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How to make a million dollars - Lessons Learned From 1,000-Plus Investments

Unfiltered podcast.

April 04

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Hi. My name is Jake Miller, co founder of Unfiltered. I have the enormous honor and privilege of interviewing the Great Dawn Valentine, the founder off Sequoia Capital, respected globally as the grandfather off venture capital. Donna's an entrepreneur who has played a key role in the formation off a number of industries, including semiconductors, personal computers, personal computer software, digital entertainment and networking. Dawn is arguably the most significant of venture capitalists in the world since its inception and Menlo Park in 1972 Sequoia Capital has finance companies from the seed to early stage, including Apple, Dropbox, Evernote, Instagram, LinkedIn,

Papal Oracle, Cisco, Elektronik Arts, Google Tomboy, YouTube, Yahoo. The list goes on and on and on. The combined market capitalization of the company's Sequoia has financed today has a value of over $1.4 trillion or 22% off the NASDAQ. In this exclusive interview, Don and I will be discussing his incredible story, including the origins of Sequoia Capital and the lessons he learned from the great Steve Jobs will be discussing investment and what markets Dawn is obsessing about today, learning from failure and the listens loot from missing out on key investments such as Facebook and as well is that the evolution off venture capital and the key ingredients of replicating Silicon Valley and other markets around the world? And is always I'll be asking Dawn has advice for you as business leaders. Don Valentine, thank you so much for having us.

1:31
What was it like to be investing in the early personal computer?

To make a computer as we know it today, everything had to be invented. There was no such thing as an operating system. There was no such thing as a mouse. Semiconductors opened a whole new realm of possibilities.



Your uncle is a pleasure. Lives begin for me on the who, East coast of the US, in the state of New York. Uh, our family live there? I went to school there. I went to three Catholic schools there. So when I was quoting this blizzard, I was very sensitive to that being a signal that I shouldn't be there. Right. So I began to organize to live west of the Mississippi to live on the West goes Nothing was going on the Silicon Valley. Words hadn't been invented. Venture capital hadn't been invented. And what I wanted to do was be in a very advanced technology business on the West Coast and help pioneer a startup like virtual. Uh, there was nothing going on other than some companies that have been started during the Second World War.

This is, you know, in the forties, and they were largely cos like Ampex, which was a audio company that made different kinds of audio equipment. The first as an example, the first memory system on the Apple computer was an Ampex audio system, which was terrible, right? Had no capacity. It was slower than you could believe. It was all we had. So one of the things that I knew skipping through an observation about Apple was that we're going to have to make a lot of investment in Apple, right? In order for there to be a computer at the end of making a number of investments, it wasn't just investing in.

What you think of is the laptop. Yeah, we had to invest in everything around it. There was no such thing as an operating system. There was no such thing as a mouse. All of this had to be invented. The words were not even created yet, so I was very anxious and being in that environment because I had worked for a couple of companies on the East Coast that would technologically way behind the power curve that were gigantically cumbersome companies and would never and some of them are at a business. I mean famous companies like R. C A and Philco Guys that made televisions like that all gone. Okay. Ah, companies in New York state, the dominant one was IBM. IBM is no longer in the computer business, So lots of things have changed as the technology drove it. And I wanted to be in an environment where there was a possibility through in semiconductors it was the natural derivative direction for me because I took some chemistry in school and the Senate guarded business is all about chemistry, despite the fact that people think of it as the place you by your watcher, your clock or your laptop. It is basically a chemistry company

5:30

because that's how you make them. But okay, at that stage, you say you really wanted to be a part off that you know what gave you that inspiration and why did you see Silicon Valley is the place to be at that

5:41
Why did Don Valentine find Silicon Valley so attractive?

Don Valentine did not know about Silicon Valley at first, but he knew chemistry and he wanted to be in the semiconductor business.

Most established companies at the time were going nowhere, using chemistry that was long outdated. The eventual decision really was based on a combination of boring and failing product development.

Silicon Valley was the place of the future, built around spectacular universities, the cornerstone of technology.



stage? Ah, the decision really was based on a combination of boring and failing product development. But the big companies then that are now no longer in existence and what they made historically were vacuum tubes followed up by Silicon Sumi by Jermaine IAM transistors, Germanium Transistors were easier to make than silicon but had very little performance. And all of those companies were in the Germaine IAM business. I competed against them, looked at joining them. They were going nowhere because what they were using as their basis waas a chemistry that was long outdated and never competed. So I knew I was going to be in the semiconductor business. I knew I wanted to be in the silicon semiconductor business, and it was a matter of getting to the West Coast and the U. S military did me a great favour. I didn't know a place like California existed. I thought everybody lived in a place like New York State, which is horrible. And I finally found not only was there the future place,

I was going to live, but I found it. It was built around a couple of spectacular universities Stanford and California at Berkeley, right with the corn stones of technology. When I arrived in the mid fifties,

7:42

okay. And when you arrived in the mid fifties, I know you were working in the semiconductor business, you know, you found your own company, National Semiconductor in Fear Child as well. So when it came to 1972 when you started Sequoia, what prompted you to make that jump from working and semiconductors to starting your venture capital firm?

8:1
What prompted Don Valentine to start a venture capital firm?

At the time, even in Silicon Valley, there was no environment where one could raise money and start a company, and any available money was carefully restricted in terms of what you were allowed to invest in.

Meanwhile, Stanford and Berkley, these universities became sources of people interested and capable in technology, and the universities were wonderfully funded. So it was a perfect environment for technology startups, from that point of view.



Well, for me, Fairchild was the equivalent of getting an advanced degree in not only the technology, but in business practices. Ah, then never was an environment where you could raise money and start a company. The people who started for Joe was spectacular. Scientists couldn't raise money, right? The famous and great are the rock. Tried probably two dozen companies all over the East Coast. Nothing couldn't raise what now is an insignificant amount of money. Ah, so I, by accident was thrown into a learning environment that if you're going to start a company, you have toe know how to raise money, and it isn't easy.

And the money then was carefully restricted by US entities in terms of what you're allowed to invest in. So as Fairchild Progress and we did raise money, the name of the company became Fairchild because a man named Sherman fetch a put up the money. Chairman Fairchild's was the son of a family that was from the east, and he his family was the largest share hurls of then of IBM, so they not only had money despair, but they also had a background of being near and in science and willing and interested in investing in technology. So the company became known as fresh all semiconductor. He was the chairman and subsequent to this story, I will get to a period where Sherman asked me at a board meeting. Is there anything he the chairman could do to make federal go faster? And I said, You can arrange for me to need with the decision making level of the technology people so that we federal would know what to develop in our new silicon directions so that we could sell it to IBM. Right? We'll get back to that story because it has a very amusing ending. So it's a struggle.

Uh, there were no place is called Silicon Valley. There were no companies that were the, ah, the embryo beginning of Silicon Valley. Ah, you had two spectacular universities that fed both students and faculty into the environment and became the backbone of starting many of these companies. At one point in time, the head of engineering left amazingly left his position is the head engineering person at Stanford to start a company right? He was gone for for five years, started a successful company, came back, became the chancellor and just retired recently as the president after about 15 years being president. So these universities became sources of people interested in technology and capable, and the universities were wonderfully funded in technology areas. So it was a perfect environment from that point of view.

But the words venture capital didn't exist. The word Silicon Valley had not been coined yet. All of this was to come about the time I and many others from the East reached the Golden West and Frederick Jackson Turner was right. I don't know who your constituents are, but they should take a look at reading his book right, because it is the Bible of how this immigration happened from all over the world. It's less an immigration from the East Coast now, but it's an immigration from Southeast Asia.

13:10

Absolutely. Yeah, and you know, Silicon Valley. So many places in the world have tried to replicate it, but few of actually Jupiler duplicated as the article that we're reading off camera said. Why is that? Why cannot liken this place, not be copied successfully.

