In episode two of "Adapting" by Acquired, hosts Ben and David, alongside guest Ruloff Botha from Sequoia Capital, delve into the implications of the firm's prescient "Black Swan" memo, which anticipated the dramatic shifts businesses would face due to the COVID-19 pandemic. Botha, a partner at Sequoia since 2003 and former CFO of PayPal, shares insights on how companies can navigate economic downturns by focusing on product development, community building, and maintaining cash reserves. The episode also touches on the potential for permanent changes in workplace dynamics, such as increased acceptance of remote work. Additionally, Botha discusses the importance of patience and long-term thinking, drawing on his experience with Square's IPO and Sequoia's approach to supporting portfolio companies during uncertain times.
"It was pretty good." "Emoji Records welcome to episode two of adapting by acquired." "Well, I rehearsed or for those keeping track at home, season six, episode five. We are continuing our series to bring you the stories of great companies and."
These quotes establish the casual tone of the podcast and introduce the theme of the episode, which is about adaptation in business.
"The memo read around the world Sequoia Capital's Black Swan memo, amazingly published only 20 days ago." "As we record this man feels like 20 lifetimes ago."
These quotes highlight the rapid pace of change and the impact of the Black Swan memo on the business community.
"We are joined by the best person in the world to tell us about it, longtime sequoia partner Ruloff Bota." "This conversation is particularly interesting not just to hear the story behind the Black Swan memo, but also to get a real-time look at how Sequoia themselves are thinking about adapting during this time, along with their portfolio companies."
These quotes set the stage for the deep dive into Sequoia's approach to business challenges and introduce Ruloff Bota as a key figure in this discussion.
"Before we jump in, if you haven't already, we want to strongly encourage you to join the acquired Slack community." "We're going to be hosting monthly calls on Zoom for all lps, which we're calling, appropriately enough, lp calls."
These quotes are a call to action for listeners to engage with the podcast's community and benefit from additional content and networking opportunities.
"For this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds." "Pilot is the one team for all of your company's accounting, tax and bookkeeping needs."
These quotes introduce Pilot as a solution for companies needing professional financial services and emphasize the value of focusing on core business activities.
"Ruloff has been a partner at Sequoia since 2003 and led early investments in some of the most important companies that we've covered on this show." "And prior to joining Sequoia, Ruloff was the CFO of PayPal, which is particularly relevant to our conversation today, having helped navigate them through the.com crash, their subsequent IPO, and ultimately their sale to eBay for one and a half billion dollars."
These quotes establish Ruloff Bota's credentials and relevance to the episode's theme of adapting to change.
"Nobody ever regrets making fast and decisive adjustments to changing circumstances. In downturns, revenue and cash levels always fall faster than expenses." "A sense of nervousness that the world wasn't really paying attention to the reality that we were facing."
These quotes from the Black Swan memo and Ruloff Bota's commentary provide insight into Sequoia's proactive approach to business challenges and the sense of urgency that prompted the publication of the memo.
"I remember being at a board meeting with Mike Maritz from Sequoia in June, and he told us, he warned us, focus on Runway, because the financing environment has changed forever." "We really started to sharpen our pencils to make sure that we had enough Runway to make it to the other side."
These quotes provide a historical example of how Sequoia and its partners have navigated past economic downturns by emphasizing financial prudence and strategic adjustments.
"We tried feverishly to raise more money to extend our Runway, and we got religion about our business model."
The quote emphasizes the urgency with which the company sought additional funding to continue operations and the serious approach they took to refine their business model to ensure the business's longevity.
"So clearly, the people at the front lines had seen that this was a virus, unlike others, that was spreading a lot faster and had higher mortality rate than a typical seasonal flu."
This quote highlights the early recognition by those in China of the unique and serious nature of the virus, which was underestimated elsewhere.
"Cash is the most important thing companies have to focus on right now, because if you don't survive, obviously there's no chance for you to build an enduring business."
The quote underlines the crucial importance of cash management for businesses to outlast the crisis and eventually thrive.
"Hunker down and focus on product development. Build that truly differentiated product that, if you can survive, gives you a huge advantage when you come out the other side."
This quote advises companies to concentrate on enhancing their products to gain a competitive edge once the crisis subsides.
"We've created the Q and A with us as a group. So we get over 100 companies, get together with Sequoia partners, and we have a few prepared remarks, things that we're seeing, and we open it up for questions."
The quote describes the efforts to maintain a sense of community and shared learning among portfolio companies through digital means.
