecision, there's opportunity when it becomes obvious to anyone who reads Time magazine that it's useful to have a disk drive on a computer than it's already too late in the cycle to invest in disc drives. So we look for the camp fusion phase when the big companies air confused when the other venture groups are confused. That's the time to start companies the opportunities air there if you're early and you have good ideas, but I think that is just like ah, such a perfect way to frame it so hard to do in practice. But ah, really perfect way to frame it Next, I think, is when you find one of those opportunities don't get caught up in overly focusing on the team like Of course, you want the team to be great. But like if the team doesn't look like a traditional team that you would pick from central casting to do this like don't worry about it, you better to pursue the opportunity and you can augment the team if they're receptive to working with you on it. That gets to the next piece, which is be a company builder, not an investor.

You know to really do this at the early stages, you got a dead icky. The time and effort you have to have a partnership of people made up of people who have actually built these companies, whether that's in their career is investors or their careers operators. But people who really know what they're doing and can help the companies make good decisions and recruit great management teams around them related to that. You can only do that at the early stages like Sequoia now, of course, and we'll talk about this much more invested all stages of a company's life cycle. But this type of company building investing that we're talking about, you can really only do it at the outset once once the DNA is said and it's interesting in Mexico. I used to have, Ah, one of these coats on their Web site in their ethos section. I don't think it's on there anymore. They believe that the DNA of a company is set within the 1st 90 days of operation, and after that it's really, really hard to change it. And having lived through that and now you don't making the whole focus of my investing at that stage, the market and you two been like I completely agree with that,

just reflecting on how crazy it is that this asset class exists. We all take for granted that there's early stage fundraising that, like in Mass, a couple $1,000,000 are gonna get deployed into ideas hundreds, if not thousands of times per year, and that there's a whole asset class of investors that are willing to do that. And now it makes sense because we've seen the handful of those become so, so valuable that, you know, you index the whole asset class and, like sometimes it over perform. Sometimes it underperforms, but like it, it sort of tracks other asset classes in terms of risk adjusted return. It's a pretty special thing that it exists and this is this is probably an ethnocentric statement, but that it exists in our country. Like if you think about the impact that it has had on GDP,

the access to early stage capital from a large group of people who it's their business to take a flier and their business to underwrite a tremendous amount of risk by, you know, having a 20 plus company portfolio. I think it's a really good thing that this system got created and that this type of capital is available today and surely it is not deployed in the best way that it could or certainly the most fair way that it could. But the fact that it exists at all is is intensely value creative and and we take it for granted that it is this today and it's it's kind of mind boggling how difficult it would have been to convince people at this point in history that should plow money into it.

I mean, remember the Solomon Brothers meeting that way down had one of the other reasons I was so excited to do this episode is we deeply believe it wave something that I think Sequoia also believes in this history shows which is, you know, you mentioned this asset class exists now and you know you can have an index on it and it works because, like, you know, a few companies out of these many, many seeds of small companies will get built in tow. You know, Giant Sequoia like trees. That's true. But I think there's a There's a, ah, faulty logic conclusion you can draw from that, which is that we should have an index fund on this Because what this history illustrates is that that defeats the whole cycle. Like the reason that you know Sequoia sized trees get grown from seeds is because of, you know, careful watering and feeding of them from people who are experienced gardeners who really know what they're doing. You know,

I really want you to change your Twitter bio. Two experiments, gardening experience.

I love it. Ah, experience Forest Keepers. Let's put it that way. You know, that's a big part of, you know, a change that we and I think you guys to like, hope to be in the early stage. Ecosystem now is getting away from this like watering a 1,000,000 seeds and into lake tending a garden.

Yeah, yeah. I mean, we thought long and hard about that with with p s. L were first getting started. And I think, uh, should we be doing sort of more companies, you know, should we be doing this in, like, an accelerator style way? And, uh, Ellie, I mean, we talked about the studio model on the LP show,

but it's very different, and it's it's much more concentrated bets. And, um, I think Sequoia is a great example of especially, you know, in the area that we're talking about it of incredibly concentrated bets and a lot of work into him. Um, after the

investment. Yeah. Okay, so my last two for this quiet playbook are, you know, one. Let your winners run everything we've been talking about. Like if you if you've got something that's growing into a sequoia sized tree like most of the growth is going to become after, you know, decades plus into the company, let your investment in them run. And then the last one, you know, which is what Don did that. We ended history and facts on which is hand over the keys before you fall asleep at the wheel. You know, if you're running adventure for s o Much easier said than done. All right, we move on to value creation. Value capture.