13:29

You know, I've had the question asked countless turns, and I find myself trying to invent a new answer each time. One of the things that worked only began recently to work from Asia. So the immigration of students from M. I. T. And Harvard brilliant schools in the East took a long time to get going. And there were nothing nobody, no schools in the the European continent that we're creating the people that we needed to have a technical community like it exists. Now. You have a great client. It, uh, there was lots of land. The bill buildings. All of the things were easily in place,

just patiently had to be exploited. Why doesn't that happen? Well, I think it is happening. About seven years ago, largely based on my experience at Fairchild, we finish off the opened a factory for manufacturing purposes in Hong Kong. I began this spending did spend a lot of time in Hong Kong learning how to do business in that environment with people that were local. What were they making? Calculators, watches, small electronic things that they could make with in Hong Kong and we have a CZ many people in China at Sequoia, as we have in the U. S. Wow. Okay,

so we believe there was a terrific future and it's worked out wonderfully for us. Ah, we have a lot of companies. We started in China. A lot of them have gone public, are limited partners have made a great deal of money by invest with us in Southeast Asia. And little by little, I I think, uh, this is going to become a much more dominant technology center. There was a guy by the name of Mars Chang, famous manufacturing guy at Texas Instruments, uh, born in Southeast Asia. He is not ah, an original guy at in Hong Kong,

but was I'm trying to remember I think the the country, then when he was recruited, was called Taiwan right. And he went back from Texas Instrument set up manufacturing in Taiwan, and it's significantly successful place for making semiconductor wafers okay on DDE, it's a world recognized and they have schools now that a comparable to Stanford and to Berkeley and those are the ingredients you need a government that's benevolent. You need money that is willing to risk making more money. And you need universities to provide the people right, and they have it in all respects. Okay, so I think the replication of, uh, what people think Silicon Valley is is happening and it's happening in China More than

17:36

not. Okay, if you were a venture capitalist getting started today in 2017 would you go straight to China? Would you still be in Silicon Valley?

17:45

It depends upon whether I'm Chinese or not Chinese. Ah, I don't think it's easy to just show up because you're Chinese and have a big welcome. I think you may have to do something like Morris Chang and earned your capabilities and transfer them from Texas to Singapore. So I won all over mainland. Now you have major companies. Ah, the most significant company from an awareness point of view is Jack Ma's company, Alibaba Phenomenal Story. And we had Sequoia invested in Ali Baba through our Chinese contingent located in Beijing. So it was a good move for us as the opportunities have expanded. It's still very difficult not being Chinese, not speaking Mandarin, and we have todo do something extra to complement those deficiencies. But I would not consider shutting down my Chinese operation under any circumstances.

19:11

Okay. And when you originally went over to China, uh, you know, how did you get the deal flow happening? Because in America you have such an amazing reputation. But going over there for the first time. How did you get your first deals?

19:23
How do you open an American company in China?

Instead of bringing your American team over, you staff the new company with the locals, making sure your company has a Chinese DNA from the start.



Well, the the first critical decision we made is we staffed our company in China exclusively. Which Chinese? Well, okay, There were no people from Silicon Valley and those kinds of school graduates and everything. We were hiring people from Chinese universities, one of which was ging wa where we have hired lots of people over the over the time. So we were a Chinese company from inception, which is what I learned from the fair trial days when we opened our factory for manufacturing. Uh, you don't do it with non Chinese speaking people. Okay? So other people have chosen a different course. I don't know how successfully

20:22

our rush. And is that the same with Sequoia and Indira's?

20:25

Well, Well, India is more of an English speaking country, although it must have a cz many as 20 different dialects. So the people in northern India can talk to the people in southern India. That ghost, they have dialect collisions that just don't work. S o the British set up English is is the business language in India. So it's a lot easier. There isn't any Mandarin requirement and you find English is spoken comfortably and well by the business population.

21:5

Okay. And here in Silicon Valley, Howard's venture capital evolving today. And what do you expect to be the biggest changes over the next 10 years?

21:18
What's the most successful startup format of the future?

Be an agent, don't own anything. Uber does not own cars, Airbnb does not own building, and Amazon does not own the items they sell.



Well, it's probably useful. Begin the answer to the question, using a couple of companies as examples. Okay, both of which are in San Francisco. One company's name is uber on. The other company's name is one in which were a very big investor. Ah, but the interesting thing is, neither company makes anything. Neither company owns anything. So there isn't any kind of a capital investment to make. We compete against hotels in one sense, but we don't have a hotel. We don't buy knives and forks. All we do is rent somebody's property to you and we're in agent.

Well, the other is a taxi cab company, But the company doesn't have to buy taxis. It doesn't have to buy anything. So there's a new model that is being exploited in Asia, just as rapidly is, is being exploited on the west coast of the U. S. It's one of those obvious kinds of things. If you think of a place like mainland and the hotels that have been built there. Ah, this is a natural kind of solution for people who travel and don't like staying in a hotel. They stay in different homes in different places throughout the country and sort of migrate from one business center or one entertainment center to the next. That is, Ah, a relatively new for men on and,

I would say carelessly, that is the four men of the future. But one of the most successful venture companies, probably in the last 20 years located on the West Coast, is going from being a company that began with having no bricks and mortar. There are no buildings. There were no factories, there were no distribution storage buildings, and Amazon began as a seller of books and has has announced just recently same brilliant president that he was going to start building buildings right, And he was going to change the model for Amazon. And you have to wonder, since it's very difficult to be as good as Amazon is but their first and original model. So why are they changing the model?

24:34
Why would a successful company change their business model?

Companies die when they fail to perceive and adopt to the future. It is essential to the success of a company to reinvent themselves, with care.



What are your thoughts on that?

24:36
Why would a successful company change their business model?

Companies die when they fail to perceive and adopt to the future. It is essential to the success of a company to reinvent themselves, with care.



This is a very, very clever guy. Ah, lots of companies that succeed become careless. Another generation of management comes along and they changed things. It's happened in the US, especially to the big companies on the East Coast. Very successful. What are the most successful is a comfort ical Xerox. They had all the patents. They had brilliant people making these things, inventing new ones. And they change the business model. And the Japanese own the market, so changes desperately required. But you better damn well know what you're changing from to because he is now gonna be he Bezos is now going to be investing in buildings, right? Previously he invested nothing in the buildings.

25:51

Do you think Amazon will become, You know, the biggest company in the world? Wonder

25:55

biggest how measured right their stock price and lose many crashes that it has happened. It was one of the companies that became $1000 a share, Uh, with some people boldly forecasting that it would go to $2000 this year, Um, hasn't ever happened before. Probably means it's going to take an entirely different business model to make that happen. But why Geoff is because we sold several companies the Jeff on We know him a bit. Uh, why he is changing something as fundamental as investing cash into a building. Uh, I would be very hesitant to change the model of anything that successful. It is critically important. Two. Kill your old products because it forces you to invent new ones. Absolutely. And that may be what is happening.

But most of the time, its failure to pursue change and the future and new products that many companies big U. S companies die. Absolutely. It is a a famous story. Ah, about an American company that sort of certainly owned the U. S. Market and cameras. Yeah, and it was a wet chemistry business. Which means you bought film. He took pictures and the do the development with chemicals and they were terrific at it. On DDE, the Japanese entered the market. A company knew Fujitsu.

I believe started to compete, and the American company took its eye off changing the product. And they kept competing with the old product. Yeah, and the story is the board meeting was populated by the chairman with an expert who came in and held Din's aiding, just held his hand up and he had in his hand. And he asked the audience, What is this? They said, we may not be technical experts, but it's a calculator. Well, the number one app are taking pictures. Yeah, they missed it. They looked at the product and because they were told historically that it was a calculator and the calculated it doesn't do very much. Camera does a lot of things. The camera became the end of that company, and they couldn't compete against this

29:28

hand health. Yeah, and as these companies become bigger and bigger and bigger, they often get list Hegel and it becomes harder to disrupt themselves. What's your advice to these companies about remaining edge I'll as they grow and having that start up like me? Intelligent?

29:44
How do you remain at the cutting edge?

Change your diet. Take risks, and advance your products beyond current applications. Sometimes you have to shut down a profitable product today, in order to win in tomorrow's race.



Well, a lot of great books is a guy at Harvard named Christenson, who wrote a book about that, and I mean everybody in corporate America read the book but didn't change their company. Right? And his position is change or die. You have to look at your product line and decide that this product is pretty good. We're making a reasonable profit, but we have to shut it down and make something new and different in an entirely different application. And it's very hard to do that. Ah, there's a very famous American company, but the name of Digital Equipment Corporation. It is a company that was started in Boston, and it was because IBM made a mistake. The IBM Miss Steak waas They had these big Whopper computers and own the market, but they didn't have what they called a mini computer.

