20VC Sequoia's Doug Leone on What Has Been Instrumental To Scaling Sequoia Over Generations, How Sequoia Think About International Expansion and What They Learned From China and India & Why When You Lose PreSeed You Become Private Equity

Summary Notes


In this episode of 20vc, host Harry Stebbings interviews Doug Leone, global managing partner at Sequoia Capital, a leading venture firm with a prestigious portfolio. Doug shares his journey from a 33-year tenure at Sequoia to leading investments in companies like Newbank, Meraki, ServiceNow, and Trade Republic. He discusses the importance of empathy, reality, and courage as key traits, the value of learning from failures, and the strategy behind Sequoia's global expansion with decentralized, local leadership. Doug emphasizes the relentless nature of venture capital and the necessity of staying grounded and competitive, regardless of past successes. He also touches on personal happiness, deriving from both family time and professional relationships built through long-term collaboration with founders.

Summary Notes

Introduction to Doug Leone and Sequoia Capital

  • Doug Leone is the global managing partner at Sequoia Capital.
  • Sequoia Capital is a highly renowned venture firm with a portfolio including Google, Airbnb, WhatsApp, Stripe, Zoom, and others.
  • Doug Leone joined Sequoia over 33 years ago and has led investments in Newbank, Meraki, ServiceNow, and Trade Republic.

"I'm very honored to welcome Doug Leone, global managing partner at Sequoia Capital."

"Doug, he joined Sequoia over 33 years ago and has led invest in Newbank, Meraki, ServiceNow and Trade Republic, to name a few."

The quote introduces Doug Leone as a significant figure in the venture capital industry, highlighting his long tenure at Sequoia Capital and his influential investments.

Doug Leone's Early Career and Meeting with Don Valentine

  • Doug Leone's early sales experience helped him in making a cold call to Sequoia Capital.
  • He managed to impress Don Valentine's right-hand person, leading to an interview.
  • The interview with Don Valentine was challenging, with Don asking Leone what was important and probing for depth in his answers.

"This kid may have something you might want to interview."

"Don asked me one question, what's important?"

These quotes capture the pivotal moment that led to Doug Leone's opportunity at Sequoia and the critical nature of the interview with Don Valentine.

Doug Leone's Interview Techniques

  • Leone asks candidates about their siblings to gauge self-awareness.
  • He inquires about candidates' inherent strengths and areas they've worked to improve.
  • The focus is on personal qualities rather than professional skills.

"I ask them if they have a sibling close in age. And then I ask them, use three adjectives to describe your sibling."

"I really try to get into not the professional quality of the individual, but more of the personal quality."

These quotes reveal Leone's interview approach, emphasizing the importance of self-awareness and personal development in potential candidates.

Lessons from Doug Leone's Parents

  • Leone learned the importance of simplicity, living within means, and valuing education from his parents.
  • He experienced hunger for success and the drive to avoid a modest financial situation.
  • These lessons led him to create scholarships in honor of his parents.

"It taught you the simplicity of everyday life and what's really important."

"It taught you hunger, because if you wanted, it became very clear it was up to me."

Leone's reflections on his upbringing show the formative impact of his parents' work ethic and values on his career and philanthropic actions.

Leadership and Management

  • Doug Leone's leadership style evolved from being a "control freak" to embracing vision and inspiration.
  • He differentiates between management, which is about organization, and leadership, which is about setting a direction and letting others execute.
  • Self-awareness is crucial for effective leadership.

"I can make the trains run on time. If you ask me to take a hill or to get something done, I will commit to you that things are going to be done on budget and on time."

"But I knew that those traits were not conducive to being a leader."

Leone's comments illustrate his personal growth from a manager focused on control to a leader who empowers his team while maintaining a clear vision.

Sequoia Capital's Culture

  • Sequoia Capital operates as a team, not a family, emphasizing performance and teamwork.
  • Leone wrote the tenets of Sequoia Capital, prioritizing performance and teamwork.
  • The company supports its members but also expects high performance and the use of "we" instead of "I."

