Sequoia Capital Part II (with Doug Leone)

Summary Notes


In this episode of Acquired, hosts Ben Gilbert and David Rosenthal, along with global managing partner of Sequoia Capital, Doug Leone, delve into the evolution of Sequoia from 1996 to the present. They discuss Sequoia's expansion under the leadership of Leone and Sir Michael Moritz, highlighting the firm's pivotal role in backing industry-defining companies like Google, PayPal, and Airbnb. Leone shares his immigrant journey and how his tenacity, coupled with Sequoia's culture of embracing founders and innovation, propelled the firm into a multibillion-dollar global powerhouse. Sequoia's strategic global expansion into China and India and their comprehensive investment approach from seed to growth stages are also explored. The episode touches on the firm's resilience during the dot-com bust, its commitment to never losing investor money, and the importance of maintaining a culture that prioritizes performance and founder support over past successes.

Summary Notes

Dedication to Don Valentine

  • The episode is dedicated to the late Don Valentine, founder of Sequoia Capital.
  • Don Valentine passed away the previous year.

Instead of a cold opener, we want to use this space to dedicate today's episode to the late Don Valentine, who passed last year.

The quote indicates the episode's dedication to Don Valentine, highlighting his importance and the impact of his passing.

Overview of Sequoia Capital's Modern Era

  • Sequoia Capital's transformation under Sir Michael Moritz and Doug Leone since 1996.
  • Sequoia has been the investing partner behind many industry-defining companies.

In this modern era of Sequoia, since 1996, Sequoia has been the investing partner behind an absurd number of the industry defining companies of the last 25 years, including Yahoo, Google, PayPal, LinkedIn, YouTube, Reddit 23, Andme, HubSpot, WhatsApp, Dropbox, Airbnb, Docker Stripe, Instacart, Uipath, Doordash, and Robinhood.

This quote lists the numerous successful companies Sequoia has invested in, demonstrating the firm's significant impact on the tech industry.

Doug Leone's Introduction

  • Doug Leone is the global managing partner of Sequoia Capital.
  • He joined Sequoia in 1988 and was instrumental in its expansion.

Doug is the global managing partner of Sequoia Capital, in charge of overseeing the firm's many diverse businesses, which we will get into from seed to global growth, investing across the US, India, and China. Doug first joined Sequoia in 1988 after famously cold calling Don Valentine, and was the champion of Sequoia's expansion from a single $150,000,000 early stage fund to the multibillion dollar global powerhouse it is today.

The quote explains Doug Leone's role and his contribution to Sequoia's growth into a global powerhouse.

Pilot as a Sponsor

  • Pilot is a company providing accounting, tax, and bookkeeping services for startups and growth companies.
  • Pilot is backed by Sequoia, among other investors, and has grown to be a significant player in its field.

Our next sponsor for this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds.

The quote introduces Pilot, highlighting its role as a sponsor and its relevance to startups and growth companies.

Doug Leone's Personal Journey

  • Doug Leone immigrated from Italy to America at the age of eleven.
  • His family had connections in America due to World War II.

So we had a bit of a World War II heritage where my dad's sister got married to a lieutenant, ended up in America, had a child called mom, and so now we had grandma for me and aunt in America, and we were the italian family with the american bend.

This quote provides background on Doug Leone's family and their reasons for immigrating to America, which influenced his life and career trajectory.

Leone's Early Life and Adjustments in America

  • Leone experienced a cultural shock and bullying in high school upon moving to America.
  • His high school experiences shaped his personality, combining warmth with toughness.

And it was abusive in high school. Imagine. It's not like being in school, where right now everybody preaches, you have to be good to your fellow kid, and all these wonderful things there. You get the crap beaten out of you, emotionally, physically, and so on.

The quote describes the difficult adjustment Leone faced in high school, which played a role in forming his resilient and multifaceted personality.