So death came along and captivated the minicomputer market much toe. IBM is embarrassment, but the board deck was nervous, so they asked the president to go to Silicon Valley because they have heard that there were new things going on and that the companies in Silicon Valley even had funny needs. So he came. The Silicon Valley was well met, entertained, showing everything, and he came back and he gave his report to the board. The report was, We have nothing to worry about. I visited two of the big name companies. One is a toy manufacturer and the other one has a computer. They don't even call a computer. They called a work station. Well,

deck was gone in three years. Yeah, simply because they looked, Ah, products were that were emerging and failed to recognize what they were and how effective they would be against the deck. Many computers. So Apple was organized with the idea of having a $2000 computer index. Lowest price computer was $250,000. How so? Is there a surprise that the techie people would change? Uh, it's very difficult for people that run big companies to have that execution vision. They oftentimes understand the problem, but they cannot seemed to execute their hesitant about doing what it takes in terms of obsolescence.

33:1

Why do you think that is?

33:3

Oh, I think that management evolves. Some people retire. Some people get terminated, whatever it is, changes going on but not change at the fundamental product level. So the behavior is defensive. I mean, we have 27% market share and boy, we better protect it. Yeah, well, in protecting it, you die.

33:34

You're not taking risks, right?

33:36

You have to advance those products into other applications. And a calculator was a big product for us in the early days of companies like Intel US, our startup making silicon useful in the applications that would never recognize before. And people just decided that they would make a move from here there, and other companies wouldn't wouldn't recognize and execute. I think it's they miss it. They misunderstand what it is. They don't want to take the risk, their defensive about market share and keeping what they have. And it turns out

34:32

it kills you. Yeah, and we see companies such as Jim Promotions acquiring. They're quite cruise automation for a $1,000,000,000 invested 500 million and lift these big companies that acquire and invests substantial money. Do you think that's the right way for them to innovate fast? Or do they quite often acquire these companies and then screw them? I think it's

34:53

it's more the latter than the former. Okay, I think there's a lot of pressure from the board on management toe wake up and catch up and the interesting thing to me is Why would a car manufacturer invest in a service company like Lift? I mean, it doesn't matter which taxi cab company they invest in. They're all the thing, whether it's a General Motors car, that the taxis are some other manufacturer Toyota, Whatever. It's the same business, Mo. And you're just signing up late to get into a gladiator fight and not have an advantage. See the original car company in the in the U. S. They built their factories in an interesting way. They were on a lake and everything came in a barge so a barge would come along with Cole. Barge would come along with steel barges,

kept coming along with raw materials, went into this big factory and a car came out that was going overboard on being vertical. And that's where the Ford Motor Company was created. And they did wonderfully well, the head of the Ford Company. It was a completely inflexible person, and his position was you could have any color you want as long as it's black and you know, you somebody wanted a blue car, some other color. Too bad has. Yet the barges were bringing in black cars at at RO material level, and they never got the message that blue car is just this desirable, maybe more desirable than a white car. Absolutely. And they didn't get

37:6

it. Okay? And you mentioned earlier in the interview about some of these companies today. One of the differences in Silicon Valley today versus when you got started is that these companies air have hugely high valuations, you know, 70 $80 billion but losing huge amounts of money. What do you think about that? When you see a company like Snapchat, that's, you know, got such a high valuation, losing so much money? Do you think that sustainable?

37:30

I'm afraid that I am of the old school? No, we're on investor, Fairly big investor, An Airbnb, nice company, Rational management doing wonderfully. And I keep asking the question of myself as well as the other partners. How do we sell this investment? Who's gonna pay us 40 billion? Which is the market value last paid? Because who we invested way back in the beginning and our cause is so low, it's irrelevant. How do we get out? And we haven't figured out how to get out right and Why are these companies these investors putting money into these things? It seems to me that whatever they used to invest in and not investing in anymore, and they're desperate to find new categories,

so we find them and poking around our companies where they never did that before. And they're trying to figure out how to deploy a lot of money the way they did in asset intensive companies. But this is not an asset dependent company, absolutely, is nothing there. We don't buy anything seeing, which is the beauty of being able to start a company like that. But they don't get it. They just hit it with a huge amount of money, and the company doesn't need it on, and they don't have to go public to raise money because people throwing

39:31

it at them absolutely. It is a great example of that, right?

39:35

There's nothing more than great examples of it. Somebody I never knew too much about unicorns, but somebody said these companies should be called unicorns. I don't know enough about unicorns. Understand why these very dissimilar companies should be called unicorns, but it's almost a kn excuse to pay a huge amount of money to be a shareholder, and I don't know what their idea is. That exit. Yeah. So we're now seeing companies get raising money at prices that I thought were a miracle on the exit side. Right? We have one company, and it made my day enthusiasm about the Harvard dropout who started Facebook. He bought one of her cos with $19

40:37

billion. What's that? Was it?

40:39

Yeah, and we had 50 employees. Wow, No. If you had some way to hire the 50th greatest people on the planet, why would you pay $19 billion for them? It's huge. And I don't know that we know why we were so lucky with the only investor. What's up? Ah, the people were attractive, capable people, but not worth $19 billion

41:14

at such a huge amount of money. And, you know, with always change going on, how how has sequoias Investment strategy changed over time from when you did your first deal through to now what's different? He says,

41:28

Well, historically, what we may have done purposely and thoughtfully that other firms didn't is the example could be Airbnb. One of our partners is our director on the board of the Airbnb, and he ran a private ah different company previously, and it was bought by Jeff Bezels, and it was a woman's shoe company. Now, if we made 10,000 investments over the four year so years, I don't think we ever invested in anything we knew less about. And women shoes

42:30

all right.

42:31

And the two founders, one of whom was a general partner. Now it's square. The two partners knew nothing about women troops. The rest of us knew nothing about women. Just so what are we doing investing in the company about which we know nothing? And they compounded the difficulty from my point of view, of launching that company by promising the women that if you place your order on the Internet naturally, ah, before 10 o'clock in the morning, we guarantee shoes will be at your house the next day, right? No, If you think about that, there's only one way you can do that. And you the answers you need an Air Force. Yeah,

and I thought to myself, way certainly can't be buying airplanes. That's not gonna work. How do we deliver these guys? Very thoughtfully. Just so the chief executive one of the guys that had an air Force and was in the package delivery business on, and he saw the opportunity for him. So we have the shoes shipped right from the Italian manufacturer to the hangar. An inventory station in Las Vegas. His organization does only handling, right. They store them for us. They shipped them to the destinations all over the country because he has an Air Force. Yeah, well, you say Well,

Roger. Spiritually. That was obvious. You needed air Force. So you got one. Really? Not so obvious to most of the people in the world. But Bezos understood it, and he was not in the women's shoe business. He saw a very successful company that had an asset that cost them nothing delivering. And he had a logistic system, thanks to the Air Force that made the company of phenomenal success. Absolutely. And you know, you think What was that Clever? Yeah,

retrospectively. It seems very clever, but there were no choices. You can't buy 800 planes or 500 planes. The only way you get that stuff there the next day is with an air Force. Um

45:15

yeah. And you say you didn't know much about that industry. You know, you're across so many industries. How do you say informed across all of these industries? Do you research them Very in depth or Well,

45:27

yes. Is the answer to the obvious. Ah, but probably the Internet is a good example. Ah, we made a co investment with Kleiner Perkins. Tom Perkins and I were on the border, this company together and was the company that was doing a lot of interesting things in space. But we didn't make any money on the company to speak of, but we made an important discovery. The U. S government had organized in one of the entities in the government a program that would unite all of the computers centers in North America in a particular what became T c P I. P. A protocol. And the part that mattered was the i P part of it. So we came away not having made a great investment in the base company, But we came away with the commitment of doing huge investment discovery in the Internet.

So we didn't wait for somebody to knock on the door. We were contacting the science guys around the country that knew about the Internet. And he was not one of our vice presidents, as claimed by the man that used to be second in command. Ah, so we knew all you could possibly know about the Internet. Yeah, and we started making I p investments everywhere.

47:21

Rice. Okay. And what is your You know, this is a big question, but you were due diligence process. What does that Jim really look like today when you're investing in a new company? Because you've said before that, you know, you don't so much look at the people you're looking at the market size. Uh, but in this interview, we talked about you know how important these universities like Stanford in my TR. So do you like to see people who have gone to college or is the stuff just not important?

47:47

Not important.

47:48

Okay, right. So market size is like the number one thing. And then

47:55

there's a lot of living evidence that being a drop out of Harvard is hot is very helpful. Yeah. I mean, you have two guys that air brilliant entrepreneurs created fabulous companies and it had nothing to do with the education had to do with their sense of opportunism and the conviction that something was changing in a big way, and it was important to be on that specific. Ah, so we set up teams to do the work? The discovery. The hardest thing is figuring out which questions are the relevant questions and how good the answers are from the entrepreneurs, Right? What do they understand that we're lying on? Uh, it's much easier if the market is gigantic, then finding 50 guys that are worth $19 billion because there are no 50 guys worth $19 billion. So you can stop looking and try to find something like the Internet protocol and start companies before everybody else recognizes. There's an important, incredibly important part of our life.

