Acquired - Sequoia Capital (Part 1)

0:00I love it. You know what they, I had been intending to upgrade them when I was in New York. I was like, I'm gonna go to the flagship Nike store and get the latest, latest model. They don't make them anymore. They don't make the flynets anymore? They make flynets, but they don't make the free flynets. Oh, crap. The Nike free flynets, so I think this might be the last model. Well, to stock up. Yeah, I know what I'm doing this weekend. Welcome to season five episode four of Acquired, the podcast about great technology companies and the stories behind them.

0:40I'm Ben Gilbert, and I'm the co-founder of Pioneer Square Labs, a startup studio and early-stage venture fund in Seattle. And I'm David Rosenthal, and I'm a general partner at Wave Capital, an early-stage venture fund focused on marketplaces based in San Francisco. And we, as you know, are your hosts. Today, we are talking about the absolutely legendary Sequoia Capital, and because it would be inappropriate to try to cover Sequoia's immaculate history in just one episode, this is only part one.

1:09And typically, I try and throw out some stats in this section about why the company that we're covering on this episode is important. Well, today I'm only going to throw out one. Since it's founding in 1972, the firm has helped to catalyze companies that now represent $3.3 trillion of public market value. And for context, the entire NASDAQ is $10 trillion. It is...

1:34frankly, absolutely unbelievable that a single firm can be responsible for helping to create so much of our modern economy. David, this is bananas. Yeah. For comparison's sake, what did we say next, which is one of our A-plus's, we said generated a trillion dollars in market cap value, the next acquisition. So here we are talking about $3.3 trillion. Obviously, it's a venture firm, not a company, but this is one of the reasons I've been.

2:03so excited to dive into this new category here on Acquired and can't wait to tell this history of Sequoia Capital. Absolutely. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, LaGora, the agentic operating system that is redefining how the world's best legal teams work.

2:25Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm.

2:51for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts, and it pulls every key term into a grid a lawyer can actually work with. Lugora's bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

3:21And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries. And crazily, they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers. And that is the real test.

4:13Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. So lastly, Our limited partner bonus show this week was kind of a fun flip for me. David interviewed me on what is a startup studio and how does it work and I dove into our process here at Pioneer Square Labs. If you want to listen and become a limited partner, you can get started with a seven-day free trial and listen right here in the podcast player of your choice by clicking the link in the show notes or going to glow.fm slash acquired. I promise it's very easy. I like that. I like that. Yep.

5:06All right, David. It's time. It's time. Let's do it. So one thing that is often forgotten these days because it's just a name and it's like, you know, reminds me of the quote about fishes and water where you ask a fish like, how's the water and fish says, what's water? And that is that Silicon Valley is called Silicon Valley.

5:30because of silicon, even though it is mostly software these days and the internet. So to set the stage for this episode, we need to rewind back to the origin of silicon valley and indeed silicon. So we go back to 1957 when, and this is really the moment I think you could argue when when silicon valley, as we know it both in terms of silicon and in terms of the concept was born. And that was when a group of eight employees leave a company called shockley semiconductor shockley semiconductor laboratory and start a new company that ends up being called fairchild semiconductor and this group of eight employees goes on to be known as the traitorous eight and we'll link to in the show notes to this amazing photo we'll link to the Wikipedia page of these eight individuals it's just so great so 1957 in all the best ways why did these eight folks

6:26leave Shockley and start their own company. And this was a radical thing to do at the time. Well, Shockley's semiconductor was started by Bill Shockley. And Bill was a genius. He was the co-inventor of the transistor that he helped him when he was at Bell Labs. And for that, he won the 1956 Nobel Prize. I mean, he literally helped him in computing. But he did have a dark side and that dark side was that he was a terrible manager and people hated working for him and to help you kind of get the picture at this point in time and then for kind of the rest of his life he became a white supremacist and was a proponent of eugenics so this is the sort of a person we're talking about that would prompt people as brilliant as he was and as amazing as the innovation that was happening at Shackley would be prompted to maybe leave and do something rash so

7:22who would the traitor seat? Well, among them, there are some names you might recognize starting with Gordon Moore's Law and Bob Nois, who of course the two of them would go on to found Intel, although that's a story for another day. And Eugene Kleiner, who would go on to help found Kleiner Perkins, which is another venture firm story for another day. But what was interesting is when they left and they started Fairchild, it wasn't Actually a startup in the way that we think about it today. It wasn't an independent company it ended up they had a really tough time getting it financed and so how it ended up being organized was as the west coast semi conductor division of an east coast company called fairchild camera and instrument corporation so fairchild was located back on Long Island in New York and they owned

8:11The company. So funny. I always assumed that Fairchild was like one of the traders ate. No, not at all. Yeah, they didn't actually own the company. I believe they had equity in him, but no. So how did this happen? A man named Sherman Fairchild at this point in time who lived in Long Island was the largest shareholder in IBM because his father had helped.

8:34finance Tom Watson in forming IBM many years, many years earlier. So when the traders ate, we're trying to get their new company off the ground. They intersected with a man named Arthur Rock, who's going to come up again in a minute here, who was one of the early proto venture capitalists in California. And he was a former investment banker and he was trying to get financing. It was really hard. And so he ended up going to Sherman Fairchild because he knew Sherman was the largest shareholder in IBM. He was interested in technology and Sherman agreed to that this up as a division of his camera and instrument corporation. Wow. Creative. Yeah. Yeah, which is crazy. So the way it happened, they loaned one and a half million dollars to the company in return for which they got an option to buy all of the stock of the company for $3 million. Imagine if VCs structured deals that way today with founders. It wouldn't quite set up the right set of themselves.

9:31But you got to crawl before you can walk. Fairchild would lead to many, many things, including, of course, Intel. And we'll get into that a little bit later. I mentioned Arthur Rock. So what was the financing environment for quote-unquote startups in California at this point in time? Knowing how markets work, I think we can assume that there wasn't much of it given the terms of that other investment that you just mentioned. Indeed.

10:00So as you might guess from how Fairchild was financed, the quote-unquote venture capital industry or the proto-venture capital industry that existed in California at this time was pretty much nothing like we know it today. For one, it was so small that the individuals who were doing it, all of them in California, they would meet for lunch once a month at the Marcopkins Hotel in San Francisco at like, A table, regular table, and they would sit around and talk about the various companies that they were working on. That was it. That was the entire industry. And for two, none of them actually came from a technology or a startup or company.

10:41background. So Arthur Rack, who we mentioned, he was an investment banker. And a few other folks that were kind of instrumental at this point in time, pitch Johnson and Bill Draper, the name Draper might ring a few bells for folks. They had worked in the steel industry and come out to California and started financing companies. There was another gentleman named Tommy Davis. He was a real estate developer who developed and interested in this sort of thing. So that was that was really the state of things. And you know, as evidenced by Fairchild, you know, here you have eight of the most talented scientists and engineers working in the highest growth industry in the world. And it's literally impossible to finance them. They have to get essentially bought by an East Coast company to even get their company involved. It's so interesting.

11:27Like venture capital falls under the broad asset class today of alternative investments, which always seems a little funny given how much, especially today with all the late-stage money coming into startups, how much money is really invested there and it's silly to call it alternative.

11:45Now, when you look at it in these days, it's very much... You had to be a very alternative counter-culture person to believe that this was the best way to go and invest your money. So, it's right at this moment in time that a quite maverick, what might say, individual comes on the scene and basically, basically single-handedly writes the playbook of what modern venture capital, and alongside it, what a modern startup would look like. And that man's name is Don Valentine. So Don of course goes on and starts Sequoia Capital and we're going to tell this story here.

12:25I cannot recommend highly enough anyone whether certainly if you work in or are interested in venture, but even if not, if you're just interested in technology and startups, go do two things. One, watch the YouTube video of a talk that Don gave at the GSB at Stanford in 2010, and two, read this wonderful, wonderful oral history that Berkeley did as part of the History Department there with Don.

12:49And you will get a sense for what an amazing character this guy is. And a lot of this show is a lot of the history of this show is taken from those two documents. Yeah. And listeners, the way to think about part one and part two of the Sequoia story, part one that we're going to focus on here, this is really Don's story. Yeah. And it's really cool. Actually, the talk that he gives at Stanford, he holds up towards the beginning of it, the resume of an individual who had just joined Sequoia Capital that week.

13:17that individual is Alfred Lynn, of course, friend of the show and former guest. That's kind of amazing. He printed out Alfred's resume and brought it to this talk. I also love that Alfred had a resume at that point. He was, you know, CEO and chairman of Zappos that had just been acquired for over a billion dollars, but always hustling. Okay, so who?

13:35is Don. So he was born in 1933 in Yonkers, New York, back on the East Coast. His father was a teamster, so a delivery truck driver, and a union member, if you can imagine it, which Don took a, ends up taking a very, very different path in life. His parents were completely uneducated, both of them. Neither of them had finished grade school.

14:00Not like not like heading to college like head and finish grade school No, literally like had not finished elementary school, but in good Catholic fashion They do value education and especially Catholic and religious education and so Don grows up in in New York going to Catholic schools and then he does he ends up going to Fordham University, Jesuit University, graduates in the early 1950s and promptly as most folks did back then at least most men gets drafted into the army. This is I believe right either during or right before when the Korean War is going on. According to Don, he quote had a terrible attitude about the military. He didn't like and doesn't like regimentation. And this is going to become very clear, done does things his own way. But one thing that he loves is electronics and technology. And he ends up getting put in charge in the army of in his words trying to teach senior officers to use modern technology instead of the way that they were inclined to fight wars, you know, which was with like

15:03horses and, you know, in cavalry. All that said, the army and Don still don't really mix. So he transfers to the Navy and this is a major, major moment for him because he gets stationed in California. He comes out to California and he steps off the boat and he's like, I have reached the promised land. It doesn't snow here in the winter. I'm never going back to the East Coast. I love this place.