Doug Leone's Myers Briggs Transformation

  • Leone's Myers Briggs personality type changed from process-driven to intuition-driven.
  • This transformation was rare and significant for his leadership at Sequoia.

And when I was tested in Myers Brigg by a lady that tested me, she was shocked by the transformation. And she said, you and Michael Dell are the only two people I've ever tested that have made that change.

The quote reveals a significant shift in Leone's approach to leadership and decision-making, emphasizing the ability to change and adapt.

Leone's Education and Early Career

  • Leone attended Cornell University but faced academic challenges initially.
  • He worked in sales for Hewlett Packard and Prime Computer before entering venture capital.

I got thrown out of Cornell after my first year. My first two semesters.

The quote candidly shares Leone's early academic struggles, contrasting with his later success in the tech industry.

Leone's Venture into Venture Capital

  • Leone was inspired to enter venture capital after meeting Vinod Khosla.
  • He cold-called and wrote to numerous venture capital firms to break into the industry.

I met Vinod Kosla, venture capitalist. What the heck is that? And I want to be one of those.

The quote highlights Leone's ambition and determination to enter the venture capital field, which would eventually lead to his success at Sequoia Capital.

Interview with Doug Leone by Ben Gilbert and David Rosenthal

  • Doug Leone shares his experience of being interviewed by Don.
  • Don's interview style is described as comfortable with silence and probing for depth.
  • Doug appreciated Don's genuine approach and felt that Don recognized his potential.

"One question. What's important? And I talked for three minutes, and silence didn't bother Don."

The quote reveals the unique and minimalist interview approach of Don, focusing on the candidate's perspective on what is important.

Doug Leone's Path to Becoming a Technology Investor

  • Doug Leone reflects on his lack of initial knowledge about being a technology investor.
  • He attributes his success to hustling, building knowledge, developing a network, and some luck.
  • He acknowledges the roles of different individuals in Sequoia's success and his own journey.

"What has led to my success is I hustled a lot."

The quote summarizes Doug's belief that his strong work ethic and persistence were crucial to his success as a technology investor.

Early Investment Successes and Challenges

  • Doug Leone's first three investments resulted in IPOs, which gave him a false sense of confidence.
  • He faced a reality check in 2001, realizing he didn't have any winning investments in his portfolio.
  • Doug discusses the importance of resilience and learning from tough experiences in the investment world.

"My first three investments were IPOs, which was good, but it also built a false sense of confidence."

This quote highlights the initial success Doug experienced and the subsequent realization that early wins do not guarantee future successes.

Doug Leone's Role in Sequoia's History

  • Doug Leone details the transition of leadership at Sequoia from Don Valentine to himself and Michael Moritz.
  • He describes the process of becoming a partner and the challenges of earning trust within the firm.
  • Doug emphasizes the importance of equality and shared responsibility in the firm's leadership structure.

"It's not as black and white as Don turned it over to Mike Maritz and me."

The quote clarifies that the transition of leadership at Sequoia was a nuanced process, rather than a simple handover.

Sequoia's Evolution and Adaptation to Changing Markets

  • Doug Leone discusses the challenges Sequoia faced in raising funds and the firm's determination to succeed.
  • He reflects on the dot-com bubble and the concept of clawback, where Sequoia owed money back to limited partners.
  • Doug shares how Sequoia worked diligently to turn around poorly performing funds and ensure no investors lost money.

"We're going to bring these funds home."

This quote demonstrates Sequoia's commitment to overcoming challenges and ensuring positive outcomes for their investors.

Sequoia's Response to the Dot-Com Bubble

  • Doug Leone and Michael Moritz shared a unified vision during the difficult times following the dot-com bubble.
  • They were determined to work through the challenges and not take the easy route of writing off the losses.
  • Doug likens the camaraderie and determination to situations in sports or military service, emphasizing the importance of doing the right thing even when it is inconvenient.

"It was your business was, no, nothing to do with business lives. It was the fact each one of our cells in our body could not do that."