49:23

Absolutely. And when you're questioning these new opportunities today, what's your favorite question to ask?

49:30

Well, aimed more at senior management than not. My favorite question is unusual. So take your time and think about it. But what's the most outrageous thing you've ever done? And it's amazing that a lot of people have never done anything in their life. There was outrageous, right? I'm not interested in those people. I'm interested in the people who are capable of doing something just nobody else would have thought about or have the nerve to do. And, you know, that's why Gates it was so good he went into business with a product that was terrible and used. IBM is money to make a better product. And how clover is that? Absolutely. So you have to think just differently than other people Who would say that That's ridiculous.

IBM will never give you that money. Who knows IBM? Was that a point of desperation? They had no personal computer capability, no division, no people. And they put themselves into business two ways. They took her guy, there was a wild duck and IBM and said, Go someplace like Boca return. We don't want to hear from you, but get us in this business And Gates was the solution that they chose.

51:16

Yeah, okay. And what's the best? What was the best answer you've ever had to that question about what's the most outrageous thing you've ever done?

51:23

Oh Ah, With rare exceptions, there were not very many people who did anything that I considered especially outrageous. Ah, they were interested in being in a successful venture at a high level of decision making. And most of them were too safe. No, from my point of view to think of them and somebody that was going to be a Jeff Bezos and create a bazillion dollar company.

52:6

Yeah, absolutely. And you know, the market sizes. We've just been talking about it so important and doing something different that people haven't done before. You've said before. You know, the next greatest thing is like blood and the shark infested water. The sharks go into a frenzy. You know, when you look at the market today, you know, obviously you're avoiding the next big thing. But what What are you seeing? Money. Just being poured into that you think is gonna be a massive failure. Well, it's

52:30
How should VCs think about investing in biotech startups?

Biology and pharmaceuticals are interesting investments, but they take too much time, too much money, and the risk is very high.

One way to win is by focusing on software, and creating a solution that is complementary to the field, but that does not have to suffer from above mentioned problems.



very counterintuitive to think I was doing anything in any area without using money. Ah, and one of the things I did this company about three years ago now, And it's a company that I normally don't go near. It's a company. The product is controlled. It's too strong. Determined is very significantly influenced by the F D A. Now the FDA is the government entity that controls largely pharmaceuticals. And because there was a terrible experience. It's gonna be 30 years ago in a drug that was approved. They're pregnant, women took and the drug was Phillip Phil Little meid, and it caused hideous things have to happen to the baby. So this entity became incredibly tough on companies that were anywhere near their purview of control. So it takes huge amounts of money extra. It takes in some respects having your factory outside the country because the conditions are much easier to replicate in Canada and in some respects,

Mexico. And it's just a very, very hard thing to do. So I came up with a very different idea. There's a man in Palo Alto who's an M d. PhD, and he runs the Stanford University Stroke Center. No, I don't know what you know about stroke, but stroke is not like a heart attack. When you have a stroke, you don't normally feel it. The symptoms are hard for the person having this stroke to recognize them. It's the people looking at them because their faces become distorted right? Ah, lot of characteristics of speech or diminished.

And there's a drug approved made by Genentech that requires a careful examination using these big cat scanners to determine what kind of a stroke it is because the TP, a drug from genetic if applied to the wrong type of stroke, kills the patient. If in fact the diagnosis is right, you have a huge percentage recovery, and we decided to do this in a different way. We have no employees. We have consultants who worked part time, many of whom are employed by Stanford University. But we have no employees. Zero, uh, we raise very little money and managed to get fairly minimum, but an FDA approval. So you have a company with no costs. The solution is applied by Genentech to the actual patients.

We have no cost or risk of treating the patient. And we're profitable. No, we're doing everything differently and purposefully, and we decided to do it this way, and the you may not intuitively understand the next thing I'm going to say. But the management of the company, I was disappointed with the performance because they had to pay tax right and these kind of companies never pay tax they made last 30 years and never pay tax. In the third year we're paying tax. We have no employees, no building and no drugs solution for the patient. All we do is provide software so that the doctor's analysis can be very comfortable and secure for him. And he can look at his his phone right and see the clot in the brain and decide what kind of a clot it is and how to

57:38

treat it. Wow. And it's really taping everything on its head, right? Doing everything differently, doing everything differently. Yeah, Okay. We'll have a market. See you obsessing about today.

57:50

Well, I've always had a very strong inclination towards things like medicine or pharmaceuticals. We were in that business for a while, and it initially Ah, I knew nothing about biology. So I took a course at Stanford in biology to understand what they were talking about. Uh, we did okay for half a dozen years, but it took too much time, too much money. There was a high risk of failure. So we shut down and quit doing that particular business. That's why this experiment I have just described to you is so unique for us to attempt anything with the FDA near it. And so far, we're a taxpaying

58:52

company Yeah, Okay. Just talking about some of the companies. And I guess the medical space we've seen companies that have going to huge valuations and then, you know, fair would such a Sarah knows as an example, But what do you learn from some of these companies

59:10

we learned? Ah. Had to explain this to our limited partners who were puzzled. We learned that the risk is Drew. Hi. Okay.

59:21

Uh, just because that creating new markets yeah, that's

59:25

part of it. The FDA is a very expensive hurdle to deal with and get beyond from an approval point of view. Uh, I'm not sure I Then I believe the specific estimates, but it may take three years longer than a company in the data world, and it may take $25 million more. Right? Well, our normal partnership lasts eight years or so. Maybe an extension of one years and nine years. It's not enough time tohave a product approved. The approval of the FDA is normally for 21 years. Well, it takes forever to get it. Yeah, and a lot of money. And we just looked at our performance and two categories. There was an easy decision for us to make that we were not any good and making pharmaceutical or medical kinds of investments,

60:31

right? So heavily regulated industries it? No, not great.

60:36

We don't seem to be comfortable are trying to do it. Okay. Yeah. The only reason we did this one is because I came up with this scheme of not requiring any money, not requiring a building. None of the normal investments made in that kind of world. We're 30 million. 35 million. Uh, it didn't pencil out. So we jerking

61:9
What doe Sequoia do differently from other VC firms?

At the very beginning, instead of having a partner choose a startup they want to join, Sequoia lets the startup choose a partner they'd like to work with. This creates for a better dynamic that reduces complexity and let's the team to work faster.

Furthermore, Sequoia partners are not allowed to display bad manners. Everyone pitching them is ought to be treated with respect, recognizing that founders are there to do a hard job.

Lastly, they do not seek credit (just money).



up here? Yeah. And when we win, a lot of veces invest, they'll get heavily involved in these companies and put multiple people on the boards and try and influence the direction. What have you found to be the sweet spot in terms of your involvement in these companies?

61:23

You asking about me personally? Sorry.

61:26

Sequoia is in general. Yeah,

61:29

we do. If I am surprised about some of these things that we do things differently and some of them we do them differently accidentally. And some of them we do differently on purpose. So if you put yourself in the position, you're one of the three or four managers of a new start up, and you go through this mating ritual of trying to figure out if you could do business with one another. What we do is have the management of the company choose. The Sequoia personally went on their board. Okay, so they meet all the people they want to meet, one on one or however they want to do it. And we want to get to be a partner with the founders as quickly as possible. So we're willing to do a lot of things differently than other people to get that bond recognize and set so that we have teamwork and team players from both sides, which they've chosen each other.

62:48

That's great. That's great advice. Yeah, most PC companies not do

62:52

this. No. Okay, you say, Well, that's not a big deal. And it isn't. It's just one of another thing that we do. And then I was. I couldn't believe a lot of people in other venture firms are important in their own minds. Uh, and they show that by demonstrating bad manners. So there's a board meeting going on, and they're reading email right now. I'm thinking, What are you doing? But it's your mother didn't bring you up,

right? If in fact you're not recognizing your partner in this enterprise, he may have come by driving three hours. The explain to you what's going on and you have the bad man. So is a famous American movie, and it takes place in a city called Tombstone Arizona. And it's the Wild West movie, okay? And the share of I was tired of people shooting one another and all of this violence. So he's He passed a law on his own and had the town slightly riel range so that you had to come in from one direction at one direction. He had men and a table. And in order for you to go to Tombstone, you had to take your guns off and put him on the table. If you had a knife yet a put that and have no weapons to get into the town. Right? And these guys were all reading mail,

and I mean so we just involved the tombstone rule some years ago so that the people who come to visit us for an hour ah are treated entirely differently where the audiences at security is composed carefully. We I had an experience that I'll tell you about in a minute, but these guys are nervous. They're trying to finance a company there. They're young, they're really inexperienced. And it was It's just bad manners on the part of the competitors. So we did this tombstone thing. But one day we had a visitor, and I haven't to run into the visitor in the lobby. And it was a guy wearing pajamas. And in California, they called flip flops. Ah, ah, comb and his hair hadn't noticed one another for probably a week.