15:26his goal is he wants to find employment at a West Coast electronics company. So he gets out of the Navy. It ends up taking a little while. He first gets a job at Sylvania Electric, which was actually based in Pennsylvania. I believe he was working for them in New York. Is that the vacuum cleaner company? Well, it's the vacuum tube company. So this is how he gets into technology because this was still the semiconductor I believe had been invented by Shockley and others at this point. Most computing, such as it was, was being done with Vacuum tubes, you know, remember the any act and like this is what we're talking about back in these days. Yeah. I guess I know Sylvania is a lighting company. I think do they make light bulbs? I've like seen the logo around like Home Depot. Yeah, they make light bulbs now. I mean, who knows what the corporate structure of the company is these days. At the time, they're making vacuum tubes and selling them as as computing components mostly to the defense department. And of course, down it come from the military.

16:24Don ends up jumping ship to Raytheon and moving to Los Angeles. So here he is. He's finally, he's achieved his goal. He's living in LA out in California, love and life surfing. He was a big water polo player and he's working in what at the time was the high technology industry selling computing solutions to the defense department and the military. He starts taking part time courses at the business school at UCLA.

16:51focused on sales and marketing because it was really interested in of course sales which is his job but also the marketing component like who are we selling to and why and he has a great quote he says you know where is the decision making process in a great company the answer is it's in marketing in a well-run company the marketing department in conjunction with the science department of science being engineering at the time decides based on what their capabilities are, what the problems they can solve, what sequence they should solve them in, and how much money they can to spend, they can spend on building that product and how big is the market, who's going to buy this stuff, and all that happens within marketing in a primary position. This really becomes Don's life-passion, and that ethos ends up informing everything he does, and everything it's quite capitalist, we'll see. So after a short stint at Raytheon,

17:42he ends up getting recruited to move up to Northern California and join a fresh startup in a really hot semiconductor company up there, Fairchild, semiconductor. Was Fairchild independent at this point, or were they still a part of the bigger umbrella? No, this was still very early. They were part of camera and instrument, as we'll see. So Don joins. He's not part of the...

18:07but he joins, he's like employee number 40 or 50. They're doing a couple million dollars in sales, but still really small. And at first, they put him in charge of selling.

18:20Fairchild Summit conductors to defense firms back in Southern California, so they sent it back down to Southern California. It's kind of funny. It's exactly what is doing in the Army. It's educating about modern technology to people who had been doing things an older way and trying to basically do a very complex sale.

18:37Yeah, I mean, it's kind of amazing that like, you know, Don's history from Yonkers, New York, everything basically, you know, sets him on. It's like the Steve Jobs quote of like, you can't connect the dots looking forward, but looking back, everything you've done, you know, prepares you for what you're doing now. Don, you know, basically knocks it out of the park selling.

18:58selling to defense contractors down in LA, he takes the company from this couple of million dollars in sales when he joins to over a hundred and fifty million dollars in annual sales in just a couple years. And it's over that time he gets promoted, ends up running all of sales and marketing for Fairchild. And he starts using everything that he's learned in his passion for marketing to tap into like, hey, maybe we should be selling to other markets too. And which other markets should we be selling to?

19:28and are there things that we can do to customize the chips that we're making to make them more applicable to these other applications and other markets? The quote he has here is, business was so good. I mean, this was like, God, to be at this moment in time, it was like, it was like to be there in, you know, the mid 90s when the internet was taking off or the mid 2000s when Web 2.0 was taking off and it was literally just like, you could see the roadmap of what all the applications were going to be and it was just like, go build them first and best. Yeah, not only did the semi conductor have perfect product market fit, but it scaled horizontally across.

20:06tons of industries. I mean, everybody was going to need equipment that required semiconductors. And I think now we take it for granted. Actually, we're in this phase where we're sort of moving forward from IT departments into companies that don't have IT departments, but this was the development of IT. This was every company that was starting to embrace technology. Would you use something with semiconductor products in it?

20:31Yeah, I mean, we're going to see this here in a minute with the personal computer and Apple, but then with the internet, then with web2.0, then with mobile, like you have this tectonic shift, and then it's like, okay, we know what the applications are. Let's go build the applications. And Donna's really the first person in technology to recognize that these are, this is the dynamic of how the broader.

20:53technology ecosystem works. So he says business was so good that we had more opportunities than we had engineers. And we devised a bit of an ad hoc technique for evaluating different companies, companies that Fairchild could potentially work with and sell to you before we would commit our engineering resources to work on them on a specific project. We had to understand the nature of the application and understand the size of the market. There are a number of kind of highlight things that we did before we committed engineering.

21:22You could think about that and think about like, gosh, man, that sounds a lot like writing an investment memo for a venture capital firm. It's also what an incredible privilege to be in a position where you get to pick your customers based on who you think is going to be the most successful with your product. Yeah, yeah, totally. So remember though, Don's working at Fairchild. He's taken them from a couple million in revenue to over 150 million in revenue. And this is like, you know, the early 1950s, early 1960s. So 150 million wasn't just 150 million back then. Remember though, Fairchild, you know, it isn't an independent company. It's a subsidiary of this Long Island based East Coast, you know, conservative camera and instrument corporation. So every time that Don is, you know, working on

22:12building a new customization and application new market that Fairchild wants to enter. He has to go to the board of the company and get their approval for what they're doing. And that goes well enough. Like incentives are aligned, of course, Fairchild wants the company to grow and do well. But Don gets this idea. He's like, we could really accelerate our market and our partners that we're working with. A lot of these applications companies are new entities that are integrating our technology into a full solution for a given industry, they're getting off the ground. We could really accelerate things if we invested in these companies and helped them build themselves because the bigger that they get and the faster that they get bigger, the more sales they're going to have, the more sales we're going to have. Right.

23:02It's this ecosystem mindset. You know, we need to, we need to help invest to build the ecosystem around our products. And totally. So he thinks this is brilliant. He takes this idea to the board and the board is like, absolutely not. That's a crazy idea. Whoever would want to do.

23:18That. So, you know, Don in typical Don fashion, he says, well, screw it. Like, if the board's not going to do this, I'm just going to start doing this on my own with my own money. When he would be working on the technology and marketing roadmaps for, for Fairchild and working with startups to help build applications, he would just start investing small amounts of money personally in these startups that he would knew that he was going to make them into big companies.

23:45The only problem though is he's doing this personally. He doesn't have enough capital to really get these companies all the way to working. You know, it's so funny how, like, we joke here a wave that, you know, you're raising money for a new startup and even today in 2019, the answer for how much capital you need always comes back to somewhere between one to three million to get off the ground. And that was the case even back then.

24:10This is totally amazing. This is one of my biggest tech themes, but it is crazy looking at their first five investments. Two of them were at two million, and one of them was at two and a half million. And it is today's seed round. And yet what they're doing is they're building freaking semiconductor physical applications. They're using semiconductors to make another product, physically, manufacture it. It is nuts to me.

24:36Like totally. Yeah, so even back in the 60s, you know, a couple million back then was a lot more in today's dollars, but you had to do all this really hard stuff. Don's just starts doing this fast forward to 1967. And there was another company in the valley that had been around for a long time. I was kind of fondering called National Semiconductor. And A national makes a big play. There are already a public company, I believe. They poach a number of people from Fairchild, including Charles Sprach, who becomes the CEO of National. And Pierre Lamand, from a name that's going to come up again very soon. Pierre Lamand from Fairchild, who becomes the chief chip designer and head of engineering there. So Charlie Sprach is CEO. He does a couple really interesting things. First is so

25:27Everybody in Silicon Valley, at this point, remember it's called Silicon Valley because they're making Silicon chips. They're making the chips there in Northern California. Fairchild's producing them there. All these companies that don's investing and they're doing manufacturing right there. Charlie and National, he offshore's chip production to Asia.

25:45and he reasons that like, hey, the intellectual property that we're building here, we can just do all the design and building here and we'll just outsource the actual production of these chips of the silicon as a commodity. So that creates a huge price war in the industry and massively lowers the cost of silicon, which then ends up enabling all the things that come shortly thereafter, including the PC.

26:10We should also say that the incredible growth and demand for silicon is Fairchild's fault. Because Fairchild was the one who pioneered the idea that silicon was actually the most effective material to use for semiconductors. That wasn't the case before. I believe before Fairchild people were using germanium to mix semiconductors, which is a rare precious metal. Yup. National would actually go on later to acquire Fairchild.

26:36And Ben, do you know who would ultimately become the CEO of National Semiconductor? This is, you know, this is like the beginning out of alley being a small place. And all of these dynamics enabling the personal computer. Gil Amelio. Oh, what? Yes. Apple fame. Yes. Future CEO of Apple. Future. I believe his first CEO gig was taking over for Charlie as CEO of National. Yeah. So.

27:06All of this is going on. Fairchild is on the ropes. In 1968, Gordon Moore and Bob Nois leave Fairchild, so Don Valentine's still there at Fairchild, and they start intel. And Don sees the writing on the wall, and he's like, oh man, Fairchild is cooked. Brain drain.

27:24Yeah, brain drain. I mean, it's just like Silicon Valley today. These things start happening like the key leaders and really smart people start leaving, you know, the writings on the wall. He leaves, he moves over to national as head of sales and marketing at national. Now this is where serendipity completely strikes. If Don hadn't made this move, I'd seriously doubt that there would be a Sequoia capital and there may not be a modern venture capital industry as we know it today. So Charlie is obviously brilliant, and this move of outsourcing production of chips is revolutionary to the industry, but quite prescient and quite prescient. But there's one thing that he's absolutely terrible at, and that is public speaking. And that's one thing that Don is not afraid of.