"We better have high performance in all those areas. And we better have a good deal of expertise in using the we pronoun."

"If you don't perform at Sequoia, we will give you some time. We will figure out a way to help you."

These quotes underscore the importance of collective effort and accountability within Sequoia Capital's culture, as well as the company's supportive but performance-driven environment.

Performance Challenges in Venture Business

  • Venture capital is a latency business with delayed feedback on investment performance.
  • Younger, less experienced individuals may require additional time and support.
  • Venture capitalists often come from non-traditional, outlier backgrounds.
  • Fostering a team culture and fair compensation are essential for success.

"Keep in mind that the venture business is a latency business." "You want to give young people a little more Runway." "We want to take advantage, and I mean in a good way, of the incredible trait, round them off any other traits so they become sufferable." "Teaching someone to use the we pronoun is not just words, not just culture."

These quotes emphasize the unique nature of the venture capital industry, where results are not immediate, and the importance of nurturing talent over time. They also highlight the need to integrate individuals into a cohesive team with shared goals and equitable compensation.

Compensation and Respect

  • Equitable compensation is crucial to prevent discord within a team.
  • Titles and public recognition should reflect respect for all team members.
  • Struggles and challenges are necessary for personal growth and development.

"It means not having Susie make 3% more than Johnny." "There's no need to belittle them in public." "You want them to struggle at times and overcome the challenges in front of them just to make them better."

Doug Leone discusses the importance of fair compensation and the negative impact of perceived inequality. He also explains the value of respecting team members regardless of their position and the benefits of overcoming professional challenges.

Cultivating Brand Loyalty and Ownership

  • Sequoia Capital's commitment to their clients, including endowments and foundations, drives their mission.
  • The company culture attracts and retains individuals with a strong drive and sense of fairness.
  • Sequoia's approach involves taking calculated risks and maintaining competitiveness.

"Bluntly, two or three things. One, most of our clients are endowments and foundation, and we take that very seriously." "We're successful. We are very insecure." "We act very aggressively. We are fearless about taking chances."

Doug Leone explains how Sequoia Capital's sense of mission and fairness, along with their competitive and risk-taking nature, fosters a deep sense of loyalty and ownership among team members.

Changing Models of Venture Capital

  • The venture capital industry is not a game but a serious business with significant stakes.
  • Company building and long-term support are core to Sequoia's strategy.
  • Adapting to market changes and competition is necessary for survival.

"It is a business where people lives are at stake." "What we do is company building." "You cannot do what we do if you're investing in five deals a week."

Doug Leone distinguishes the venture capital industry from a game and emphasizes the importance of company building and adaptation. He critiques models that focus on high-frequency investments and lack long-term engagement.

Learning from Early Success and Failure

  • Early successes can give a false sense of confidence, while failures can be humbling and instructive.
  • The ability to learn from mistakes and adjust strategies is crucial for long-term success.

"Doug, it screwed me up." "It learned that I didn't know much." "I've learned the value of the abyss, and the abyss has huge value."

Doug Leone shares his personal experience of early successes and subsequent failures, highlighting the lessons he learned about humility, diligence, and the importance of navigating difficult times.

Recognizing the Potential to Overcome Challenges

  • Signs of a successful recovery from failure include accountability and a focused approach.
  • Negative traits include denial, rapid uninformed investing, and political maneuvering.

"If they start to fib on the performance of the companies, if they wanted to continue to invest at a rapid pace." "Conversely, someone that fesses up to what they have takes aggressive stand in helping those founders."

Doug Leone describes the indicators of whether an individual will successfully navigate through tough times, contrasting positive and negative behaviors in response to adversity.

Supporting New Investors After Initial Failure

  • Early failures require reassurance and perspective on the normalcy of investment losses.
  • Encouragement and continued effort are important for recovering from a shaky start.

"I think early on, a pat in the back, a reminder that maybe five out of ten, six out of ten investments don't work and let's keep on going."