The quote reflects the deep sense of responsibility and commitment felt by Doug and his partner to address the challenges head-on and succeed against the odds.

Reflections on Patience and the Google Investment

  • Doug Leone discusses the patience required in venture capital, referencing the early days of Google and Meraki.
  • He highlights the importance of allowing smart founders the time to figure out their direction.

"Sometimes patience. Sit on your know, I had a similar but a smaller story in Meraki. Smart founders couldn't figure out which way to go."

This quote underscores the value of patience in the venture capital industry and the role it played in the success of companies like Google and Meraki.

Founder Autonomy and Product Market Fit

  • Ben Gilbert emphasizes the importance of letting founders stay in control, especially during the creation phase.
  • Doug Leone believes in allowing founders to navigate early stages and focus on achieving product market fit, which Sequoia can't assist with.
  • Once product market fit is achieved, Sequoia can help with "everything else," implying a more hands-on approach post-fit.

"If it's creation time the founders create now, there could be execution time where they don't execute as well, in which case you help them. But the thing I tell founders, you get to do product market fit. We can't help you there. If you got product market fit, we can help you with everything else."

This quote outlines the philosophy of Sequoia Capital in supporting startups, emphasizing the founder's role in establishing product market fit and Sequoia's subsequent role in aiding with execution post-fit.

Statsig Sponsorship and Product Development

  • Statsig is introduced as the new sponsor, a tool for feature management and experimentation.
  • Vijay, the CEO of Statsig, has a background from Facebook and has developed a tool inspired by Facebook's product engineering tools.
  • Statsig is described as a platform that allows product teams to ship faster, automate A/B testing, and directly observe the impact of features on business metrics.

"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 explains the core functionality of Statsig, highlighting its ability to assist product teams in improving their development process and measuring the impact of their features.

Sequoia Capital's Global Expansion

  • Doug Leone reflects on Sequoia's decision to expand beyond local investments, driven by the exponential curve of accelerated change.
  • The firm's global strategy was motivated by the globalization of the world and the presence of immigrant founders in Silicon Valley.
  • Sequoia chose to invest in China and India based on their large and growing economies, while avoiding smaller or stagnant markets.

"So the first thing, I don't like the notion of you and Michael. We're all standing on each other's shoulders. Michael stood on Don's shoulders, I'm standing on Mike's shoulders, and Jim gets his shoulder and rule of shoulders."

Doug Leone emphasizes the collective effort of Sequoia's team over individual contributions, using the metaphor of "standing on each other's shoulders" to depict the collaborative nature of the firm's achievements.

Sequoia China's Success and Team Effort

  • Sequoia China was established by recruiting a team of Chinese nationals with experience in both the U.S. and China.
  • The team's success is attributed to the right mix of local knowledge and Sequoia's culture.
  • Sequoia China has invested in major companies like Pindodo, Alibaba, and ByteDance, resulting in numerous IPOs.

"We've had somewhere near 50, 60 ipos. And so I had the idea on a one page sheet. But if I tell you that, that would leave you with the wrong impression. At critical times, where we needed. This is kind of funny. When we needed operational's move, it was Mike that had the insight that we needed to make those moves."

Doug Leone acknowledges the critical role of operational moves made by Mike Moritz in the success of Sequoia China, highlighting the importance of teamwork and timely decision-making in venture capital.

Sequoia's Fund Expansion and Strategic Focus

  • The expansion into growth funds and a global growth fund was driven by the need to support portfolio companies with larger rounds of funding.
  • Sequoia's strategic focus remains on being the first investor and supporting founders from the inception of their companies.
  • The firm added a hedge fund to capitalize on the growth of companies post-IPO, enhancing their understanding of company trajectories and maintaining relationships with successful founders.

"So the most important thing, as I said, is to be the first $100,000 to help that founder. So whatever we did, we understood that is the strategic part of the house."

Doug Leone clarifies that Sequoia's main strategic priority is to be the initial investor, underlining the significance of early-stage support in their investment philosophy.