28:09So remember, Nationals, a public company, and they have to do earnings calls with Wall Street, even back in 1968. Charlie's terrified of this. He doesn't want to do them. And so as soon as Don shows up, he says, great, Don, your head of sales and marketing, you lead the earnings calls. Which would be unheard of today for, I mean, it's your CEO and your CFO basically without, you know, without exception.

28:33Yup, yup. And you have other executives on there from time to time, but not leading it. Don starts leading their earnings calls. Through that, he gets to know a lot of the shareholders of national. And it turns out that one of their largest investors is an enormous public investment fund.

28:52based in Los Angeles back in Don's old stopping grounds, at the time called the American funds. And that was part of this institution called Capital Group, which I think a lot of people don't know about. But Capital Group still today is one of the largest mutual funds and pools and mutual funds of money managers in the world. I believe they have well over a trillion dollars in capital under management across many, many funds. Capital Group They had been seeing what was starting to happen up in the new Proto-Silicon Valley. They'd seen the Intel IPO that had happened, which was the first and Intel was the first true venture backed company that had gone public and all the wealth that had created. And who originally backed Intel?

29:39I believe it was Arthur Rock. Arthur Rock organized us and to get that back to Intel with equity. Well, it was a convertible instrument. It was a convertible data. A story for another day. So capital group, they'd seen this and they actually funded AMD. And AMD also came out of Fairchild, which I didn't know until doing research for this for this story. So yeah, both Intel and AMD.

30:04both were fair child alumni. I mean, the really all goes back to the traitorous aid in this legacy of like, hey, leaving dying companies and starting new ones out of them that propels Silicon Valley to its day, to this day. That is so much like all these other industries we've talked about. I mean, Verizon and AT&T basically both coming out of the original massive AT&T company. It feels like chip companies are not unique in this characteristic of, you know, both modern giants coming from the same source. Yeah. So capital group, they've invested, they've privately funded AMD. They're a big investor in national. So they're like, you know, especially as a public investment vehicle, they're at the forefront of being investing in Silicon Valley in its growth. They get to know Don and they learn from Don about all this private investing he's doing. And so they approach him with an offer. How about

31:01he do this full-time, leave national, and come and start working with them. A capital group, they'll give him certainly capital, and they have more capital than probably just about anybody in the world at this point in time, or access to capital.

31:17take him from the couple thousand dollar personal checks that he's able to write to finance these companies up to enough that he can actually support them to get to get to a public offering where they need to get to. So Don jumps at this chance. This is his true passion. He loves this and this is a chance to take All of these roadmaps and marketing and market analysis skills that he's developed and just have this be his full-time job. This is, of course, the birth of the illustrious and name we all know today, Capital Management Services Inc. Yes. Well, it was part of Capital Group. So we'll get into the structure in a second. I want to throw in a few great quotes from down here. He talks about why he had the

32:05Courage to think that you could do this full-time. I mean, this is crazy. Like nobody is investing full-time in private technology companies at this point in time. It's, you know, a bunch of folks who made money in other industries having lunch at the Markovkins hotel. Remember? And Don is going to make this his full-time job. So he said, I had a sense that my system of selection would work far more than it wouldn't. But I didn't have the resources personally to play Texas Holdham and put up more chips. The opportunity to have a large discretionary pool of money to continue to support the investment ideas was the difference in the environment I was in and the environment I was interested in going to. And after 12 or 13 years in the semiconductor business, I had a very high profile reputation in this community. And again, he was already doing the investing privately. So he says, so people who are interested in starting companies often gravitated to me to help them start their companies. From their point of view, I had some money. I knew how markets worked and how to help them position their company in the market. So I had a bit of an unfair advantage in those two respects.

33:03But the most unfair advantage I had was I knew what the future was and very few people knew what the future was. Nobody else, nobody else in the venture capital industry at this point was from the semiconductor business. Nobody else knew marketing and nobody else knew the microprocessor. So it's kind of amazing. Like Don has this as we've talked about. It's three pretty valuable things to be good at at this point in time. Exactly. Exactly. So like if you think about what he's saying. So It maps pretty exactly to the core functions of a venture capital firm, so...

33:35on sourcing, he has a network of super talented technical people and scientists with the right experience to start technology companies. I mean, his name is Don. It's perfect. He's like the original Silicon Valley Mafia Don. That's one. That's like top of the funnel that's sourcing. But then too, he has this unique experience that he knows all the roadmaps of Fairchild and National and the whole semiconductor industry. He knows what markets to attack. So he has the selection judgment of which founders and ideas to invest in. And then he has the ability to actually help them, unlike anybody else in the industry at the time, actually help them build their companies through, you know, certainly recruiting management teams, but also strategy and decisions in the early days because he's lived through it so he can help them build their companies. And now, finally, through Capital Group, he has access to essentially an unlimited pool of capital, which again, nobody else in the industry had. People were having to go back to the East Coast of Fairchild to finance their companies.

34:32So David, you're saying an unlimited pool of capital. How does that really break down and how much money from the capital group could Don really invest in startups? Exactly. So this is 1972. Don leaves. He starts working with capital group and capital group sets up a new $5 million fund for their clients who want to invest in this high risk, high return startup in the semiconductor industry in northern California. And capital group calls it the quote-unquote Sequoia Fund. And this is the beginning. Oh, Capital Group came up with the Sequoia Fund. Well, I don't know. I don't know if Capital Group or Don did, but it is within Capital Group this 1972 $5 million fund is called the Sequoia Fund. And so Don starts working on this on behalf of Capital Group and Capital Group's clients. But again, Don's kind of like a Maverick and he does things his own way. He's not super interested in just working for

35:27capital group forever. He really wants to do this himself and and capital group totally supports him in that. So he starts making investments on behalf of them, but he also starts working in parallel on creating his own fund and own firm that he's going to call Sequoia Capital and raising an outside fund. And you would think this would be Easy, right? I mean, Don has this amazing track record. He has a brilliant strategy that nobody else can replicate. He knows what's gonna work. He has the, he has the, there are no LPs. Well, he has the stamp and imprimatur of capital group, you know, one of the most storied money managers, you know, in the world at that point in time. And Don.

36:07He learns a lesson that, you know, generations of people who start new firms have learned again and again. We learned it wave, which was that even with all that, starting raising a first-time fund is really freaking hard. Like really freaking hard.

36:24Yeah, and what Don was doing was raising a first time fund for an asset class that didn't yet exist. So for Don, there weren't a group of investors who were used to putting money in this risk return profile. It was going and convincing them, hey, like there's not really historical data on this, but you should take a fly or not only on me, but on this entire concept.

36:45Yeah, totally. I mean, you got to remember this is pre, you know, for listeners who know about David Swanson at Yale, the chief investment officer at Yale, he really pioneered this, this approach that large pools of capital, especially tax exempt nonprofits, so pools of capital should should.

37:03put a lot of their assets in alternative investments where they can get extremely high returns over a long time horizon. And because their tax exempt, they can compound those returns at a much higher rate than ordinary folks. This concept didn't exist. So most pools of capital, university endowments, foundations, family offices, and all of capital groups clients. It's bonds, it's treasury bills. Yeah, it's a little bit of stock. Yeah, they're investing in. And these folks, they're targeting across their investments, a 10% IRR, which it is great and better than the average market returns, but it's nothing like what Don thinks he can generate and what the venture capital industry promises. So he goes out and he makes this pitch about like, hey, I think I can at least double 10% IRR. And if you look at my personal track record, it's much more than that. And indeed Sequoia's first few funds would be well, well above 10% IRR, many multiples above that.

38:02The reception he gets is like, well, this doesn't sound like the investing business. This isn't fixed income. And Don's like, yeah, you're exactly right. This isn't the investment business. This is the company building business. I'm in the business of starting and helping build great companies. And that is what true early stage venture is. It's not investing, allocating money and seeing what happens. It's really digging in and helping start something from scratch. And that's where to this day, you know, the deep, the true outlier returns are, but the LP community is just like, they don't get it. So Don tells this great story. He goes to see Solomon Brothers in New York, the old story of investment pick, which I believe it was Solomon Brothers that was the subject of Liars Poker, Michael Lewis's first book. And he sits down with the folks there. He gives them the pitch and they say,

38:55I see that you didn't go to Harvard Business School. And he says, right, I didn't go to Harvard Business School. I went to Fairchild Semiconductor Business School. And they didn't laugh at all. And they're like, we're not going to invest with anybody who didn't go to Harvard Business School. So it ends up taking him almost three years while working with Capital Group to raise the first independent.

39:21It's a quite a fund. But finally, in 1970, that was like single digit. How big was that fund? I couldn't get the exact data. Well, I saw a couple of conflicting sources, but I believe it was somewhere between three to five million. So quite, quite small. And that's with three years of work on it. Just think about the tenacity. I mean, most people would give up. Yeah, totally. Think of it as a quite capital today.

39:43And then think back to the early 70s and one man, you know, Don Valentine scraping together for three years just because he believes so deeply in this vision of the future to put, you know, three to five million together and start investing. Like it really just like tells you a ton about, you know, you look at their ethos today and this is where it comes from. Once he gets started, he sets what he calls a few ground rules for investing. So these are, this is the original Sequoia capital investing checklist.

40:13One, must be in a very big market, the potential investment. Two, must be in Northern California. That's changed. Three, must be in advanced technology. Four, must have high gross margin ability. That is also changed. And five, must have the potential for Sequoia to make $100 million on the investment. I mean, that's incredible.

40:38three to five million dollar fund and he's still like he's only aiming for shooting for the moon like Sequoia alone could make a hundred million dollars on these investments which is basically by today's standards saying it has to be a unicorn because in general an early stage call it a series a investor is going to get diluted to around ten percent ownership by the time there's an exit as sort of the finger in the air way you would think about this stuff Sequoia's had some examples where they've bought up more think drop box And there's also examples that we're about to go into where the terms were much different. And you didn't just buy 15 to 20% of a company you bought much more in these early days. Well, in these companies, most of them weren't raising multiple rounds. So Sequoia was financing. That was the only private capital that they were raising. And then they were going, achieving profitability and going public. But still, you think about today, people talk about...