Yeah. Let's see. What's the best way to do this one? Well, one

thing we talked about is we don't have the exact data on the returns of sequoias Early funds. We have a general sense from a few sources that we can talk about. But compare that thio how the NASDAQ performed over a similar point in time, which is kind of the closest you could come to, like approximating this type of investment as as an investor at this point Time.

Yeah, and I guess what we're doing here is we're sort of rolling together value, creation, value, capture and and grading to touch on what we do in the section with value creation. Really capture normally when we're covering a company, we say, you know, hey, Shopify, um, enable $250 billion of sales or something like that. I can remember the number last year how effective, where they had actually capturing that value that they sort of created. I would say Sequoia has been, uh, um surgically good at capturing the value that they that they create in the world with, I think few, Mrs, I don't think Don had any trouble capturing the value he

created in the world. Well, I would say yes. Yes. And certainly no one Sequoia today? No. Ah, but I think it took them many years to learn. You know how to do that, right? Even don coming from the background and the personal investing he did. I mean, you know, the apple decision was such a huge mistake. You know, Sequoia captured $6 million of value from apple on dhe, you know,

lost out on dozens to hundreds of billions, like s. Oh, yes. I think they said the new mistakes if you missed one very costly one. Yeah, I think that's I think that's fair. The rial testament here would be to ask the entrepreneurs that that Sequoia worked with Do they feel the the successful ones that the value that Sequoia and their limited partners captured from the value that was created at those companies did they, as entrepreneurs feel that it was worth what they got in return.

Acquired FM at gmail dot com.

Well, I think we didn't ask Tripp that directly in the episode, but I think he probably would have said yes,

right? Oh, yeah, Yeah, that was my I mean, that that was definitely the sentiment I got from him.

Good point. We were mixing grating and value captain value creation.

So we move on. Yeah. Yeah. So I mean, grading the way that we traditionally do it for folks that are new to the show is ah, big company buys a little company. And we have history is our guide. Was that a good use of capital by big company to buy a little company? Dave and I were talking before the show on how to think about grading for this episode, and I guess the way we sort of landed on it is opportunity cost for LP Capitol. So what, You know, if you had just put money into, um, the NASDAQ to try and do some technology investing, Um, you know,

from 1975 onward, sort of How How would that have looked just interesting to know the NASDAQ, between 1975 conveniently when it was created in 1990 grew about 6.5 x with a couple of pre serious hiccups in the middle, where it lost 30% of its value and then took a long time toe to creep back up. So ah, stock market like any other. And so that's sort of the basis that that we decided to compare it to David. How do you think Sequoia sort of stacks up against, um, you know that public market accessibility?

It's hard to compare exactly. We don't know the returns for any given fund, let alone all the dollars in aggregate. But I believe, based on some quotes from From Don, in some of our research and another data we have that Sequoia was probably averaging a 50 to 60%. I are on their funds during this period. So if you look actually haven't done the math of what that would be over 15 years, but it's well, well, well above 6.5 AKs. And so now if you assume Sequoia is taking as carried interests, you know, probably in the early days 20 I believe now they're 30% carried interest that they take on their funds. Eso taking that out of their returns I still believe that you're performing well. I believe you're performing much, much better than that.

And, uh, there's a great quote. There was a Forbes profile that they did on Sequoia in 2014 and that there's a great quote in there from the CEO at Notre Dame, which is Ah, great LP, one of the most sophisticated endowments out there. And they say that Sequoia is the single best performing manager that they have had in their entire portfolio for the last 30 plus years. On that is across all asset classes, which is pretty incredible. Wow.

Okay, so how do we have signed a letter

grade this? Well, I mean, clearly it's in a great lake. I think the question is like, Is this an A plus? I think it has to be an A plus, right? Like if we're

looking at a whole bunch of funds, bundled together is like too difficult toe like a sign, A single letter grade, too, You know, I think like it Were we looking at one that had it was of significant size and had the highest I are of all time. Then we could go. Oh, that's an A plus, But like, it feels reasonable for me to say that, like the 1st 15 years of sequoias existence were a gun, eh? Relative to other venture for I mean, yeah, the

reason I make a case for an A plus is two fold one. How much done really was a part of inventing so many things about the way the whole not to venture capital. That startup ecosystem works today, and two is is that quote from from Notre Dame. Now, you know, maybe there are other great managers that Notre Dame is not invested in. Ah, but but man to be the single best performing manager over 30 plus years in a marquee endowments portfolio lake, He's hard, not thio hard not to assign that an A plus. All right, I'll go with you. All right. Well, with that, this been a blast for us audience.

Hopefully, you guys have enjoyed it, too. Certainly hit us up in the slack or acquired FM. A gmail dot com If you have stories to share thoughts, sir, other areas you want to see us dig into, especially on our continuing saga of telling the story of Sequoia from Doug and Mike? Uh, well, their generation when they were coming up than taking over and taking Sequoia into the now 12 billion plus dollar global growth behemoth that it is today.