And this was the test. He was much younger, so I went back to the conference room and then said, Okay, anybody over 30 out. We have, Ah, test underway and don't notice what he's wearing. Don't say a word about his pajamas because the top in the bottom didn't match. This was, ah, test of Willy's old guys. Be flexible, or will they not? So I got everybody that was under 30 in the conference room with this guy, and it worked Fine. But if we hadn't adjusted our behavior, it probably wouldn't have worked fine.

66:56

Yeah, I read that Mark Zuckerberg came in the pajama pants. Was this that story, right, This amazing story and you know, So how how did that? That was very early in the Facebook days, right? He came and pitched to Sequoia. And did you invest in there that that says

67:14

we did not? Ah, not because we didn't want to invest. We had made a prior investment with entirely different people called PayPal, and it was a wonderfully successful investment We had hired after the company was up and running and acquired. We had hired the financial officer from PayPal to join us at Sequoia, and he's eventually become one of our important partners. And there was a man named Peter Feel ah, very good investor, just judging by the things he's invested in. But we apparently were too competitive with one another in papal. We had a guy on the board, They had Peter on the board and, ah, the chemistry was was not good. And there's a There's an alter ego in this story. I'm pregnant.

Think of Shawn's last name, John Pocket. Sean Parker. So we had a hard time having made the mistake of backing Jer Sean Parker that he, uh, had a very, very strange, almost Sven, golly like spell over Zuk. In the beginning, I never understood that Zach was much smarter. I mean, we knew this guy, Sean Parker, from the experience we had being in business with him, we couldn't understand it. The combination of Peter and Sean arranged for us not to be an investor

69:17

in Facebook. Okay. And we'll pay sure and showing quite close as well. I think

69:25

of the two individuals as not being easy to be close with. Ah, each in his own way, for different reasons, I guess very, very tough and standoffish and are very in need of credit. And one of the things we try to preach is we add Sequoia. I'm not competing with the people financing where their junior partners and we're there just to facilitate things they would like to talk about or have done. But I will link a fantasy for you. Uh, we did not invest in Facebook. We were outmaneuvered by the board, which consisted of Drawn and Peter and never became a shareholder when it mattered. But two things happened. We sold to companies the Facebook and the first company is and was an important part of the offering from Facebook once they integrated the and they paid us Ah, $1,000,000,000 for that company. Instagram.

Yep. And I thought, Nice work. I don't know why we deserve the $1,000,000 for Instagram, but we're all happy to have it. Then came and events I can't explain. I have no idea why 50 people would warrant evaluation of 19 billion. And what was Oh, temporarily amusing is we had a struggle in house of whether to accept 19 billion or not instead of running the company further. I said, guys, you're too young to need hearing aids. But the word begins, the being an M. Yeah. I mean,

we've never had another company that we made a $1,000,000,000. Ah, so that was the first with the second. We've never had a company where we had 19 billion and I just think somewhere and I give Zucker bury the credit. He may have felt the he knew he wanted to be an investor. Terms were no more unfriendly. And the rest of the guys and this is the guy who got sued with the twins twice. I don't know why he didn't shoot his lawyer, but he was nailed the 65 million twice for dubious things he did. I don't know which one's Sean was the architect of which one second word was the architect for, But I have always felt an inability to describe why we got 19 billion in a very new company, just starting to ship something. And we had 50 of the world's greatest guys. Apparently,

73:9

yeah, I mean, I may be may be naive to say that I'm a big what set views of myself, but you would think Facebook would have easily been able to create that and roll without 19 billion, as you say, is a huge amount of money, right?

73:21

What? I think it's unnatural, and I'm certainly don't want to leave you the impression that I'm unhappy. But it's inexplicable.

73:35

What's your best rationale for why they paid that much? It has

73:42

to be the part that I've alluded and explained, such as I can understand it. Ah, we had a problem with Peter and I listen to it. I think our guy was as wrong occasionally as Peter was wrong, but they had a real tussle at the board level and I would have been happy if we had sold on one company for a $1,000,000,000. If, in fact it was sort of a gesture toe, recognize that we almost were partners. But 19 billion. I am. And I can't even imagine. Yeah, I know what you have the drink or what drug theft used to explain

74:30

that. Now I agree with you. And just on that point, when it comes to the governance level so often, governance can either be an absolute disaster or something that, you know, really helps the company. And we have a see saw that with the airport when Steve Jobs leaving and coming back, you know, over your whole entire career, what have you learned about effective governance, particularly as it relates to, you know, boards being a major asset, not something that tracks from companies?

74:57

I have two answers. We started just to make the numbers round numbers in 1970 and probably until 1985 a long period of time. There were people like Tom Perkins and Mia's examples that were a little older. We had more notches in her rifle. Tom and I were never competitive, and that we're on a lot of competitive bidding against one another kind of thing, but that never allowed for our encourage bad behavior and then would happen anew. Oh, this next period of time, new guys came into the business and they had You've really with the the idiom having notches in your rifle.

76:4

I haven't actually hid that night.

76:5

Well, it's a hunting, ah, issue. And a lot of people go hunting a lot. And kin hit the wall with the shot. Never mind some kind of an animal. Yeah, and a whole bunch of people injured the business with no notches in their rifle. It just barely got the rifle. And they the people like Kleiner Perkins, the people that sequoia, the new people had a need to demonstrate how good they were. And that's when we started having these ah arguments at the board level. Several times I stopped the board meeting, asked for a time out for five minutes and ask the guy who was I thought out of order to just have a little talk ahead of time because he was trying to demonstrate that he was smarter than the president. And I don't care if you are smarter than the president.

But you do not do that publicly. If in fact you're going thio talkto him in a critical way. You do that one on one privately and no one else knows that ever happened. And the president is not diminished. Some people haven't need to demonstrate how smart they are, right. And there was a time when that began and did prior to which there was no competition between Tom and I as an example, because we recognize that that's not gonna help the president having a beating publicly. I mean, I've done a couple of things carefully with my tongue and cheek. Cool. Three of us, Um, square right. Listening to a presentation. There were three founders,

one guy doing all the talking, and he started at the molecule level of describing how a certain event happened and you could see his partners were cringing. And I was looking at our partners and we didn't get it. We weren't understanding what was happening. So I asked for a time out, and I said, Do you have ah card calling card? He says, you're I said, we're gonna have ah tender time out and I'd like you to write your business plan on the card, he says. You can do that. Car's not big enough, please. So we went away. The three founders talk furiously.

And when we came back and began to re engage, they were laughing, right? And it turns out, why were they laughing? Well, look, because the guy who was gonna write at the business plan on the back of the card, most have had the sharpest pointed pencil in history because he got all this stuff down and only they could read it. And they were laughing that and it ended well, because they saw what it was all about. The two quiet founders were happy. The prime founder was happy because he had outsmarted us. He had a pencil that was magic

79:53

magic beans. So, yeah, you know, I want to talk a little bit about Apple now and just took some of the early stories there. I know we've Sequoia your first investment, Atari in 1975. And when you were there, I think it was the founder, Nolan Bushnell, who introduced you to Steve Jobs. You know, he was 18 year old technician at the time at Atari all your first impressions of Steve

80:16

Engineering was run by brining Alcorn L. Alcorn, who never got the recognition the job's did. The two Steves were a great partnership, and L. Cohen was the technical guy, and Jobs wasn't the technical guy, and Jobs had the good judgment to listen to Alcorn. Let the technical decisions go the way Alcorn seemed to feel, and guys like Jobs, worked more under the shadow of the partner and not jobs and jobs was in exceptionally difficult. Greater, uh, everybody knows the story. He was not educated in a traditional sense. He went to a junior college for a brief period of time, but he had a unique ability or almost unique ability that I rarely seen before or since.