41:30You know, oh, VC investment, you got to underrate to 10X returns. You know, even from day one, Don's underwriting to 20X plus returns. And if he doesn't see that and still to this day, I mean, I think one of the things Sequoia is really known for is they will only attack markets that truly have the potential to be large. Like a billion dollar market is not enough for them. You need a multi billion dollar, you know, ideally 10 plus billion dollar market because again, like they're aiming for each of their investments to make 20X plus.

41:59And then the final, I love this. The final item on the checklist for Don's criteria for investing is must be positively responsive to our active participation. You know, which is great though, Edmum, you know, obviously Don develops quite a reputation as we talked about with Trip on the EA episode. Being very active and being very active. Not only governance, but influencing management of the companies. This is really Critical, like, Don, he has the credibility to be very active in these companies because he has helped build the previous generation of, you know, of Defining companies that are setting the roadmap for everything that's going forward the other thing that he develops is Is a methodology for kind of assessing entrepreneurs David before diving into the entrepreneur side of things the thing that struck me on these ground rules and as we've danced around a couple times here Don plays by his own rules and he sort of has this ethos of

43:00This early stage investment business is a subjective business. It's not a highly analytical data-driven business. It's a feeling business. Yet in these ground rules, it's interesting to see what hard and fast financial things jump out. Even in this high area of subjectivity and gut feel, must have high gross marginability is in there as one of these precious few rules. As an early stage investor, that's really ringing home to me and thinking about how important that is in the ability to sort of, of course, scale a company but generate outsize returns. The only number that you see in here is that 100 million. Then the only other thing that sort of close to resembles a number is high gross margin ability. It's interesting to think about what makes the cut. Yeah. Well, this also leads into his methodology for assessing entrepreneurs, but Don, you know,

43:57As so many other things in pioneering the venture capital industry like I think he I don't think he would put it in these words But he recognized that this is a business that is both art and science and that is what is so Incredibly awesome and fun and rewarding about working in this industry and in early stage venture capital But again, you know if you think back to the folks that were doing this before it was all art, you know and if you think to a lot of the entrepreneurs who were starting companies like the trader is eight. It was all science like they weren't thinking about the art of like, oh, how do we make this into like a huge wealth generating vehicle for ourselves and for the ecosystem? It was like, we just want to do science, you know, and let's like find some way to do science. And Don is really the first person I think to bridge this gap. The methodology for assessing companies and entrepreneurs, he kind of goes back to it. I assume.

44:52He was doing this when he was working in companies too. Remember, he has this Jesuit education and Catholic school upbringing background and he goes to the Socratic method. Still to this day, I think this is a lot of how Sequoia runs their interactions with entrepreneurs. They ask questions and then they just listen to the answers. This is such a key to being a great VC, one thing that I struggle with a ton.

45:18is like you can, the temptation is always to insert yourself into what's going on. Don recognizes that like what you need to do is listen to what the entrepreneurs are saying. You may agree or disagree or like understand or not understand, but like you need to understand how they think about things, not how you think about things. And it's not about their answers, but why they're thinking that answer is the right answer, and how they arrive there, and what the thought process is. Yeah, and so Ado Don talks a lot about, and if you watched the YouTube video of him at Stanford, how formulating a question.

45:58he believes is the most important thing in his business. And so he has a rule that questions can only be 20 words or less. And yeah, when he solicits questions from the audience at Stanford, he says 20 words or less, or I'll kill you. It's great. But that's how he approaches things because he's really interested.

46:18in the storytelling technique of the entrepreneurs because he says it's about the building of the idea, the size of the market, the degree of technical risk to get this product finished, who's going to care, and explaining that in a very simple way. We can tell that that person who can do that, explain it in a very simple way, is somebody we want to be in business with. People who are, instead, complex rambling all over the place, they're not, you know, Donna's realized that the value, the only competitive advantage that startups have is focus and speed and stealth. And so if you're all over the place, you're not going to be able to execute on those things. And that's still true today. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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48:46How do you square all of this with Don's sort of off-stated principle that he invests in markets, not founders? How does this assessment of founders fit into that notion? Well, you know, I think he is as technology historian, not obviously you're not in Don's head. Exactly. Well, I think of course they're interrelated and like all investing it is it is early stage investing. It is about both the market and the team, but I think this is the key. The market is the important thing, but you need a team that gets back to Don's last point on his checklist of must be receptive to our active participation. You need a team that's going to be focused and able to quickly get the right solution into the market.

49:36Really great quote that I think encapsulates this. He says, so our view has always been preferably give us a big technical problem, give us a big market when that technical problem is solved so we can sell lots and lots and lots of stuff. Do I like to do that with terrific people? Sure. Are we willing to invest in companies that don't have them? Sure. You can augment management. You can help them with more people that are highly qualified.

50:00we invest in the size and the dynamics of the market. I don't care if Ginghis Khan is running the company. We'll give Ginghis Khan some help. Give me a giant market always. But I think Steve Jobs is going to come up in a minute here. But I think his point about Ginghis Khan is that Ginghis Khan may be Ginghis Khan, but he was focused on winning and speed and conquering. And that's what they're looking for. And to just beat this metaphor to death and that Ginghis Khan Also has weaknesses and therefore must have a team that surrounds and compliments and I think Don has some quote I don't have it exactly but about how the most critical thing for an entrepreneur when sort of listening to these questions What are you listening for is is really this self-awareness of what they're good at and what they're not and exactly point number six how receptive they're going to be To to being helped with those weaknesses

50:54I mean, again, think back to this moment in time. The people that were starting these companies, they were engineers. They were scientists by and large. And Don's superpower was he was able to augment these companies and these teams with folks like himself who were able to do sales and marketing and go to market. And then Sequoia could help argument with finance and accounting and everything around that and the outsourcing of all that.

51:22What he couldn't have was folks who thought they knew everything. So what actually did they end up investing in once they closed this the first Sequoia capital fund in 1975? So it turns out Don makes his first investment in indeed a quite giant market enabled by semiconductors But one a little off the beaten path and certainly different than the defense contractors that he started his career selling to And that was Atari. And we're going to talk much more about Atari later in the season here on Acquired. But it was the very first independent Sequoia capital investment down in best $600,000 in the company in 1975. And the very next year, the company ends up getting acquired by Warner Communications for $28 million at Sequoia makes a quick forex return, which is great, great IRR. But

52:18Does fall short of the 20X that Don is hoping to under-aid too. Did I find a different source on that? I thought it was a $2 million initial investment. Or did you do a follow-on for $2 million? I believe the initial investment was $600K. Now Atari had also already been around for quite a while. I think three years they had gone without before raising. And Don had known Nolan Bush, now the CEO for many years.

52:45So I have to assume this was one that he had kind of waiting in the wings until he closed the fund. Which every good venture capitalist should have went out raising their first fund is who's going to be your first investment. Oh, yeah. We did that too. We have, it's amazing. It's amazing how much the industry is still the same. So then in 1977, Sequoia makes what could have been perhaps their biggest and most important investment ever.

53:14And unfortunately, becomes perhaps their biggest and most important lesson. Just to pile one more thing on before the big reveal, which everyone probably already knows, is responsible for about a trillion of that 3.3 trillion number that I quoted of public market value today. Yeah. Yeah. Well, it's a good thing they still have another 2.3 trillion that they're part of. So in 1977, as triple due to two on our episode, Sequoia invest in another little company that was founded by an early former Atari employee that was Apple Computer so Steve Jobs had worked for Nolan Bushnell at Atari and Don had gotten to know him a little bit then and They'd so jobs and was had started the company and they brought on Mike Scott as the first president of the company Yeah, we should say don't got to know jobs a little bit at that company, but

54:05did not have the impression that this was a venture backable guy at this point in time. I believe his quote on Steve Jobs was that he looked like Ho Chi Minh. Yes. And so Mike, the two steves had brought on as the first president and it turned out Mike used to work for Don back in Fairchild and National. And so Don gets wind of the company. He meets with them and Don also knew A very important guy in Apple's history, Mike Marcola, also used to work for Don, back in the semi-conducted days, and Don, quote, quote, sends him...

54:43to the company with the intention that Marcela is going to replace Mike Scott as the president and run the company. Ultimately, though, as Trip talked about, Marcela makes a brilliant decision and says, you know, I don't actually want to run this thing today today. I'm going to beat the chairman and really help these guys. But regardless, this is a perfect example of Don's company building at work and management team recruiting. On the back of this, Apple raises their first venture capital round of just over half a million dollars. Interestingly, The lion's share of the capital comes not from Sequoia, but from Venrock, which does a little over $250,000. Donand Sequoia do $150,000, and Arthur Rock does the balance. So Apple is off to the races, and they really, you know, as we've chronicled many times and will continue to chronicle in the future, really invent the...

55:34Personal computer and usher that wave of technology in two years later though, and this is this is the David side there comes I know this is just so painful so painful and clearly has left its mark on on Sequoia two years later I couldn't find all of the circumstances around this but to the best of my understanding so the first Sequoia fund did not have only tax exempt nonprofit LPs in it. It also had, I believe, individuals and maybe corporations and not Solomon brothers, but other folks like in certainly capital group. As a result of that, those folks needed to pay taxes. And apparently some of these LPs were encouraging Don to make a distribution of some of the gains in the fund so that they could pay their taxes on the gains. And so...

56:28Apple had grown quite a lot. It's now 1979. And Don, before the IPO sells Sequoia's stake, which they had invested $150,000 for $6 million to make this tax distribution to LPs. Now that's a...

