20VC Sequoia's Roelof Botha on His Biggest Lessons Working Alongside Don Valentine, Mike Moritz and Doug Leone, Leading Sequoia's US Business and What Sequoia Do To Retain Their Edge at the Top & The Crucible Moments That Define Startup Success

In this episode of "20 Minutes VC," host Harry Stebbings interviews Roloff Botha, a partner at Sequoia Capital, who shares his journey from CFO at PayPal to venture capitalist. Botha discusses the importance of identifying and advising on "crucible moments" in startups, emphasizes the value of intellectual curiosity across various industries, and highlights the need for investors to be supportive yet not overbearing, acting as "shock absorbers" rather than amplifiers. He also touches on personal growth, advocating for vulnerability and openness in the venture community. Botha's recent investment in mmhmm, a video communication enhancement app, showcases his enthusiasm for products with viral potential. The conversation encapsulates Botha's approach to venture capital, focusing on long-term impact, founder support, and the critical balance between guidance and trust in board relationships.

• Harry Stebbings introduces the episode of "20 minutes VC" and expresses his admiration for the guest, Roelof Botha.
• Botha is a partner at Sequoia Capital, with a notable past as CFO at PayPal.
• Acknowledgements are given to individuals who contributed questions and suggestions for the episode.

This is the 20 minutes VC with me, Harry Stebbings and my word. What a show we have in store for you today.

Harry Stebbings sets the stage for the podcast episode, indicating an exciting interview ahead.

• Sequoia Capital is highlighted as a leading venture firm with an impressive portfolio.
• Roelof Botha's role at Sequoia Capital includes leading rounds in companies like YouTube, Instagram, and others.
• Botha's previous experience includes being the CFO at PayPal during its hypergrowth phase.

As for Roloff at Sequoia, he's led rounds in the likes of YouTube, Instagram, A, Embryon Square, MongoDB, 23, AndMe, Unity Technologies, just to name a few again.

The quote outlines Botha's significant contributions to Sequoia Capital's success through his involvement in funding major tech companies.

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• Roelof Botha discusses his accidental path into venture capital, starting with his education at Stanford and his time at PayPal.
• He describes being contacted by Sequoia Capital despite not fitting their typical candidate profile and his surprise at being offered a partnership.

But the path to venture capital was quite accidental at the time.

Botha explains that his entry into venture capital was not planned, emphasizing the serendipitous nature of his career trajectory.

• Botha reflects on how growing up in South Africa and the people around him influenced his mindset.
• He pursued actuarial science to ensure an internationally recognized professional accreditation and desired to compete on the global stage.

So maybe there's a little bit of being in a small, comparatively small country, maybe sometimes feeling like you're a big ish fish in a smallish pond and wanting to go and conquer the world.

The quote captures Botha's ambition to test his abilities beyond the confines of his home country.

• Botha narrates his rapid career progression at PayPal, from intern to CFO.
• He emphasizes the importance of addressing fraud risks and the support he received from the board, particularly Mike Moritz.
• Botha shares insights on capital efficiency and the balance between growth and responsible spending.

I became a vp of financial and risk management at the end of 2000, when Peter was CEO, he promoted me into that role.

This quote details Botha's rise to a significant leadership position at PayPal, demonstrating his quick ascent within the company.

• Botha discusses the high burn rate at PayPal and the lessons learned about managing company finances.
• He acknowledges the tension between raising enough capital for ambitious goals and avoiding wasteful spending.

It was staggering, actually. We raised this 100 million dollar round that I referenced in March, and then by June, we had seven months of Runway left.

The quote highlights the rapid expenditure of funds at PayPal, which serves as a cautionary tale for startups regarding financial management.

• Botha believes that finding product-market fit is the first major challenge for startups.
• He discusses the risks of overextending resources and the importance of prioritizing and sequencing decisions.

It's a little bit like being at a spectacular buffet and you run the risk of overeating because it's just so many choices.

The metaphor illustrates the dilemma startups face when presented with numerous opportunities, emphasizing the need for careful selection to avoid "indigestion."

• Botha addresses the challenge of time management and prioritizes his responsibilities to his partners at Sequoia and the companies they serve.
• He shares a personal example of preparing for an investment decision meeting to illustrate his commitment to his team.

The first priority has to be to your partners.

This quote emphasizes Botha's philosophy of putting his team first in the context of time management and decision-making.## Venture Capital Prioritization

• Venture capitalists prioritize existing portfolio support over new investments.
• Time is allocated to helping portfolio companies through challenges.
• New investment opportunities are considered after portfolio needs.

"I'll pick up the phone and I'll speak to them and I'll try to help them through a sticky wicket, to use an English term, since I did grow up playing cricket at some point. And then you obviously look at new investment opportunities."

The quote illustrates the speaker's commitment to supporting current portfolio companies before looking into new investment opportunities, likening the process to navigating a difficult situation in cricket.

• The investment pace has increased significantly in the venture capital market.
• The proliferation of capital has contributed to faster deal closures.
• Technological advancements have compressed investment decision timelines.
• Prepared minds and sector analysis enable quick yet informed investment decisions.