He could engage somebody in a conversation with pinpoint questions, and the person being questioned was not intimidated or frightened by the aggressiveness of Jobs, who was getting the information that he wanted the way he wanted it. And he was a terrific question, and I highly opinionated guy. But he knew he had an equal partner, and he depended on L to make sure that the technical decisions with right technical decisions and not left the just Steve trying to feel his way into a space in which there were almost no examples of what the product was supposed to be. And the initial product. I didn't do anything right. Ah, and worse, it had the most miserable memory system imaginable. It had the Ampex audio tape system as the which was unreliable. Slower is congee, but well, they're waas,

which was very helpful because we came up with the idea early on that we could be in the systems business or we could be in the component business and we often to be in the system business. So we looked at Apple in all of its deficiencies and said, Okay, we need a finance, a drive company, and we financed the drive company run by an Indian gentleman. But Juggy Tandon, their revenues hit a $1,000,000,000. Pretty nice achievement. Yeah. Ah, and that's how we went over that. We they used to be open borders in Silicon Valley so you could go to the development center owned by an Eastern computer company, have free random access all over the place, and that's how they figure it out. What a mouse was and where they were going to get the mouse and what the mouse was supposed to be and do so there wasn't maybe a disproportionate availability of access.

Okay, And Steve was very good at studying those issues and prioritizing the sequence in which we invested in those companies or bottom Z. And we were, in a sense, a minor sense. When you did this, Francisco also, we would their acquisition arm so we would help them start companies that we're never going to be. Cos so you didn't have manufacturing. You didn't have all these other things. He just had 40 engineers, which you couldn't hire routinely. But you had 40 engineers working on the project altogether with leadership. And the guy an Cisco was brilliant. Over the years, he complained every once in a while he would say,

Well, I can do that. The answer was, Barrio, you have a list of 13 D things you can do, and you only have enough people for nine. So we tried to explain to, and we're gonna acquire those engineers in the sense of acquiring a company. Well, we did that the same way, in a sense, at Apple thing. The memory system was terrible. Yeah. Yeah. So who's gonna make a better one?

Eso willing been vest and have a good investment, A good customer. But we worked on the concept of being not a components employer, but a system supplier. Okay, which helped us. I understand what the objective of the product was and the parts that were missing.

85:56

Yeah. Yeah. And you talk about, you know, the memory being so terrible and so on. But when it was 1970 18 you didn't miss that. 150,000 to airport. Haven't Steve convince? Youto see that this was an amazing opportunity.

86:9

I had the advantage of being Fairchild, and the guy who designed and created the microprocessor was mine. Enter. And my assignment in the sense was too continued to explore and find applications for the microprocessor. So when I began, I made some rules. We didn't have that much money. We didn't have that good a team. So I just decided we're gonna invest only in micro process of driven products. They're gonna only be in Northern California because we didn't have any need to travel all over the world to someplace like North Carolina and find nothing.

87:6

Didn't wanna go back to Cho in New York, either.

87:8

No anger back there, but so I was looking for microprocessor Investments. Nolan's company was a microprocessor investment, and it was less of a need for me to persuade Steve the he should not only have a microprocessor based product, he should have a specific microprocessor based product. And at that point in time, with the exception of all of the great technical people who knew about micro processes, I may have known more than almost anybody that was in the universe of looking for applications. So I'm not sure how much he persuaded me or how much I've persuaded him, right? But it was an easy argument to identify each position, and they were largely the same position. Yeah, yeah, see the problem? The micro presses also allowed us to invest as we want to do from a systems pointed you, rather than from a component

88:25

point of view. Right? Okay,

88:27

then we did that with Nolan and done a lot of practice at Atari in talking with the engineers. This is where Alcorn was the critical engineer and that education that I had in the references that we're beginning to be believed by people like Steve. But the other thing, yeah, no one always tells this story on himself. Steve offered him 50% of the company for $50,000. Some number like that, and no one said no, No one's that cold on. He'll give you the money. So and I began to talk with Steve. It was one of those situations where I could sense since I believed in the market to begin with, I could sense that these guys were doing it correctly, but they had no business experience and no marketing experience, and this was the product that had to be marketed correctly, in my opinion. So I told Steve I would invest in the company,

but I wanted him to choose someone who is a senior marketing guy and possibly more from a management point of view. Steve said, Fine, send me three candidates price. So I sent him the famous three candidates from people that work for me

90:6

at Mike Markkula.

90:7

Markkula was one of them. A man named Cox who had subsequently run a semiconductor company and a man named Bernie Maren, who ran a difference of a connector company, but they were used to running a bigger company on a national basis. So I sent the three of them over there and the report came back. Ah, Steve didn't like one of them. One of them didn't like Steve and Markle prevailed in balance of someone who could tolerate Steve. Because Steve was one of those guys that always wanted the test you to see what your shock attitude was. So he came to the board meeting one time, and Mike was the nose the chairman, and he came without shoes. Thanks. Said, if I've been a time out, go get your shoes.

91:10

Right. So how long were you on the board for

91:14

it? Years. Yes. Uh, the company was was strange. The basic difference between he and Gates, who, in my opinion, is an infinitely greater entrepreneur than jobs. Steve insisted that is competitive. His idea that he was in the computer business and he had to beat IBM. No matter who argued with him, we couldn't make any progress. Gates, by comparison, said I'm gonna software business. IBM was my customer.

So he made a deal with IBM that when they shook hands Gateshead. No product. Zero. So he bought something, and what he bought was terrible. And IBM somehow or other rationalized that what he could do. Waas evolved the product development with IBM money. So IBM was able to feed him the characteristics they wanted in their software in the PC. And they were paying for it. Yeah. So when he very cleverly found out what they wanted and charge them Yeah, brilliant. Absolutely. Yeah. Seeing. And you can't depend upon the sheer numbers.

Maybe ever. But certainly not then. But Gates would have 85% share. All of the other people apple included would have 15. Yeah, Apple would have a number like six or eight or nothing. And they were never going to catch up because they were after different Apple occasions and office was the big application. IBM sales force was able to take their PC into their big customers and sell them easily. And Steve had no distribution system comparable. He may have had a better software product, only because what Gates bought was terrible. Yeah, but he made it work with IBM is money. It was very clever

93:59

at very, very clever. And you've described Steve. Before that, he was a friend of yours. When you reflect over your time with him, what's the single biggest listen you think he taught you?

94:10

It's one of the great strength of Sequoia, and it's it's something that people don't really understand. Steve was not just a highly thoughtful, structured questioner. At age 19 he was a professional listener, Right and listening is an art form because you are normally speaking. And the story I promise to tell you about. Sherman Fairchild From early days at Sherman Facials Family Company. I was hosted for three days or so at IBM, different product of Inland headquarters. The right guy that ran different kinds of businesses within the IBM computer in the all was senior enough. They had a little plastic sign rectangle and the sign said, Think they all had them right? So it was encouragement for them to think, and not one of them ever asked me a question. No one asked me why I was there. They had instructions from Sherman Fair chose office to give this guy anything he wants.

Answer any question he wants to ask and treated right Well. I was treated brilliantly, but not one guy. Ask me a question. Wow. See? And I'm a trained listener. So Sherman, the next board meeting said, How did your visit the IBM go? And it's not that I have very few rash movements, but I had a very rash moment. I tome from treatment of me. It was wonderful. Rice couldn't be better. We're way ahead in product development for I B.

And then we've ever been I said. But you have a problem. You are training people to think, which you do personally alone. Yeah, your sign should say, Listen and train your people toe. Learn how to ask questions, not threaten the person who's testifying. But let him answer slowly and carefully so he doesn't feel victimized. Well, Sherman was serious, right? And I'm sure I went where with the top. In terms of not being a good guest, IBM was that of the computer business in three years.

Yeah, well, no, I don't mean to claim that there were such bad listeners. I doubt Sherman ever shared with him that there was one person in North America who thought the sign was wrong. Yeah, but

97:47

not a question. Yeah. Now it's a very interesting point. Yeah. Yeah. Okay. And I want to talk a little bit about learning from value. There's an old saying that says a smart man learns a lot more from its failures and successes. So we were talking off camera usage of made, you know, over thousands of investments now, well, over 1000 investments. You know, when you look over the hours, you know, obviously this huge success, it JJ successes and failures. What? What if the biggest values to what you don't?

98:12

The question has been asked a lot over the years, and I always begin the answer. The same approach our evaluation system is if we don't make three times our money, it's a failure, okay? And we spend a very great amount of time analyzing the failures. Then we do the successes, which I sometimes worry about our having gone overboard, inferior analysis.