Doug Leone advises on how to support new investors who face early setbacks, emphasizing the need for encouragement and a realistic understanding of the venture capital success rates.

Investment Strategy and Market Dynamics

  • Investing in startups involves dealing with bad investments and learning from them.
  • The challenge increases when managing multiple investments and board positions.
  • Current market prices are unprecedented, leading to debates on investment strategies.
  • Some advise to keep deploying capital despite high prices, while others suggest caution.

"I don't think the first bad investments is as dangerous and as fruitful a lesson as waking up one day and you're on six boards and you've got four bad investments, because that takes a whole bunch of time."

This quote emphasizes the idea that while initial bad investments can be recovered from, the real challenge comes when an investor is overextended with multiple demanding commitments and poor-performing investments.

Seed Investing and Fund Strategy

  • The breadth of investment opportunities has expanded significantly compared to 2005.
  • The increase in competition and the presence of irrational competitors must be acknowledged.
  • Seed investing is characterized by investing in a smart person in a generally interesting area, without overcomplication.
  • As investments progress from seed to pre-IPO, the importance of careful selection increases.
  • In later stages, the focus must be on quality due to larger checks and higher valuations.

"The further up you go, the looser you can be in a new aperture, because that's part of top of funnel. But as further down the funnel you go, further down the river you go, the better you have to get at picking them."

This quote explains the investment strategy across different stages of a company's growth. At the seed stage, investors can afford to take broader risks, but as they move towards later stages, they must become more selective to ensure quality investments.

The Value of Early Stage Investing

  • Early stage investing allows for building relationships with founders and setting company DNA.
  • Later stages reduce the ability to influence and become more about financial investment.
  • Sequoia's success with early investments is attributed to their operational support for founders.
  • Investing early is not just about writing checks but also about providing expertise and support.

"It is better to do this at the seed state because then you can help them set the right dna and so on."

This quote highlights the strategic advantage of early stage investing, where investors can more significantly impact a company's direction and culture.

Sequoia's Global Expansion Strategy

  • Sequoia's decision to expand to China and India was both defensive and offensive.
  • The expansion was driven by the recognition of large and growing economies.
  • The brand is managed by local teams who make key decisions, emphasizing the importance of local expertise.
  • The success of Sequoia China and India is attributed to finding the right people and allowing them autonomy.

"So I wrote a memo in four, one page that said, I don't know if we're doing this for defensive reasons or offensive reasons."

This quote reveals the thought process behind Sequoia's strategic decision to expand into China and India, showcasing the consideration of both proactive and reactive business strategies.

Partner Selection and Team Building

  • The success of Sequoia's global teams hinges on selecting the right local leaders.
  • The Sequoia brand is decentralized, with local autonomy under a unified culture.
  • Sequoia's leadership ensures alignment and compliance across all branches.

"It's a brand that is run by local people in local geos who make every important choice and decisions about investing, hiring, firing."

This quote emphasizes the decentralized nature of Sequoia's operations, where local teams are empowered to make critical decisions, ensuring relevance and effectiveness in their respective markets.

The Myth of Self-Fulfilling Success

  • Success in venture capital is not self-fulfilling; it requires constant effort and competition.
  • Sequoia actively competes for every investment opportunity.
  • Past success is seen as a potential danger if it leads to complacency about the future.

"It is an every second, everyday thing. There is no such thing as a self fulfilling prophecy."

The quote dispels the notion that Sequoia's success happens automatically. It underscores the continuous hard work and competition required to maintain a leading position in venture capital.

Exit Strategies in Venture Capital

  • Deciding when to sell or exit an investment should not be based on pre-set price thresholds.
  • Many successful companies have surpassed initial sales expectations, indicating that such thresholds may lead to premature exits.
  • A more nuanced approach to exits is necessary, considering the company's ongoing potential.

"So think of all the great companies that you love in a public market... I contend that is absolutely the wrong way, because all those companies clearly overshot those thresholds."