"The velocity is at a rate that I haven't seen before. And in a lot of cases, due to the proliferation of capital."

This quote reflects the speaker's observation of the unprecedented speed at which investments are being made, attributing it to the abundance of available capital.

• Building trust in the era of online meetings is challenging.
• In-person interactions are crucial for establishing trust.
• Personal references have become more important for assessing trustworthiness.

"I worry that trust level is shallower today."

The speaker expresses concern that trust built through online interactions may not be as deep as that developed from in-person meetings.

• Founders often have characteristics that make them poor employees but excellent entrepreneurs.
• Integrity is a non-negotiable trait in founders.
• References that highlight a founder's desire to challenge the status quo are viewed positively.

"Your job today is to figure out in which quadrant we normally make money."

The quote conveys advice given to the speaker, emphasizing the importance of identifying the types of founders who are likely to generate returns for the venture capital firm.

• Preemptive rounds reflect investors' proactive approach to funding.
• There's a risk of shallow due diligence in the rush to invest in "hot" companies.
• Overcapitalization can distract founders from focusing on their business.

"The downside, obviously, is if it's mostly memetic behavior."

This quote points to the potential negative consequences of investors following trends without thorough investigation, leading to suboptimal investment decisions.

• Sequoia's culture emphasizes continuous improvement and long-term success.
• The firm recruits individuals who are seen as future partners, not employees.
• There is a collective responsibility to uphold and advance the firm's legacy.

"You're only as good as your next investment."

The speaker relays a core belief within Sequoia that past success does not guarantee future performance, instilling a culture of humility and forward-thinking.

• Partners must balance the excitement of potential success with the reality of possible failure.
• Learning from failures is essential in venture capital.
• Emotional resilience is required to cope with investment losses.

"It takes enormous resilience to cope with losing money, to have led an investment and lost all of it."

The quote reflects the speaker's personal experience with investment failures and the emotional fortitude needed to persevere in the venture capital industry.## The Nature of Venture Capital and Dealing with Failure

• Venture capital is a field that can test one’s confidence due to the possibility of encountering failure before success.
• It's crucial to learn from both the failures and missed opportunities in venture capital.
• Reflecting on past decisions, both false positives and false negatives, is a valuable exercise for growth.
• Roelof Botha emphasizes the importance of learning from what was missed in an evaluation, such as market opportunities or the team's potential.
• The failure of imagination is often a significant source of missed investment opportunities.
• Reflecting on the decision not to invest in Twitter in 2007, Botha considers the possibility of a lack of foresight regarding its potential growth and evolution.

"As one of my partners used to say, the lemons drop early. So if anything, you're likely to see failure before success, which is another thing that eats at your self confidence. But it is a game of confidence too."

This quote highlights the challenging nature of venture capital, where early failures can impact self-confidence, yet maintaining confidence is essential for success.

"So the things I've tried to do, and it's not only for the investments you make that fail, but it's also the ones you said no to that end up succeeding."

Botha acknowledges that learning opportunities arise not only from failed investments but also from successful ventures that were passed over.

"The thing I find most often, by the way Harry, is failure of imagination on my part. That has been the biggest source of my failures."

Botha identifies a personal shortcoming, a failure of imagination, as a key factor in missed investment opportunities.

• It's challenging to maintain a fresh mindset and avoid biases from past failures when evaluating new opportunities.
• Learning from previous experiences is essential, but it's dangerous to "redline" or completely dismiss an entire sector due to past failures.
• Botha suggests retaining a childlike innocence and willingness to dream when looking at new opportunities.
• He thinks in probabilistic terms, allowing past experiences to inform but not dictate future decisions.

"That's hard. Very, very hard, because you also want to learn from some of these things."

Botha acknowledges the difficulty in balancing learning from past failures with staying open to new opportunities.

"And you need to retain an element of naivete, a sort of childlike innocence and willingness to dream and imagine as you look to new opportunities."

He emphasizes the importance of retaining a sense of wonder and openness when considering new ventures.

• Sequoia Capital focuses on being customer-obsessed rather than competitor-focused.
• Innovations such as the Scout program and the AMP/Company Design Program have helped Sequoia stay ahead.
• These programs aim to connect startups with resources and create a supportive community among founders.
• Sequoia's approach to services is bespoke, but they also explore batch-oriented programs to provide broader support.

"You want to be competitor aware, but customer obsessed, and that's the key."

Botha stresses the importance of prioritizing the needs and success of the customer over simply reacting to competitors.

"The thing we launched three years ago, and it took more than a year in the making to get it off the ground, is a program we initially called AMP. It's now called company Design Program."

He describes Sequoia's initiative to provide structured support to startups, reflecting the firm's innovative approach to venture capital.

• Board membership is seen as an invited guest role, with management being responsible for day-to-day operations.
• A Socratic approach, characterized by asking genuine questions, is favored to guide companies effectively.
• Board members should act as shock absorbers rather than amplifiers, providing stability and challenging the team to think long-term.
• Reflecting on changes in board membership style over time can be insightful, but gradual evolution may be less noticeable to the individual board member.