56:43enormous return phenomenal return but oh my goodness six million dollars compared to what apple you know which shortly become and then ultimately in the long term of course become and it's this lesson you know that drives Sequoia in subsequent funds to take to take their capital only from nonprofit tax exam sources which becomes you know really not certainly the norm across the industry but a goal and a lion's share of money that moves into venture capital is ends up being university endowments foundations folks that are super long-term impatient and aren't going to force VCs to make these terrible decisions like this yeah and another you can sort of check me on this David but my understanding is Sequoia more so than your average venture firm

57:35holds the stock in companies longer after they go public and often sticks with the companies for a very long time, I think probably also inspired by this lesson. This and others that we're going to talk about here in short order, we're going to talk about Sequoia's playbook in a little bit, but one of the key lessons that they learn is when things are going well, go long, value creation in these companies that are building and creating enormous markets takes a long, long, long time. I mean, just look at Airbnb, look at Google, look at Apple, you can still be getting enormous, enormous value creation a decade plus after these companies are founded, regardless of whether they're private or public. Yep. So it's fascinating to think about the first couple of investments or first two out of a handful of investments being Apple and Atari in total.

58:30Returned a profit of about ten million dollars or a max of ten million dollars. It is wild to think that that is the some total of of Sequoia's return on those two companies. I know I know but at the time I mean like even you know pulling it into context today like if we within you know two to three years of starting wave if we could be sitting on two x-cash distributed like.

58:55I would feel great about that, you know, but the lesson here is like, that's not the game we're, the business we're in or the game we're playing. The game we're playing is like 10X plus cash distributed and to do that, you really need to be in it for the long haul, especially when you're investing early. Yeah, the other thing to know here and David, as you, as you foreshadowed and you've been smiling a little bit, we'll get into this much more later this season. But with Atari, the Atari boom that we all sort of know of in the 80s was After it had sold to Warner and so you know, it's equated and even have an option in participating in that upside unless they were gonna block the sale Yeah, yeah totally and that also leads to another part of the square playbook which is like when things are going well really try and Convince these companies to stay independent and not sell I mean look at Instagram, right? selling Instagram to Facebook was was a terrible terrible mistake

59:53by the founders and the investors, even though it netted them great returns at the moment. And it was interesting, Sequoia ended up investing right before that deal happened. That is a debatable topic, but we can now. You think that's debatable?

1:00:06I think if it had gone a lot longer than Facebook would have had to pay a lot more, like in the dozens of billions of dollars to acquire, purely because there is a very, very high user count social network that is a threat to them. However, do I think that Instagram would develop the business that they have today that is billions of dollars of revenue flowing through them by advertisers?

1:00:28Maybe, but that's not a sure thing. I mean, that's all. Yeah, maybe because of what Facebook had done funneling all their existing advertisers there. I think that's true. And certainly they helped accelerate it grow it more quickly. But at a minimum, Instagram should have waited longer and then had a WhatsApp like acquisition at a bare minimum. You know, again, it's so hard to...

1:00:52It's easy to arm check quarterback this now and hard to be sitting in the seat of Kevin and Mike when they have a billion dollar offer in front of them. But this is the value. I mean, Sequoia has learned these lessons over so many decades and seeing it time and time again. So the other lesson that they take from Apple is what Don and Sequoia call an aircraft carrier approach that they start taking to these big markets. They realize down realizes that Apple has created this PC market.

1:01:19And it's not just going to be Apple that's going to succeed in the PC market. They're going to usher in. All of these other enabling companies that you need around the PC. So Apple is the aircraft carrier, but you need all the destroyers and the ships around it and all the planes on the ships and all that stuff. So they start financing component companies around the PC industry. Apple and Don help start a company called Tandon Corporation that makes disk drives. They are first investors in Tandon. Tandon goes public after a couple of years reaches a market cap of over one and a half billion dollars.

1:01:54This is in the early 80s. A company called Printronics that makes printers, a company called Preum, that makes disk drives, a company called Dyson that makes magnetic disks for the disk drives. All told, I believe Sequoia ends up making about 15 investments in this aircraft carrier strategy around Apple. And it drives much of their returns in these early funds. Some other notable investments that they make during the 70s and 80s. In 1981, they invest in a company called LSI Logic.

1:02:24which makes, they do again around PC and computing, they make storage and networking products. In 1983, so just two years later, LSI goes public in the largest IPO on the NASDAQ in history at that point, raising $153 million in the IPO, which is, you know, I mean, $153 million, that's like a solid, you know, soft bank size around today. This is two years after Sequoia invested in the company.

1:02:50And yeah, inflation adjusted. I mean, that's in the sort of 500 to a billion range. In the way to think about how much they raised. Totally. 1982, as we chronicled, they invested in trip and electronic arts or amazing software in the beginning. They also invested in 3com in 1982. Folks might remember 3com, which was a networking gear and eventually bought Palm and the Palm Pilot.

1:03:14The three-com I didn't realize came directly out of Xerox Park. That's the other thing that Sequoia on the back of Apple starts doing is they started raiding Xerox Park and IBM's West Coast division and all of these old-school East Coast companies that had been training these technologists and developing advanced technology. They just started commercializing them left or right in center. 1983, they invested in Oracle.

1:03:39and also Cypress semiconductor, both of which become massive successes. And then in 1980s. One point I want to make on Oracle before breezing, because of course, we need to do an episode on Oracle and Larry at some point. But there's a crazy thing here that Oracle went six years before raising money from Sequoia. And I think they had bootstrap off of $2,000. And if you think about it, like Oracle is really one of the first true software companies.

1:04:08They were wildly capital efficient and Larry was very outspoken against pushing back against this rising venture capital industry and speaking all kinds of ill tongues of the venture capitalists and what they do and come in and try and control companies and raid and all these things. And of course ends up partnering with Sequoia six years in, but a very different start than a lot of these other companies which required much more capital to get going. Yeah, and the reason I didn't want to dive too deep into it is that I might be speaking a bit out of school not having done the deep dive on Oracle in their history yet. But to jump in and speculate a little bit, I think part of the reason why Larry, who that said, I'm going to speculate wildly. I think part of the reason why Larry was so anti-VC was VC was anti-software and anti-layer like this was like, they didn't understand, Don didn't understand software. You know, like he was a semiconductor guy. All of these companies we're talking about with the exception of VA are hardware applications companies.

1:05:05I don't think Oracle could raise venture capital when they got started. They were the first real, you know, real software company. It's the highest gross margin of them all, you know. I know. I know. It fits that thesis so well. But it wasn't, you know, the venture world hadn't woken up to that just yet. They would. They would. And Sequoia would, too, of course. But but so much of the DNA comes from this hardware world. The last kind of great and For Sequoia, certainly the greatest hardware investment that they make is in 1987, Don invests $2.5 million in a little company called Cisco for 30% of the company. Started on the campus, actually at the GSB, had Stanford started on the campus of Stanford. Sandy and Lan were...

1:05:51I can't remember which was which one of them was the IT administrator for GSB and one I think was elsewhere on the campus and Networking was just becoming a thing and they were married They were sending messages to one another and this is this amazing Romantic story that they had had Jerry rigged the network to be able to send messages to each other I know and that turns into Cisco And that turns into Cisco. I mean, it just goes to show you how these companies start. And you know, Don, having learned the lesson from Apple of like, you know, hey, we'll finance Ginkgo's con. He doesn't care. Like most VCs would look at this team and be like, we're not going to finance this team. But he cares about the market and the application. At the time, there were no routers. So networks, like local networking was just becoming a thing. But networking networks was impossible. And so Sandy and Len.

1:06:35Develop the first router and just you know such a really this quiz still uses this example today of like the very very best most elegant Expression simple expression of what a company does it's three words for Cisco we network networks that turns out to be Not just an enormous enormous market, but really the enabling technology for the internet Cisco stock was the tracker for the internet hype in the.com era. I mean, it was like if you wanted something that was emblematic of people's excitement about this new technology, it was Cisco. And so now we're in 1987, we're 12 years after the kind of independent constitution of Sequoia capital. Don has learned all these lessons. He's not letting this one go. So.

1:07:25Not only does he fully finance the company upfront with $2.5 million gets 30% of the company. The company then goes public shortly thereafter. I believe there is 160 some odd million in the IPO. Don stays on the board. Don doesn't distribute the shares. He remains chairman of the board, I think until the mid 90s. And they ride Cisco up and make enormous, enormous returns on this company. And that is, that really becomes the playbook for Sequoia Capital going forward.

1:07:53Amazing run also just such a great example of like Sandy and Len were thinking about the internet nobody was thinking about the internet when they started Cisco but Things just kept the market kept evolving and kept getting bigger and expanding and Don again, you know, it's quite being so focused on the market They knew that like even though this company was public there were still enormous returns to be had because the market was nowhere near penetrated so alongside all these investments that they're making. The funds kind of steadily grow in size from that first fund of three to five million. It stabilizes at around 150 million per fund in the 1990s that Sequoia is raising every three years or so and having that be their investment period. Along the way, of course, to do that, you have to not only build these companies, but you have to build.

1:08:42Sequoia, you have to build the firm. You can't invest in all these companies and give them the time and attention that you need to do true or at least age company building alone. So Don starts adding partners to Sequoia. And he talks about the process of doing this. And again, remember, back when they start like the number one requirement for being an investor, quote, unquote, was going to Harvard Business School, not fair child semiconductor business school. To be clear, investor in this sense was generally a public market investor, or perhaps some other alternative investment, but not investing in startups. I mean, the Solomon Brothers folks probably looked at this more like gambling. Like what you're doing is an investing and you're not a person that looks like an investor. So what are we even talking about here? You know, I think the irony of it all is it's the exact opposite of gambling it's building. Yep.