"Necessity is the mother of invention. I don't think it was that difficult to figure out that as a payments company, there were so many precedents of charging transaction based fees."
This quote reflects on how the urgent need for revenue led PayPal to adopt a transaction-based fee model, demonstrating how a crisis can catalyze fundamental changes in business operations.
"We lost millions of dollars in 2000 to scalable online fraud."
This quote underscores the financial impact of online fraud and its potential to threaten the existence of a company if not managed effectively.
"We need to deliver enough value so that whatever we charge leaves enough of a gap of value capture to the customer where they're happy to pay for the service we have."
This quote highlights the importance of delivering value that exceeds the cost of the service to ensure customer satisfaction and business sustainability.
"This is going to be a time where I think you're really going to see people differentiate themselves in how they deal with a crisis, who steps up, who provides leadership."
This quote suggests that a company's response to a crisis is a key factor in its success and can highlight its leadership and adaptability.
"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics."
This quote describes the functionality of Statsig and its value proposition for product teams seeking to improve their development and testing processes.
"We've built a bunch of online tools. So we have resources where we can all look at things. We have daily stand ups using Zoom so that everybody can stay in touch."
This quote illustrates Sequoia's pivot to virtual tools to maintain operations and support their companies during the pandemic.
"We've created these online resources. And probably the most important thing we've done is to do a very thorough analysis of the portfolio health."
This quote emphasizes the proactive steps Sequoia took to assess and address the health of their portfolio companies during the crisis.
"We continue to make investments. We formally approved two new series a investments last week, and those meetings were virtual meetings."
This quote confirms Sequoia's ongoing investment activities and their adaptation to virtual meetings for evaluating new opportunities.
"We have asked people how they plan to respond to a changing circumstance, a little bit of a test on whether they're nimble, are they flexible, or are they just tone deaf to the reality of the world we're in right now."
This quote indicates that Sequoia is considering the adaptability and awareness of potential investments in light of the current global situation.
"I think you're going to run this experiment that's actually measurable on how people perform in this kind of an environment."
This quote suggests that the pandemic is an opportunity to gather concrete data on the effectiveness of remote work, potentially influencing future business practices.
"So I think tolerating businesses that are distributor learning how to work effectively with distributed teams, I think we're likely to see people start companies."
This quote anticipates a potential increase in distributed businesses and remote teams as a result of the pandemic's impact on work practices.
Silicon Valley doesn't have a monopoly on idea generation, and I think many more people will start companies elsewhere. So we probably need to be more willing to fly, or if not fly, given health issues, do online assessments of companies.
The quote emphasizes the shift in the startup ecosystem away from Silicon Valley and the need for venture capitalists to adjust their methods of engaging with companies due to this decentralization and health concerns.
Our team in India is an investor in a fabulous company called Freshworks... We're one partnership globally. We've done some really clever things behind the scenes to make sure that we feel like a single partnership and how we share knowledge and share compensation and things like that in a way that makes it feel good.
This quote discusses how venture capital firms are handling investments in companies that operate globally and the importance of internal collaboration and compensation structures to support a unified approach to global investment.
We slowed down in 2019 not because we had some crystal ball, again, that this was going to happen, but things didn't quite feel right. If anything, I want to accelerate out of this.
This quote reflects the cautious approach taken by venture capital firms when market conditions feel unstable, with the intention to capitalize on opportunities that arise during and after economic downturns.
Now, with public markets dropping so much, you can get into a situation as an LP where you aim to have, say, 15% of your assets in private markets total, and now you have 40% of your assets in private markets, and that can be a scary position.
The quote highlights the challenges LPs face when market volatility leads to an unintended increase in their exposure to private markets, which can create financial stress and potentially influence their investment decisions.
Crusoe's data centers are nothing but racks and racks of a because Crusoe's cloud is purpose built for AI and run on wasted, stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers.
This quote describes Crusoe Energy Systems' unique business model that leverages unused energy sources to power data centers, offering cost-effective and environmentally friendly cloud services for AI applications.
And then to see the way that it popped in the first day, it was still not a great outcome, even at the close price at the first day. But I felt that we left so much money on the table. So the way to react in my mind was to rally the team and to talk about just, we can't control our stock price. What we can control is our execution.
The quote reflects on the initial disappointment of Square's IPO pricing and the subsequent decision to focus on internal execution rather than stock price, which ultimately led to greater returns for investors who remained patient.
Yeah, I think it's focus on the long term, solve real problems.
This quote encapsulates the philosophy of maintaining a long-term perspective and addressing genuine market needs as a guide for venture capital investment strategies.