"It's really important to understand that you're an invited guest at some level as a board member, and the responsibility of management lies with management, not with the board."

Botha highlights the advisory role of board members and the importance of respecting management's primary responsibility.

"One of the phrases I've come up with is that board members are also meant to be shock absorbers, not amplifiers."

He suggests that board members should provide support and challenge the team in a balanced way, contributing to the company's resilience and growth.

• Leaders must be careful with their words, as even jokes or offhand comments can be misinterpreted.
• It's important to frame questions and comments in a way that doesn't inadvertently guide decisions.
• Botha aims to be clear that he is asking questions to challenge thinking, not to push for a specific outcome.

"Even an offhand comment, maybe a joke, can be misinterpreted and take on far more meaning than you intended."

This quote underlines the importance of being deliberate and clear in communication, especially in leadership roles.

"I'm trying to ask a question in the spirit of being a devil's advocate, I'll try to set up the question in a way that makes it clear that I'm not surreptitiously trying to guide it to a particular outcome."

Botha explains his approach to asking questions that encourage reflection without imposing his views.

• Listening and asking questions are key skills for board members, especially those new to the role.
• Pretending to know something can lead to worse outcomes than simply asking for clarification.
• Finding mentors and learning from experienced board members can help develop one's unique style.
• Shadowing different partners on boards provides exposure to various styles and industries.

"Listen, one of the great things I took away from Don Valentine as well was his listening gene."

Botha credits Don Valentine with teaching him the value of listening, a skill he considers essential for board members.

"Don't be shy about asking questions. I think it's the people who feign that they know and then get caught out."

He advises new board members to be inquisitive and honest about their knowledge gaps.

• Botha discusses the concept of "crucible moments" in a company's journey, which are pivotal decisions that can shape its future.
• Daily tactical decisions are often reversible and less critical than these crucible moments.
• The Unity journey included such moments, and reflection on these can provide insights into the company's success.

"So there's a phrase we deployed, Soko, called crucible moments."

Botha introduces the concept of crucial, defining moments in a company's history that can have significant long-term impacts.## Crucible Decisions in Company Management

• Crucible decisions are pivotal choices that a company faces, which can significantly impact its future.
• Management must identify these moments and surround themselves with the best advisors and information.
• Examples at Unity include changing the business model, transitioning to a subscription model, appointing a new CEO, and rejecting an early acquisition offer.
• Sequoia Capital played a role in advising Unity through these decisions.

"There's probably one to three crucible decisions a company faces every year that truly, truly affect the ultimate outcome."

This quote emphasizes the rarity and significance of crucible decisions in shaping a company's trajectory.

"And the challenge for management is identifying those crucible moments, first and second."

The quote highlights the two-fold challenge for management: recognizing crucial decision points and then making informed choices.

• Sharing personal struggles can bring more vulnerability to the professional ecosystem.
• Sequoia Capital practices "check-ins" to share personal and work-related issues, which builds trust and cohesion within the team.
• Demonstrating vulnerability can lead to better performance and more rational decision-making in investment firms.

"And it's both personal and work, typically. And the expectation is that you really share what matters to you."

This quote illustrates the depth and sincerity expected during the check-in process, which is designed to foster genuine connections and understanding among team members.

• Viktor Frankl's "Man's Search for Meaning" is Roelof Botha's favorite book, emphasizing the importance of purpose over material wealth.
• Sequoia Capital aligns with this philosophy by choosing non-profits, endowments, and foundations as their limited partners (LPs), ensuring their work contributes to meaningful causes.

"There's a phrase in there where he says, those who have a why to live can bear almost any how."

This quote from Frankl's book reflects the idea that understanding one's purpose can empower them to endure any challenge, a principle that resonates with Botha.

• Tom Kilia is noted for his management skill and technical prowess, serving as an exemplary board member with whom Roelof Botha has worked at Zoom and Mongo DB.

"He's an incredible manager, he's an incredible technologist."

The quote underscores Kilia's exceptional abilities that make him a memorable and effective board member.

• Roelof Botha enjoys the challenge of being involved with a variety of industries, which he considers his biggest strength.

"I love the challenge of solving problems in a variety of different industries."

This quote reflects Botha's enthusiasm for engaging with diverse sectors and his adaptability to different business environments.

• Botha acknowledges his need to give more praise, based on feedback from his 360 review.

"The feedback I got was that I don't dispense praise as much as I could or should."

The quote reveals Botha's self-awareness of his areas for improvement and his commitment to personal development.

• Botha advocates for investors to recognize their supportive role and highlight the efforts of entrepreneurs and management teams, rather than taking undue credit for a company's success.

"But there's a reason we have this phrase at Sequoia, that we're the entrepreneurs behind the entrepreneurs."

This quote encapsulates Sequoia's philosophy of being supportive partners to entrepreneurs, rather than overshadowing them.

• Sequoia's recent investment in mmhmm, a video communication tool, was driven by its potential for effective communication and viral growth.

"We invested in a company called mmhmm, which is spelled mmhmm."

The quote introduces the investment in mmhmm, highlighting its unique branding and relevance in the context of increased video communication during the COVID era.