1:09:34But yeah, so okay, so Donna is this great code. He says adding new talent was and remains a continuous process conventional education was never a high priority You know plenty of folks have gone to Harvard and safer business school, you know worked at and work at Sequoia, but that's not what they look for. We look for people with functional experience in a startup, i.e. design and application engineering, product marketing, sales, aspects of outsourcing manufacturing. Our investment decision-making process requires very self-confident people able to be challenged publicly. I look for people that are as far different as possible than I am because we do things here on the basis of consent among the partners. And I don't like having a marginalized set of opinions Don wants people to be

1:10:18He says, I want as much confrontation and different thinking as possible. And he wants people that are going to be confident and comfortable enough to put their thoughts out there and debate as part of the group. One of these lessons that Don's learned is that sometimes the most amazing companies like Apple, like Cisco, they look crazy. And so you need somebody that's willing to see the potential behind the craziness and stand up for them. And oftentimes, that's not folks who are coming from Harvard Business School.

1:10:45I believe the first partner, ironically, the joins Donetsukoya. does come from the investing world. In 1979, Gordon Russell joins Don. He had worked with Don at Capital Group, so he comes from Capital Group, comes in and joins Sequoia. And he builds Sequoia's healthcare and biotech investing practice. So kind of in parallel, even from the 70s back in Sequoia, they're not only investing in technology and hardware and semiconductors, they're also investing in healthcare and biotech. But of course, it's...

1:11:17technology that the firm finds its true success in. And in 1981, we mentioned Pierre Lamand earlier. Don convinces Pierre already had an amazing storied career as a chip designer and architect at Fairchild and at National to come in and join him at Sequoia as a partner. And Pierre has an amazing run. He stays as an active investing partner at Sequoia for almost 30 years.

1:11:45And then this is incredible. He moves to Coastal Adventures and joins the node over at Coastal in the mid-2000s. And then he goes and he joins Formation 8. And he's now after Formation 8 out of Clips. He is still an active general partner making and leading investments today. He just turned 89 years old. This is incredible. He was born, I believe, in 1930 in France. He is a true legend in the industry.

1:12:13But that's the kind of folks that, you know, Don is looking for is people who are literally gonna die in the seat because their lifeblood is building technology companies. And Pierre absolutely fits that to a tee. So then in the late 80s, two very, very important people joined Sequoia from interesting backgrounds. So in 1986, a gentleman, a true gentleman by the name of Michael Moritz.

1:12:42Now, Sir Michael Moritz, who was from the UK and had come over to America and had become quite a famous journalist for Time Magazine. I believe he wrote a book on Apple while he was still at time, right? The Little Kingdom, I think it was called.

1:13:00Sounds right. And that's how he gets really interested in Silicon Valley and technology and sort of the people behind Apple and venture capital. He leaves time and he starts a VC newsletter with the goal of he wants to break into the venture capital industry. I remember, what's old is new again. I mean, Mike never, you know, other than this VC newsletter company, he's never built a company or worked in technology at his life. But remember, Don's looking for these Mavericks and he has a soft spot for people that kind of do things their own way. Don decides to take a chance.

1:13:29on Mike and invite him into Sequoia and to join the partnership. And that ends up being just an incredibly, incredibly prescient decision that leads to Yahoo and Google and many, many other companies. Does this count as how to hack your way into VC? Is this the first example of start of using that letter? Yeah, that actually probably still worked today.

1:13:53Yeah, I think there's a quote about Moritz, which is he had the journalist instinct to go for the jugular and not hold back and a friend said that about him. David, we've started a podcast and have a love for media, but I have this sort of reverence for really good journalists who not only are able to really tell a great story, but sort of get the truth out there. You know, it's a special talent for someone to be able to cover an industry and yet have their respect in this way.

1:14:23You know, we talked about the Socratic method of questioning that Don holds so dear. And I think this is what he saw in Mike. And we'll save a lot of this for part two of our Sequoia journey here too. But that's what Mike was so great at as a journalist. And Don actually says, you know, he says the two people that he's met in his life who are the best questioners are Mike and Steve Jobs. Hi company. The other Very important person who joins Sequoia Capital in the late 80s is a relatively young, brash sales guy who comes from Hewlett Packard and Sun that also as an Italian immigrant decides that he wants to work in venture capital. He just calls down up one day, cold calls him and says, hey, I want to join Sequoia. And if you know anything about the person that we're talking about, this is exactly in character. And this gentleman is Doug Leoni who

1:15:19Today, of course, is runs all of Sequoia and all of their operations globally. And I believe it would be the person that ultimately advocated for and took Sequoia into becoming a global firm. We're going to talk much more about both Mike and Doug next time on part two. But just to wrap up part one here, it's again, it's really, you know, the story of Don and I mean, you can't extricate Don not only from Sequoia, but from venture capital and the whole industry and total in 1996 after it had become clear that that Mike and Doug were amazing investors and not only amazing investors but had internalized all of these things that it meant to be Sequoia and then built on themselves. Don does something pretty amazing. He literally hands the keys of Sequoia over to Mike and Doug. Doug talks about this in an interview with with Dan Primack and Axios that

1:16:16I don't have the exact quote here, but he says, Don, one day in 1996, invited Mike and Doug into a conference room and he sat them down and he said, I'm giving this firm to you. And there are three things. One, you're going to run the firm. I'm not going to run the firm anymore. Two, you get to decide what I do. You can keep me around. I can continue making investments or I cannot. It's completely up to you. And then three, if you do want me around, here's the things I'm willing to do and not willing to do. But One of the things I'm not willing to do is run the firm. So you guys make all the decisions about what's gonna happen from now on. And that's just like even today, that's so rare. I mean, this is the first, very successful, well not the first in the industry, but the first successful generational transfer at Sequoia. Most venture firms and most founders of venture firms don't have the ability to do this. And it's so hard. I mean, Don created all of this and he's willing to say, you guys of the future, change is part of...

1:17:13Not only what we invest in but part of the venture industry too and you guys are the people that are going to leave the change. It takes a lot to do something like that. It reminds me a lot of another great venture firm that we may also cover benchmark. It was a very different way of doing this.

1:17:27Very different, yes. But you know, equal partnership, there's a great sort of interview with Andy Rackliffe and Patrick O'Shawn to see on Invest Like The Best, where Andy talks about how at the peak of their power, the original partners handed us the keys. And I think it's well done, very differently, there's definitely common elements between both of these great firms. Yeah, and if you look at the firms that have managed to...

1:17:53survive, you know, generation after generation and wave after wave of, you know, the technology industry and venture capital is evolution all excited. It's the firms that do this well. The firms that don't don't make the transition. And, and Donna's a great quote about this. These, you know, when Sequoia was started, the positioning was to LPs was we're going to deliver vastly superior returns to anything else you can get out there. And that proved, well, we'll talk about it in grading. But I think that proved true. But The positioning of Sequoia is now two things. He says, it's this stability that comes with generational transfer. He says, the stability is part of why we have had the same limited partners for almost 40 years when Thomas saying this now almost 50 years. Stability and returns is how Sequoia is positioned. For the type of LPs that they're trying to attract, which are patient, very, very long-term capital, you actually need both of those things. Returns isn't enough. You need the stability that accompanies those returns, so that

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1:20:34So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. Do we want to go into what would have happened otherwise? Yeah, let's do it. All right, so listeners, the way that we want to do this section on this unique episode is what would the world be without Sequoia?

1:20:56And there is a very Sequoia-centric view of the world, which is all of the technology industry looks very different, and without building this sort of aircraft carrier strategy around Apple, and financing all of that, in a very scarce capital environment like there was then. We may not have the Apple that we have today. We may not have some of the other tech giants that we have today.

1:21:21alternative view that you could take to that that says look capital is capital and the 99% of the value or maybe maybe 110% of the value that comes from receiving investment from a venture capital firm is the capital itself and everything else is either hololulu or value detraction and capital will always expand to fill all attractive opportunities exactly exactly that we despite some friction points we live in an efficient market. And if it's truly a great opportunity, then capital will flow to go and fund that thing. And so the world would look no different today, if there was no Sequoia. I think I fall slightly toward the former part of that scale. And I'm not willing to say that we wouldn't have some of these amazing technology innovations without Sequoia, but I do think in just pouring over the hours and hours of reading that we found about

1:22:13Don and really learning about the history of this firm. Don played a very active role in building a lot of the companies that they invested in and deserves a lot of credit for that. Well, listeners, let us know how you like this type of episode focusing on venture firms. We of course love it as you know, venture investors ourselves. But we've been talking all about Sequoia on this episode. There is really along the exact same timeline, there is a perfect example of what would have happened otherwise. And that is Kleiner Perkins, which over this time frame that we're talking about was equally, if not arguably, more successful than Sequoia. But what's really interesting and we'll dive into when we ultimately do an episode on Kleiner, their philosophy was quite different and was a lot more interested in the

1:23:04entrepreneurs and the backgrounds of the entrepreneurs then necessarily Don and Sequoia were so I think to my mind what would have happened otherwise of course Silicon Valley would have happened of course the modern technology or modern venture capital industry and startup industry would have happened you know even though Don helped catalyze all of it somebody would have and certainly Kleiner would have indeed Kleiner Perkins would have indeed but I don't I think there would have been as many chances taken an opportunities given to, you know, the quote-unquote Ho Chi Minh's out there, that Sequoia was willing to fund. And, you know, it wasn't just in those days. I mean, look at Airbnb in the early days. And Sequoia's extremely precious early investment in, you know, the three Airbnb founders. They didn't look like what, you know, a prototypical founder looked like at the time, far, far from it. You know, I think it's Sequoia and Don's

1:23:57DNA coming from a true, you know, incredible marketing background and markets focus that, you know, maybe wouldn't have developed in the same way without Sequoia. Yeah. And one way to look at this is like, if you're the Cliner Perkins in 1978, you know, you are.