Sequoia's Approach to Venture Capital

  • Sequoia Capital operates with a philosophy where they serve founders from idea to IPO and beyond, including personal needs.
  • A unique profit-sharing model where profits from different investment areas (venture group, China, heritage fund) are blended and redistributed equally among partners, symbolized by different types of nuts.
  • The firm prioritizes founders first, limited partners (mostly nonprofits) second, and themselves third, with a long-term business vision for the next century.

"We all take an equal percentage of our profits. The venture group is walnuts. China is peanuts. The heritage fund is cashews. We blend them, and then we redistribute them so that we all get a share of mixed nuts. But no one gets more nuts."

This quote explains Sequoia's profit-sharing model, where profits from various investment sectors are mixed and shared equally to foster a team spirit and financial interdependence.

Sequoia's Investment Philosophy

  • Sequoia aims to be involved with companies throughout their entire lifecycle, adopting a generalist approach rather than specialization.
  • They focus on being the first dollar in and support companies through the inevitable bumps along the way, which is critical for companies with non-linear growth trajectories.

"I will add, I agree with everything you said, and to get there as early as possible to be the first dollar."

Doug Leone agrees with the strategy of early investment and continuous support, emphasizing the importance of being the initial investor and the benefits of this long-term approach.

Sequoia's Core Values

  • Sequoia's success is attributed to simple core values: market focus, putting founders first, active listening, partnership over investment, and discipline.
  • The firm's culture is key, seeking individuals with unique backgrounds, encouraging teamwork, allowing mistakes, and seeking objective truth to benefit founders.
  • The firm maintains a mindset of having achieved nothing, staying vigilant against complacency, and prioritizing performance and teamwork above all.

"Our little secret is our culture... They were the shunned ones, if anything, maybe a couple IQ points high or something... We're looking for the truth, not your truth, not my truth, the truth in the middle of the table that helps the founder."

Doug Leone reveals that Sequoia's success hinges on its distinctive culture that values diverse perspectives, intellectual curiosity, and a relentless pursuit of the objective truth that aids founders.

Sequoia's Adaptability and Self-Reflection

  • Sequoia acknowledges the pitfalls of previous success and actively works against resting on laurels.
  • The firm has a philosophy of constant improvement, embracing failure as a learning opportunity, and critically assessing past decisions.
  • Doug Leone gives Sequoia a grade between B and B+ overall, reflecting on both their successes and misses.

"Success is a drug, and you can't fall prey to that... We are not a family. Make no mistake, we are a team... You could have clarity of thought, you could have teamwork, but you're not performing, you're not here."

Doug Leone emphasizes that success can be intoxicating and that Sequoia operates as a performance-driven team, not a family, with a clear focus on results and contribution.

Sequoia's Missed Opportunities and Lessons Learned

  • Sequoia missed opportunities with Facebook, acknowledging they were "asleep at the switch" for certain funding rounds.
  • They recognize the importance of not overthinking investment decisions, especially when revenue growth is evident.
  • Doug Leone candidly discusses the firm's grading on past decisions, including successes and failures, and the importance of a thoughtful approach to investing.

"We tend to get them wrong for the most often reason is that we overthink things... I'd give us lower than an f. I don't know what's lower than. I'll give us a g."

Doug Leone reflects on Sequoia's missed investment opportunity with Facebook, attributing it to overthinking and acknowledging the firm's failure to act when they should have.

Engagement with Entrepreneurs

  • Sequoia is open to entrepreneurs reaching out directly via email, with the expectation of a well-thought-out message.
  • Doug Leone encourages entrepreneurs to be aggressive and clear in their communications when seeking investment or partnership.

"Send us an email... make it a thoughtful email. If you send an email to 14 of us, no one's going to answer, send us an email. I don't say spend a month on it, but well thought out."

Doug Leone advises entrepreneurs on how to effectively reach out to Sequoia for potential collaboration, emphasizing the importance of a considerate and direct email.

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