98:51

You call these your post mortems, right?

98:53

Yeah. Yeah. And I mean, it's the kind of a business once you establish what the criteria is having failures is easy. No. What action do you take when you're in the middle of a failure? And we have always been separated with different than the other people and they invariably leads to my distress. Always responded in a Los Vegas vernacular. Let's see another card and I said, No, I don't want to see another card. The cards. I've seen her enough off with his head. We wouldn't get out of here. Ah, I don't want to give him another chance. We've given them a couple of chances.

It hasn't worked either. It's a bad market with bad product fit, but no, I I we would talk it over and Fairchild when I was there and we had the same kind of sensitive but terminal feeling about recognizing Felder and getting it out of your mind set and either changes made. Or should it, though right to many of the other people in the business, would use the vernacular of Las Vegas of giving him another Carter? It's just to drive me wild, Okay? It's one thing to make the mistake again. That's a different toe. Have the mentality be that we're gambling? Are the money we invest isn't ours. It belongs

100:52

to other cities and yeah, yeah,

100:55

So I felt very strongly. And what evolved Waas If we were on the board and this kind of a decision was to be confronted. The other board members would say, Okay, tough guy. Ah, you do it. Kill the president. He's done, Uh, how your lips for us. And I mean, you can't tell him that. Well, you know, you're the one who really doesn't want to give him another card. So we got the reputation of being tough graders,

I think, somewhat justifiably. That's because the other people with chicken graders and we were the ones that would deliver the bad news of somebody agreed at the board level that we should deliver the bad news, get a matter there, absolutely

101:49

the end of the day you're trying to maximize the return. Right now, it's not working, and that money could be better placed in another investment. Why would you not do that?

101:56

Because the audience doesn't always see everything the same way. They wait things differently. It's hard to get consensus on anything when things are not working things. They're not working. Everybody has a point of view that's slightly different than the other person, but not enough of a point of view of saying, OK, I'll do it. I'll talk to him. Yeah. Uh,

102:25

and when you did do that and you delivered the bad news and said, We're no longer financing this business, what's the I guess, the best way to do that and the fastest way to move so that you can just get out of this house is possible.

102:36

Well, you gotta do it. There's a collective and talk to the other board members. Okay? Invariably, we were perceived as being too tough, I think. Probably an occasionally correct assessment. I viewed them as being week on protecting their clients money. And this is not a plastic chips from Las Vegas. This is real money. And if it doesn't work, shut it down.

103:22

Yeah, and you've always say that's about knowing what are the right questions to ask. What questions will you ask today that you never used to ask that you do us based on the values that you've had?

103:32

Well, it's it's difficult because what we're interested in having is a consensus building atmosphere at Sequoia. So some people deliberate longer and require a little more time to think their position through. Early on, we had another guy from the semi connected businesses run the General partners, and he was from manufacturing. And he was draconian about decision making and quick. And we had a little bit of stress when I asked him to back down and give this other person who was a little more shy, the floor and so he could explain his position without you yelling at him. And losing money is unnatural thing, and you don't want to be good at it. So you do everything you can to conceive of consensus building, which happens at different rates of time with different people. And it's hard to get new people confident enough that their opinion would be valued. And one of the stories that remember for a long time, a new person. I was in the environment create a great education multi degreed,

And he was going to take Pierre was the manufacturing guy. Ah, on head on, and the air was having none of this junior guy pushing him around, so it required a time out. Get things people remembering that your partner's guys, uh and we invest only on consensus. These is we don't have mixed votes, so it may take longer, but we'll take longer so that everybody has their opportunity and we're gonna listen and take them seriously. So here was the guy was in the company, maybe two months, and he was taking on one of the more aggressive, powerful personalities in the room who was in the room and my construction because I wanted that element in the room to occasionally make things grow. Vester. But it's difficult to get somebody new into a position of decision

106:38

equivalents. Yeah, yeah, just finally on, You know, some of the opportunities that got away. I read that Sequoia once said the opportunity to take a 10% stake in Twitter, a $20 million valuation. These companies that you haven't invested in, particularly Twitter. What did you learn from that?

106:53

I think our problem was prejudice. And I'm a big part of the problem because I think one of the worst things that has ever happened in Silicon Valley is one handed driving right on dhe. We have all kinds of accidents. People are doing something other than driving, and I I thought then I think now that it's a bad product from a safety point of view, and I think it's it's, uh, probably an okay company. Ah, I don't like the fact that we have a guy who runs it that runs to companies. And Jack has never demonstrated a great ability to run one company. Unlike Steve. Who in Apple, too? You also had a big hand in running world. Disney. Yeah,

and I mean, that is a big tour de force in terms of differential. Absolutely. The technical people at Disney were very powerful and very good at what they did on Twitter. To me is one of those products I just wish never happened, right?

108:19

Only for safety reasons. Yeah. Yeah, that's yeah. It mask is another great example of someone right who has managed to run. Multiple companies will be across them. Yeah, yeah,

108:29

yeah. We were in the vestry in his first company on, and it was a fairly standard kind of business. And he was very rational and thoughtful. And when he was on to a second company can graciously gave us an opportunity to invest. And if I remember the gun decision roughly, he said, you better sit down because I'm going into the car business. You know what? I'm on it. You know, the car's air normally made nowadays in China and in Japan, half the European guys are gone are almost gone. Us guys Air kept alive by the government. What is it I'm missing here. What? We're going to wait in the car business.

So he excuse us and, uh, came back once with a smile on his face. Some more than a year later, he said, I'm going into another business. I don't think you'll like it any better than the garbage is looking into the missile business. Very creative guy. The first car was supposed to be a very low cost car. Very minimal. Look, Very nice experience. So the first model came and they drove in this car that had Naugahyde, not leather, right? I am not going into the car business selling Naugahyde. Bring back a car with leather. Yeah, and so the price of the car just stopped weight of significant.

110:20

Yeah. Yeah. What do you think of space six?

110:23

I don't know how to think about it. You're right. I'm very oriented to a building big companies because the opportunities air big big in units, begin margins. Ah, these guys most of the time need very high gross margins because they don't know how to run a business. So if you give them and 70% Rose Lardner's, they can do a good job. You give them 40% of his murders than a terrible

110:56

right? Yeah. Yeah, that's very interesting. So just before we finish off, I wantto we've got what we call a rapid fire questions and you know, relatively quick questions to finish. So you've said before that you love rescissions and that one of the best times to invest why

111:12

is that? I mean, it's just counted to the trend. To me, decision making is a very fine art. And when everybody has the same position, I'm interested in having the opposite position because consensus doesn't happen that often know that Well, yeah, And that requires sometimes the government to bail amount. Iran's car company is a disaster from a profit point of view. If the U. S government didn't subsidize it, yeah, you wouldn't have it. I don't like that kind of a business where you are on the margin. And there was ah, probably now,

three months ago. Ah, a comparison. Some reporters. We're listening to Ellen talk about his car company, and he was talking about how he was ramping up unit production. Andi. He was going to be making 26 cars a month and somebody in the audience wise ass in the audience that Chevrolet makes that many an hour.

112:35

Yeah, mister. Yeah, yeah. Um, and you know, when you look back at back to your mindset, especially back when you first started Sequoia back in the seventies, What technological development did you expect to be, You know, all over the world today. What industries disappointed you the most? There's the lack of development.

112:55

Well, it's It's probably simply because I hate it. Government interference. But it would be medical anything. Okay, They have made it so difficult, hardest country in the world. Many of the people do their FDA work in Canada the same format that the U. S. People require, but they're they're graders of a little, a little bit more liberal, and things happen more quickly or less expensively. There's

113:37

been a lot of talk in the United States about obamacare versus you know, the new administration's thoughts on health care. What do you think?

113:49

I'm probably not a qualified witness. See, I've always worked in an environment where that subject of health care was taken care of by the company, right? So I didn't have to worry that I had coverage or that I didn't have coverage for some specific kind of thing. And I was just asleep. Yeah. Ah, not paying any attention at all. And it became a huge political issue. There's another one that's going to be maybe this year are certainly next year. I don't know how many years ago, 30 or 40 years ago, a law was passed. Go Rovers is It's all about abortion. And there's been a law on the books governing that subject, and it's paid for by the U.

S. Government subsidized, and you have people that are violently on each side. But this has been a law forever. So undoing it is going to call us, I think massive trouble. Yeah, And I don't know how you saw

115:11

that. Yeah, is very complex.