1:24:19backing founders and outsourcing a lot of your judgment to them and you're just saying you run you know obviously they weren't hands off but you run the company and the reason I'm investing in you is because I trust you to you know figure out how to run this company and what Don was looking at is You're really onto something in this killer market. We're gonna go build this thing together and I'm gonna help you do that. And the downside to that that we haven't painted yet is if you're a founder that believes that you need to be the CEO of that thing forever and you're in a market that deserves a team to really go and value maximize the way to tackle that opportunity. Like the terms of these investments, especially at this time where that often firms would own

1:25:0033 to 51% of the company they would have the right to buy the rest from you they would have the right to replace you they would have I mean all these rights of course much of this still exists today. The job of a board is to hire and fire the CEO, but it was much more prevalent back then, especially within Don's view of the world, is that I'm building this company with you right now, and this company may outlast your leadership. Well, the unspoken words in Don's quote that we said earlier about management can be augmented is management, of course, can also be replaced. Now, there's upsides and downsides there, right? Like if you're focused on, if your focus is building a great company, sometimes that's the right thing to do. And, you know, sometimes, of course, Don, it's going to get that wrong. But sometimes it is the right thing to do. Thinking back to our conversation with Trip and what attracted Trip and EA to Don was this knowledge. You were getting what you saw with Don, and he was going to

1:26:02Force you to build a big company one way or the other you know with you or without you All right, we are in tech themes now, but to officially call it that and and and move through it here the thing that really jumped out at me And of course, you know being in this industry knowing folks funded by Sequoia knowing folks at Sequoia you know some of this tangentially, but it's worth taking a fresh look When preparing for these episodes to really ground yourself and in what assumptions am I making? The thing that jumped out at me was Sequoia and all of their copywriting never says investment but rather partnership It's not we let an investment, you know, it's not it's we decided to partner with that company and they have a statement on their website called their ethos which says we're serious about our work

1:26:50and carefully choose the words to describe it. Terms like deal or exit are forbidden. And while we're sometimes called investors, that is not our frame of mind. We consider ourselves partners for the long term. It immediately jumps out at me as David you so often say company builders, you know.

1:27:08we are partners and the way that we do that is we've got this huge fund that we manage, that of course we have a fiduciary responsibility to our LPs to maximize the value, the way that we decide to partner is through investing in you, but we are your partners in this business. Five, six, seven years ago, I always thought that was when I heard we were so excited to partner with this venture firm on this thing, I was like, oh God, here it comes. They invested money in you, just say it. I finally am sort of like seeing, I think, what firms like Sequoia, and you can't really say firms like Sequoia, because there's no firms like Sequoia. But what Sequoia means when they say partnership rather than investment, it is a very different frame of mind. I'm looking for opportunities to get a multiple in my cash. This looks pretty good, so I'm going to throw it in and hope that I get a multiple out of it. For some reason, I believe that this is going to be a society-defining company in the next coming decades, and I'd like to be a part of that with you.

1:28:04Well, he gets back to, I think I've talked about on the show before, but when we were starting, wait, if one of the first people we talked to was Greg McAdoo who was a longtime partner at Sequoia and led their investment and initial investment in Airbnb and was on the board for many years and was a big part of the reason why my partner Riley joined Airbnb. And he said to us, something that always stick with me, he said that doing venture extremely well, and at the highest levels, early stage venture. It's all about alignment. And I think this is what, you know, through this history, we've told how Don and Sequoia came to understand what this alignment meant. The alignment is around building long-term big, great companies.

1:28:48And so if your focus is that you need LPs, unlike the original set of LPs who wanted a tax distribution and forced them to sell their stake in Apple, you need LPs who are willing to sign up for an essentially infinite, not infinite, but decades to multiple decades long time horizon because when there's true opportunity, the lion's share of the value gets built at the end. Think about the run that Amazon's had or even Apple's had in the last 10 years in their market cap relative to the first 10 to 20 years of the company. So that's the LP aspect. But then to this company building aspect, if you're truly aligned around that, you're optimizing for those outcomes, which means you aren't just sitting

1:29:32on the side and letting things like play out, you are helping make the decisions and build the company and build the culture that is going to enable a super long-term, great company to be built like that. And I think that really is their ethos. Now that's not the only way to do investing and we've talked about it and we'll talk about it many more on this show. But it's a really, really unique one that I think has been cool doing this episode to see exactly how this was developed. All right, my second tech theme.

1:30:02is that it's called Sequoia, not Valentine Capital or Valentine and Co and Valentine and Perkins. Exactly. The way that Sequoia thinks about themselves is that Sequoia exists behind the founders. It's not about Sequoia, it's about the founders. It's more importantly about the companies.

1:30:25And yeah, not the founders. Right. Right. And even more so, it's not about the person, but it's about Sequoia. So even when you pop up that one level, it's not high. I'm Don and, you know, I'm, you know, extremely public and loud and writing op-eds all the time and doing all this. If you want to talk about the investment company, let's talk about the investment company. And that's Sequoia. And I happen to be a part of that. But, you know, It's not all about me all the time. And it's interesting, you know, you talk to people and you say, do you think Sequoia's low ego and people would say, uh, no, absolutely not. Like that, that is not the way that I would use to describe them. But I think you talk to folks at Sequoia, you talk about companies that have been funded by Sequoia and they do take that very, very seriously where we're one of the best firms in the world. But it's at this level, it's about the firm, not the, not the partners. Well, I think it all comes back to this.

1:31:20super long-term orientation. Like, you know, does Sequoia have ego around that? Of course they do. Go look at their website. Like, you know, but it's all about long term. It's not about, like, look at this deal we just did. It's about, like, look at this company that was built over decades that we were part of, and look at all of these companies, and look at Sequoia itself, which we're going to get into much more in our next part of this series here. So I tried to, for this section, kind of, catalog and crystallize like, what are the elements of if you had to distill the Sequoia playbook from this history and from from Don's experience? I think these are the these are the points that I would put in it. You know, one first and foremost, of course, is focus on the market, both the size of the market and whether the dynamics of the market will lead to rapid adoption by a new entrant. Second is that change

1:32:14equals opportunity. This also didn't make it as much into the history, in fact, but Don has this great, great quote about this. So he says, one of our theories is to seek out opportunities where there's major change going on, a major dislocation in the way things are done. Wherever there's turmoil, there's indecision. And wherever there's indecision, there's opportunity. When it becomes obvious to anyone who reads Time magazine that it's useful to have a disk drive on a computer, then it's already too late in the cycle to invest in disk drives. So we look for the confusion phase when the big companies are confused.

1:32:43when the other venture groups are confused, that's the time to start companies. The opportunities are there if you're early and you have good ideas, which I think that is just like such a perfect way to frame it. It's so hard to do in practice, but a really perfect way to frame it. Next, I think is when you find one of those opportunities, don't get caught up in overly focusing on the team. Of course, you want the team to be great, but if the team doesn't look like a traditional team that you would pick from central casting to do this, Don't worry about it. You better to pursue the opportunity and you can augment the team if they're receptive to working with you on it. That gets to the next piece, which is be a company builder, not an investor. To really do this at the early stages, you've got to dedicate the time and effort. You have to have a partnership with people, made up of people who have actually built these companies, whether that's in their career as investors or their career as operators, but people who really know what they're doing, and can help the companies make good decisions and recruit great management teams around them.

1:33:39related to that, you can only do that at the early stages. Sequoia now of course, and we'll talk about this much more, invests at all stages of a company's life cycle. But this type of company building investing that we're talking about, you can really only do it at the outset. Once the DNA is set, and it's interesting, I think Sequoia used to have one of these quotes on their website in their ethos section.

1:34:01I don't think it's on there anymore. They believe that the DNA of a company is set within the first 90 days of operation. And after that, it's really, really hard to change it. And having lived through that and now making the whole focus of my investing at that stage of the market and YouTube end, I completely agree with that. Just reflecting on how crazy it is that this asset class exists, we all take for granted that there's early stage fundraising.

1:34:30in mass a couple million dollars are gonna get deployed into ideas hundreds if not thousands of times per year and that there's a whole asset class of investors that are willing to do that and now it makes sense because we've seen the handful of those become so so valuable that you know you index the whole asset class and like Sometimes it overperforms, sometimes it underperforms, but it sort of tracks other asset classes in terms of risk adjusted return. It's a pretty special thing that it exists, and this is probably an ethnocentric statement, but that it exists in our country. If you think about the impact that it has had on GDP, the access to early stage capital

1:35:20from a large group of people who it's their business to take a flyer and their business to underwrite a tremendous amount of risk by having a 20 plus company portfolio. I think it's a really good thing that this system got created and that this type of capital is available today and surely it is not deployed in the best way that it could or certainly the most fair way that it could, but the fact that it exists at all is intensely value creative, and we take it for granted that it exists today, and it's kind of mind-boggling how difficult it would have been to convince people at this point in history that they should plow money into it. I mean, Gastron, remember the Solomon Brothers meeting that we talked about the time had? You know, one of the other reasons I was so excited to do this episode is we deeply believe it. Wave.

1:36:13something that I think Sequoia also believes in this history shows, which is, you mentioned, this asset class exists now, and you can have an index on it, and it works because a few companies out of these many, many seeds of small companies will get built into giant Sequoia-like trees. That's true. But I think there's a faulty logic conclusion you can draw from that, which is that we should have an index fund on this, because what this history illustrates is that That defeats the whole cycle. The reason that Sequoia-sized trees get grown from seeds is because of careful watering and feeding of them from people who are experienced gardeners who really know what they're doing. I really want you to change your Twitter bio to experience gardener. I love it. Experience far as keepers. Let's put it that way. That's a big part of...

1:37:07change that we and I think you guys too like hope to be in the early stage ecosystem now is getting away from this like watering a million seeds and into like tending a garden. Yeah. Yeah. I mean, we thought long and hard about that with with PSL when we were first getting started and I think.

1:37:25should we be doing sort of more companies, you know, should we be doing this in like an accelerator style way? And I mean, we talked about the studio model on the LP show, but it's very different and it's much more concentrated bets. And I think Sequoia is a great example of, especially, you know, in the era that we're talking about it of incredibly concentrated bets and a lot of work into them after the investment.