This quote challenges the conventional wisdom of setting rigid price targets for exiting investments, suggesting that a flexible, forward-looking approach may yield better long-term results.

Venture Capital Investment Philosophy

  • Focus on the potential of a company five years into the future, beyond just financial models
  • Importance of identifying companies with a strong competitive advantage
  • The critical question is whether a company like Airbnb can maintain supply to meet demand

"The only question that to me matters is, what can this company be five years from now?"

This quote emphasizes the importance of long-term potential over short-term metrics in venture capital.

"It's a two sided marketplace, global, that if they can get enough supply, we know people of Europe. Now, I've never stayed on Airbnb, but I supported the investment."

Doug Leone discusses the importance of supply in a two-sided marketplace like Airbnb and indicates his support for the investment despite not being a user himself.

Personal Influences and Reading Recommendations

  • "The Fountainhead" and "Anti Fragile" are credited as formative books for Doug Leone
  • These books contributed to his personal development and resilience

"It started with a fountainhead when I was a confused young man, and it continued with a book called Anti Fragile by, I believe, Nassim Talib, of how to make sure you stay as tough as nails as you go through life."

Doug Leone shares that these books have been instrumental in shaping his character and approach to life's challenges.

Fitness and Health Routine

  • Emphasis on health and longevity over muscle size as one ages
  • Routine includes lighter weights, higher reps, cardio, and stretching
  • Balance in diet, including occasional indulgences, is important for quality of life

"I've shrunk from an extra large to a medium. I worry about staying healthy, not in pain and longevity right now, not macho size, which I might have done in my 40s."

Doug Leone highlights the shift in his fitness goals from size to health and longevity, adjusting his workout routine accordingly.

Personal Strengths and Weaknesses

  • Empathy is identified as Doug Leone's greatest strength
  • Insecurity stemming from past experiences is considered his weakness

"Somebody said to me about a month ago, a topic that I had never thought of. They told me my greatest strength is empathy."

The quote illustrates the recognition of empathy as a significant personal strength, particularly in his interactions at Sequoia.

"My weakness, I am not proud to say, is insecurity, wanting to look smarter or better than I am."

Doug Leone candidly discusses his struggle with insecurity and its origins, showing self-awareness of his personal challenges.

Challenges in Venture Capital

  • Managing people and personalities is the most difficult aspect of the role
  • Covid-19 has exacerbated feelings of disconnect within teams

"It's dealing with the people, the personalities. Everyone has their own needs."

This quote underscores the complexity of managing diverse personalities and needs within a venture capital firm, particularly during challenging times.

Traits for Children

  • Values love, reality, and courage as essential traits for children to adopt
  • Emphasizes the importance of a positive outlook, understanding the real world, and having the courage to take risks

"First of all, I'd say love. You've got to have a love for your family, love are your friends, love for life."

Doug Leone expresses the foundational importance of love in one's life and its impact on others.

Impact of Market Cycles

  • Awareness that market cycles include both booms and busts
  • Experience with these cycles informs a cautious and grounded investment approach

"Boom and busts inject a sense of fear to balance, a sense of greed, a sense of reality, and it just grounds you and it gives you the experience and the strength to overcome the next bus that we absolutely know is coming."

The quote reflects the belief that market fluctuations are inevitable and that they provide valuable lessons for more prudent investing.

Venture Ecosystem Changes

  • Desire to eliminate irrational competitors in venture capital
  • Importance of a feedback system based on product quality and market response

"I'd love to eliminate the irrational competitors."

Doug Leone expresses his wish to remove competitors who do not contribute constructively to the venture ecosystem and distort the market for founders.

Personal and Professional Happiness

  • Personal happiness is found in spending time with family
  • Professional happiness comes from helping others succeed and witnessing their growth

"I'm happiest when I'm hanging out with them."

This quote reflects Doug Leone's personal joy in family gatherings and shared experiences.

"On a professional basis, I'm happy two times when I immediately help somebody win a competitive deal."

Doug Leone finds professional fulfillment in assisting others in their achievements and being part of their journey to success.

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