115:13

You can't get elected because more women vote than men. So if if 100 people vote, probably 65 of them or 60 of them are women, and that piece of legislation is been there forever, and taking it away is gonna cause a

115:38

war. Yeah. Yeah. What business leader in the world would you look up to the most today

115:42

and why They're all small businessmen. I mean, I'm a great fan of bees, als. Ah, but they're the only people I see up close and think about and occasionally talk with, uh, the people that air running General Motors. I have nothing to say. And I'm not interested in a government subsidized management. General Motors has never had a chairman. A chief executive who wasn't a career man from high school. Yeah, well, you know what kind of a system is They get on a new blood. Yeah. You don't get any new thinking, so I don't have any real comfort in those kind of guys. I have much more confident the guys that run the small companies run

116:37

them brilliantly. And Basil is certainly one of those. What do you think That the 16 year old Don Valentine. But think of the man you've become today.

116:44

I don't think about things like that.

116:46

You don't think about it? No. No, I Fair enough just before you from the shelf. Um What quality of mind or state of mind? Do you think is best served you in your success.

117:0

Well, it's It's derivative of my compulsion about listening. And I I I think on occasion, I do that beyond the point of politeness. I'm interested in hearing what the other people have to say. I know what I have to say, so I don't have to say it, but I'm interested in why people think the way they do. Um, the answer is, sometimes they don't think it all.

117:30

Yeah, that's very true. Yeah. And then and then your life so far, just before you finish office. Is there a lesson you've learned around happiness and the secret to happiness in your life

117:45

probably isn't a subject that I do justice. Um, I I'm probably correctly characterized as being very interested in the internal affairs of our family. Yeah, uh, we have three Children, all of whom are over 50. We have six or seven grandchildren that are all college, one place or another. And I try to get to see that generation. Well, then I do succeed, but because they're always gonna are away at school, right? Absolutely. But the one kid that's a better interrogator than the others, he is graduated from college,

and he's now getting some kind of, ah, advanced degree. It's a school in France. And he asked me, What did you take when you went to college? And I said, You know, Colton, uh, I went to college so long ago. Uh, the the things that you think of options I don't think of us is worthy of study. But the answer is simple. Answer is chemistry his right to take images really hard? Course.

Is it real? If you understand chemistry. You understand? When I took the course, there were less than 50 elements in the periodic table. Now there's 100 and 50. Yeah. So it was a lot easier when I took chemistry 100 years ago because they were a whole bunch of things that were known to be there but not discovered yet and not deployed and in the useful purpose yet, so I like engaging with them the encourage their curiosity. And I don't have any riel access that's there going to school in, uh, different countries, different continents.

120:22

Yeah. Yeah. And it stays on the Sequoia website that you still remain fascinated by the way you know, 20 somethings look at the world and you know the big problems that they want to solve. Do you try and surround yourself with young people today?

120:36

Yeah, because the thought process is different. Uh, the one kid who is in he's 23. So I guess he's not a kid. Ah, who's in Germany and friends? Studying is very uncharacteristic. So what I did when he was 13 I appointed him is my help desk in the computer world. Right. Okay. Ah, Nde One of the products that came along the first music product that, uh, destroyed a Japanese Cody's product. You ever runner

121:32

Rana? Yeah, I am. Yeah.

121:34

Did you ever run using the Sony product? The Walkman?

121:40

Uh, no, I wasn't probably running that win, but yeah, I do remember the Walkman. I did have one.

121:45

Steve just looked at that providence that this is a hard X product. Yeah. Hey, said they only have two songs and then not very good fidelity. And I said, How many songs are we going to have and Steve's that I'm gonna have 1000? And I said, Steve, I I don't know 1000 songs. He said you're not the customer. The customer knows 1000 songs because he did the research on kids that were 13 years old. Music is a big deal. Anyhow. I got nothing music product from Steve and not knowing 1000 songs when I had the help desk. I do is put five or six operas on the product for me, and I'll have music that I like to listen to. And so he said he did that,

Uh, it came to pass. I hadn't paid attention. I will never been very good at having help desk kind of capability. Although they had these genius peoples in in the stores. They don't have manuals, so you can read about something. So I got to the point eyes ready to charge the music product, and there was nothing in a way of plug in material in sight. I looked at the paperwork, no clue about how to charge this thing. So I called the help desk and he had looked at it and he said, Eve, your friend Steve made a colossal mistake, or it's incredibly clever way to sell laptops because the way you charge that product is plug in your laptop. But if you don't have a laptop, you gotta go buy a laptop. It's a very expensive device to charge the application. That should be the corollary application instead of the primary education.

124:13

Yeah, it's amazing. Yeah, just before I asked my last question. Dawn, is there any other story you would like to tell or anything else you would like to say?

124:20

Well, this is a story that it caused a lot of question, and one of our limited partners is a medical company that has headquarters in several of the states. And it's a clinic, and we've been investing a portion of their money. We have always chosen, ah, people who have tax exempt money. So we have a lot of universities and a lot of those kinds of entities. And I was having breakfast with the president of the Mayo Clinic, which is located in Rochester, Minnesota, and several U. S states like Florida, Arizona. And he said, Boy,

he said, uh, we're like most of the limited partners you have. We take 5% of the pool to run the clinic. Most people take 55 and 1/2 something like that, he said. But we are currently running in terms of return from you with 18%. And I said, uh, I don't want to interrupt you, but I want you to go back to whomever does the accounting and get that transaction out of the accounting because it's true that it happened. But it's also true that it'll never happen again. So why have your number's distorted by an event that was a miracle? And we don't know why we were the beneficiaries because we're the only investor. So it's always like somebody is giving us a reward. So please have your numbers reconstructed. Take that out of your portion of it out of your returns and your returns will find that ours they're good returns. But they ain't 18%

126:49

right? Yeah, So Don Valentine, different shelf. I mean, first of what's been a huge honor. The interview, and I really appreciate you giving us your time and advice and wisdom. I think you know, the number of companies you've been involved with is just so inspiring to look at the origins of those companies and know that Sequoia's paid there so so much that our viewers will learn from the sorrow to finish off The last question we always ask is in summary, what does we call it? Your $1,000,000,000 piece of advice for the world of business entrepreneurship and making things happen. So the top of the business advice you'd pass on and for this one, if you if you could look down this camera here, that'd be much appreciated.

127:23

Yeah, it's always puzzled me, and it's not uniquely a U s problem, but the mismanagement that happens and great companies are destroyed. Ah, sometimes it's for very, very vino reasons. Is a company in Seattle or used to be a company in Seattle named Boeing? Boeing makes airplanes unknown to most people that Boeing's airplanes and not owned by the airlines the generally owned by a company like General Electric Leasing. And they leased the planes that Boeing makes to people all over the world. And it's a strange situation because you look at it. A business is very, very intensive and capital equipment airplanes that are not owned by the people who use them but are owned by an independent third party who in the last probably 12 of 15 years due to the sexual needs of the chief executive move. The headquarters of Boeing, from where the companies started in the name of the airport, is bowing. And they moved the company's headquarters to Chicago because that's where the president,

who is in hot pursuit of this woman, I wanted to live. And it crossed a bazillion dollars to move from one place to another only reason why this addict OTAs it all timely because the now retired president of Boeing lives here at this club. And when I first met him, I jokingly said to him, I sure like to hear what the board had to say during the period of time when you chose the spend an ungodly amount of money to move to Chicago in pursuit of Ah, on already married woman, he said, You'll never know that story for me. Yeah, it's a terrible, terrible misuse. Oh, corporate authority. Yeah, I think things like that may go on more often than we're aware,

and I asked him the follow up question. Are you ever going to move back to Boeing Field in Washington? And he said, Noise said, I'm certainly not gonna do that while I'm the chief executive because Thea amount of money spent to get to Chicago is unconscionable. And the amount of money to get back to Boeing Washington would be equally unconscionable. So if someone's gonna do, it's gonna be a different president, chief executive, that kind of stuff. Roy is the company with hundreds of thousands of employees.

131:21

Management, I guess. Is everything

131:23

right? I don't know what the but why The board allows

131:25

that. Yeah, Neither do I

131:28

mean, you don't spend hundreds of millions of dollars without the board's approval. Yeah, if you do hold the board members commit suicide. Get out of there. You're not helping? Yeah, yeah. You know, things like that we destroy cos we destroy values for very veena reasons. And I don't know why the people in the boardroom think they have the right to do that.

131:59

Eye gravy. Great. It's been

132:1

a pleasure. Thank you. So

132:2

do you. Yeah. Great to see you as well.

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