1:37:49Yeah, okay, so my last two for the Sequoia Playbook are, you know, one, let your winners run. Everything we've been talking about, like, if you've got something that's growing into a Sequoia-sized tree, like, most of the growth is going to come after, you know, decades plus into the company.

1:38:07let your investment in them run. And then the last one, you know, which is what Don did that we ended history and fax on, which is hand over the keys before you fall asleep at the wheel, you know, if you're running a venture firm. So much easier said than done. All right. Should we move on to value creation value capture? Yeah. Let's see. What's the best way to do this one?

1:38:26Well, one thing we talked about is we don't have the exact data on the returns of Sequoia's early funds. We have a general sense from a few sources that we can talk about, but compare that to how the NASDAQ performed over a similar point in time, which is kind of the closest you could come to, like, approximating this type of investment as an investor at this point in time.

1:38:51Yeah, and I guess what we're doing here is we're sort of rolling together value creation value capture and grating to touch on what we do in the section with value creation value capture normally when we're covering a company we say, you know, hey Shopify Enable $250 billion of sales or something like that. I can't remember the number last year. How how effective were they at actually capturing that value that they sort of created? I would say Sequoia has been Um, surgically good at capturing the value that they that they create in the world, um, with I think few misses. I don't think Don, um, had any trouble capturing the value he created in the world. Well, I would say, yes, yes, certainly no one's quiet today. No. Uh, but I think it took them many years to learn, you know, how to do that, right? Even Don coming from the background and the personal investing he did. I mean, you know, the Apple.

1:39:43decision was such a huge mistake. You know, Sequoia captured $6 million of value from Apple and you know lost out on dozens to hundreds of billions. So yes, I think they said few mistakes. One very costly one. But yeah, I think that's fair. The real.

1:40:04Testament here would be to ask the entrepreneurs that Sequoia worked with. Do they feel the successful ones, the value that Sequoia and their limited partners captured from the value that was created at those companies? Do they, as entrepreneurs, feel that it was worth what they got in return? Acquired FM at Gmail.com. Yeah. Well, I think...

1:40:30And we didn't ask Tripp that directly in the EA episode, but I think he probably would have said yes, right? Oh, yeah. Yeah. That was mine. I mean, that was definitely the sentiment I got from him. Good point. We were mixing grading and value caption value creation. Should we move on the game? Yeah.

1:40:46Yeah, so I mean, grading the way that we traditionally do it for folks that are new to the show is big company buys little company and we have history as our guide was that a good use of capital by big company to buy a little company. Dave and I were talking before the show on how to think about grading for this episode and I guess the way we sort of landed on it is opportunity cost for LP capital. So what, you know, if you had just put money into the NASDAQ to try and do some technology investing, you know, from 1975 onwards, sort of how would that have looked? Just interesting to know the NASDAQ between 1975 conveniently when it was created, and 1990 grew about 6.5x with a couple of pre-serious hiccups in the middle where it lost.

1:41:3230% of its value and then took a long time to creep back up. So a stock market like any other. And so that's sort of the basis that we decided to compare it to. David, how do you think Sequoia sort of stacks up against?

1:41:46You know that that public market accessibility. It's hard to compare exactly because we don't know the returns for any given fund little on all the dollars in aggregate But I believe it based on some quotes from from Don in some of our research and another data we have that Sequoia was probably averaging a 50 to 60% IRR on their funds during this period So if you look, actually, I haven't done the math of what that would be over 15 years, but it's well, well, well above 6.5 X. And so now if you assume Sequoia is taking as carried interests, you know, probably in the early days, 20, I believe now they're at 30% carried interest that they take on their funds. So taking that out of their returns, I still believe that you're performing, well, I believe you're performing much, much better than that. And there's a

1:42:34great quote. There was a Forbes profile that they did on Sequoia in 2014. And there's a great quote in there from the CIO at Notre Dame, which is a great LP, one of the most sophisticated endowments out there. And they say that Sequoia is the single best performing manager that they have had in their entire portfolio for the last 30 plus years. And that is across all asset classes, which is pretty incredible.

1:43:04Wow. Okay, so how do we assign a letter grade to this one? Well, I mean, clearly it's an A, right? Like, I think the question is like, is this an A plus? I think it has to be an A plus, right? Like if we're looking at a whole bunch of funds bundled together is like too difficult to like assign a single.

1:43:28letter grade two, you know, I think like, were we looking at one that had, it was of significant size and had the highest IRR of all time, then we could go, oh, that's an A plus. But like, it feels reasonable for me to say that like the first 15 years of Sequoia's existence were a, a relative to other venture for, I mean, yeah. The reason I make a case for an A plus is twofold. One, how much done.

1:43:56Really was a part of inventing so many things about the way the whole not to venture capital but startup ecosystem works today and two is is that quote from from Notre Dame now, you know, maybe there are other great managers that Notre Dame has not invested in but But man to be the single best performing manager over 30 plus years in a marquee and diamonds portfolio like Hard not to a hard not to assign that an A plus All right, I'll go with you all right well with that This has been a blast for us. Audience, hopefully you guys have enjoyed it too. Certainly hit us up in the slack or acquired FM at gmail.com. If you have stories to share, thoughts, or other areas you want to see us dig into, especially on our continuing saga of telling the story of Sequoia from Doug and Mike. Well, their generation when they were coming up, then taking over and taking Sequoia into the now 12 billion plus dollar global growth behemoth that it is today.

1:44:57Yep, we'd love your feedback. All right, Carvouts. Carvouts, let's do it. You wanna go first? Yep, mine is an episode of The Daily, the podcast by The New York Times from a few weeks ago called What American CEOs Are Worried About. They report on an event that happened last month where nearly 200 executives got together at something called the Business Roundtable, which I didn't know as a thing. It's not like a governing body of any sort, but it's like 200 of the Fortune, I don't know, 1000 CEOs that get together and make proclamations. And one such proclamation that they made this year was that they are going to not just think about their stakeholders, their only stakeholder as their shareholders, but also their employees, their customers, their community, a broader set of stakeholders.

1:45:54And in my head, the thing that first occurred to me was, well, that feels like illegal in some way. It feels like the purpose of a corporation is to maximize shareholder value. And I just have taken that at face value, call me a capitalist, but like that is my understanding of, you know, relatively recent phenomenon. Yeah. And I didn't realize. And like it got me thinking because I've always thought like, well, you should do all these other things.

1:46:17You know, that's bending the rules of the company to potentially sacrifice your holder value to go and you know. do things that you don't think long term will accrue to shareholder value. So obviously you should be active in your community and you should take care of your employees. But I always thought with this lens of companies do that because it's going to accrue to shareholder value at some point. And it's fascinating to, number one, listen to this proclamation and then they dive deep into exactly David what you were talking about. The fact that it's It's a relatively new phenomenon, one that sort of grew up in the 70s and 80s in the sort of professionalism of Wall Street and companies changing their by-laws to basically say, we exist to be a publicly traded security and then we are at the sort of mercy of that.

1:47:06It's this interesting if we actually drift its direction that they brought up It's much more returned to sort of the the business as a pillar of the community from the sort of early 1900s And I'll be very curious to see if this sort of comes of anything and if this stirs more more sort of sort of sentiment. Yeah, yeah, super interesting Well, and you know definitely reflective of the times we live in in terms of corporations and the world at large. So I hope things go more in that direction. It's interesting to see we have one of our five portfolio companies is a B corporation. Do you guys have any B corporations? Awesome. Wow, we don't yet, but we're super. Yeah, super. Yeah, yeah, it's been really cool to see that, you know, emerges a way to institutionalize some of the governance rules around this idea.

1:47:55We invest in B corporations, as in C corporations, but no preference for necessarily for one or the other, but we and many other VC firms are super open to it and supportive of it. Okay, my carve out as listeners may know, for some reason that even I don't understand, I use Amazon Music instead of Apple Music or Spotify. I'm actually, yeah, I'm definitely gonna change that because Amazon does so many things great, but music is not one of them, but One thing that popped up on the homepage of Amazon Music last week, which may be worth the whole thing, is I had no idea last week was the 25 year anniversary of notorious BIG's first album, Ready to Die. So like speaking of Mafia Don's on this episode, and Viggy.

1:48:43It's so good and so Amazon did this cool thing where they have a bunch of tracks from the album and then in between each track they have like a commentary from you know journalists and people that were there producers Puffy you know everybody part of making making these first album just listening to it all again just man right like it's so good like maybe some of the content and language he uses you know haven't aged too well but but like he was so good like I've never heard anybody that can rhyme like biggie and just the music and the tracks and like what did he did producing it like it was uh it really cool to rediscover and and be listened to that over the past week. David I love the incredibly eclectic collection of carveouts that you have it's this like you know crazy place in France it's this really hard to get through you know thousand page book that like I will never have a prayer of actually and then oh yeah well it's this

1:49:40You know, it really takes me back to when I was really into Biggie, you know? Well, the secret is I keep a little note, my Apple notes, of anytime something strikes me, I just put it in there as a potential future carve out. No, that's awesome. It's a good idea. All right, listeners. Now is a great time to talk about one of our...

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1:50:58All right, listeners, thank you so much. Thanks to all the great sources that you can find in the show notes for helping us research and put together this episode. And if you would like to either join the Slack, you can do that at acquired.fm or become a prestigious acquired limited partner, you can do that at glow.fm slash acquired. And it comes with a seven day free trial. Yeah, one quick note on the Slack. We found a couple questions about this recently. The Slack is Awesome. You absolutely should join if you're not part of it yet. The way to do it is go to our website, acquired.fm, and then on the homepage, there's a little button on the left-hand side of the homepage right below the main image. Click that and you'll get an invitation to sign up and join this like. All right, listeners. We'll see you next time. See you next time.