Yep, Would love your feedback. All right, car mats,

Car amounts. Let's do it. You won't go for us.

Yep. Mine is an episode of the Daily. The podcast by the New York Times from a few weeks ago called What American CEOs Are Worried About. They report on an event that happened last month, where nearly 200 executives got together at something called the Business Roundtable, which I didn't know was a thing. It's not like a governing body of any sort, but it's like 200 of the fortune I don't know, 1000 CEOs that get together and make proclamations. And one such proclamation that they made this year was that they are going to not just think about their stakeholders. They're only stakeholder as their shareholders, but also their employees, their customers, their community, a broader set of stakeholders. And in my head, the thing that first occurred to me was well,

that feels like illegal in some way. It feels like the purpose of a corporation is to maximize shareholder value. And I just have taken that at face value coming out of capitalists but like that is my understanding of It's a relatively recent phenomenon. Yeah, and I didn't realize and like, it got me thinking because I've always thought like, Well, you should do all these other things You know, that's bending the rules of the company toe potentially sacrifice shareholder value to go and and, you know, do things that you don't think long term will accrue to shareholder value. So, obviously, like you should be active in your community and you should take care of your employees. But I only it's not with this lens of like, oh,

companies do that because it's going to accrue to shareholder value at some point. Um, and it's fascinating. Toe number one. Listen, this proclamation, and then they dive deep into exactly David what you were talking about. The fact that it's it's a relatively new phenomenon, one that sort of grew up in the seventies and eighties in these sort of professionalism of Wall Street and companies changing their bylaws. T basically say we exist to be a publicly traded security and then we're at the sort of mercy of that. It's this interesting. If we actually drift its direction that they brought up, it's much more return to sort of the business as a pillar of the community from the sort of early 19 hundreds, and I'll be very curious to see if this sort of comes of anything. And if this stirs

more, more sort of sentiment, Yeah, yes, super interesting. Well, and, you know, definitely reflective of, uh, the times we live in in terms of, ah, corporations in the world at large. So I hope things go more in that direction. It's interesting to see we have one of our five portfolio companies is a big corporation. Do you guys have any?

Be corporate awesome. We don't yet, But we're super.

Yeah, superstar that. Yeah, it's been really cool to see that, you know, emerges away to institutionalize some of the governance rules around this idea. We invest in B corporations as in c corporations, but ah, no preference for necessarily for one of the other. But where we and many other VC firms they're super open to it and supportive of it. Okay. My car, about a CZ listeners may know for some reason that even I don't understand. I use Amazon music instead of apple music or spot by I'm actually, Yeah, definitely gonna change that cause Amazon to so many things. Great,

but music is not one of them. But one thing that popped up on the home page famous on music last week, which maybe is worth the whole thing is I had no idea last week was the 25 year anniversary of Notorious B. I. G is first album Ready to Die. Eso like speaking of Mafia dons on this episode Biggie. It's so good And ah So Amazon did this cool thing where they have a track from the album and then in between each track, they have, like a commentary from, you know, journalists and people that were there. Producers Puffy, you know, everybody part of making ah making Big East first album. Just listening to it all again, man,

I like it's so good, like, you know, maybe some of the content and language he's is you haven't aged too well, but But like he was so good, like I've never heard anybody that can rhyme like Biggie and just the music and the tracks and, like, what did he did producing it like it was Ah, really cool to rediscover and would be listening to that over the past week.

David, I love the incredibly eclectic a collection of carve outs that you have. It's this, like, you know, crazy place in France. It's this really hard to get through, you know, 1000 page book that, like, I will never have a prayer of actually. And then Oh, yeah, well, it's this, you know, it really takes me back to when I was really into Biggie, you know?

Uh, well, well, the secret is I I keep a little note my apple notes of any time something strikes me. I just put it in. There is a potential future car about so

no, that's awesome. That's a good idea. All right, listeners. Thank you so much. Thanks to our sponsor, a Silicon Valley bank. Thanks, toe all the great sources that you confined in the show notes for helping us research and put together this episode. And if you would like to either join the slack, you could do that. It acquired dot FM or become a prestigious acquired limited partner. You can do that at glow dot FM slash acquired and it comes with a seven day free trial.

Yeah, one quick note on the slack. We found a couple questions about this recently. The slack is awesome. You absolutely should join if you're not part of it yet the way to do it is go to our website acquired DOT FM and then on the home page, there's a little button on the left hand side of the home page, right below the main image. Click that and you'll get an invitation. Thio send up enjoying this like

all right, listeners, We'll see next time

I see you next time.