Acquired - Sequoia Capital Part II (with Doug Leone)

0:00Hey acquired listeners. Instead of a cold opener, we want to use this space to dedicate today's episode to the late Don Valentine who passed last year. We are excited to be working with Sequoia today to bring you something really special for part two. And with that, onto the show. Welcome to season six, episode two of acquired, the podcast about great technology companies and the stories behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts.

0:38Today, we tell part two of the Sequoia capital story. We are going to pick up where we left off in 1996, when Sequoia's legendary founder, Don Valentine, turned the firm over to Sir Michael Moritz and Doug Leoni. In this modern era of Sequoia since 1996, Sequoia has been the investing partner behind an absurd number of the industry-defining companies of the last 25 years, including Yahoo, Google, PayPal, LinkedIn, YouTube, Reddit, 23andMe, HubSpot, WhatsApp, Dropbox, Airbnb, DockerStripe, Instacart, UiPath, DoorDash, and Robinhood. Woo! No kidding. And well, David and I spolonged into part one of Sequoia's history on our own. We have the very best person in the world with us today to help us do part two right. Doug Leoni. Now, David, who is Doug?

1:29Doug is the global managing partner of Sequoia Capital in charge of overseeing the firm's many diverse businesses, which we will get into, from seed to global growth investing across the US, India, and China. Doug first joined Sequoia in 1988 after famously cold-calling Don Valentine and was the champion of Sequoia's expansion from a single $150 million early stage fund to the multi-billion dollar global powerhouse it is today. Welcome, Doug, and thanks for joining us.

1:57Thank you very much for having me. It's my honor to be here. It's great to have you. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, LaGoura, the agentic operating system that is redefining how the world's best legal teams work.

2:14Yup, 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. Lugora 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.

2:40for 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. Legora'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.

3:10And 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 LaGora 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

4:02Plenty 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. And now over to David to take us into Sequoia with Doug. We're going to talk a lot about Sequoia during your time in its evolution, but before we do, we want to ask you to tell your story a little bit. You're family immigrated from Italy to New York when you were 11 years old. What brought your family here? So we had a bit of a World War II heritage where my dad's sister got married to a lieutenant, ended up in America, had a child, called Mom.

4:57And so now we had grandma for me and aunt in America. And we were the Italian family with the American bend. My first name was Douglas, but in the church you cannot be called Douglas for the simple reason that you need to have a name from one of the 365 saints. So in Italy I was Mauro Douglas Leoni or Douglas.

5:23as my mom called me and my dad called me. And in school, I was Mauro. When I came here, I just flipped the two names, but a long story short, my dad saw an opportunity, maybe his career was not going so great in Italy, so an opportunity to come to America. He came here. It took me about two years on my mom to come here. I went two years without seeing my dad. And then we finally came here in August 1st, 1968. Wow. What did your dad?

5:51Do in New York. In New York, he was a service engineer for a marine equipment company, and the most he ever made, I remember, was $25,000. That's amazing. So when you arrive, finally in 1968.

6:08in like America in 1968. By boat. I'm in Michelangelo past the Statue of Liberty to the west side of Manhattan. Do you remember the first time you saw the Statue of Liberty? Absolutely. I remember being outside. I remember crying day one or day two and just being in a fog for the next five days when we did the crossing. That's amazing. So America in 1968 must have been pretty different than the world you left in Italy, right? How was adjusting and you know, high school so it was really interesting because it is what I am here today is really a product of those times I was an only child with answer nuncles with no children so I was over loved very warm very warm upbringing lots of trust lots of love and I came here and it was a shock to my system and it was abusive in high school imagine you know it's not

7:08like being school where right now everybody preaches, you have to be good to your fellow kid and all these wonderful things there, you get the crap beaten out of you emotionally, physically and so on. We talked about this with Jan and what's that? You same deal. Same thing with high school, the same experience. And so that makes up the two sides of me, which is the very warm side, the very big heart and the super tough side where I just don't give an inch. So you've talked about in other talks you've given that we've listened to, that you do the Myers-Briggs test. How did those combine into what your Myers-Briggs type is? I'm not sure those affect a Myers-Briggs, but this is how I tested early on and how I changed.

7:52People think of me as an extrovert for the simple reason that if I have to turn that on, I can, especially as I get older, I went from insufferable to charming. It's amazing how it happens. But what I really am, I'm halfway between an introvert and extrovert, exactly halfway in between.

8:12And early on, I was tested as a process-driven person, meaning my whole mind is a tree structure. There's a lot of logic to it and so on. And in 2012, when Mike Moritz stepped down in the relationship I with Mike, he was the intuitive one. He was really the leader of Sequoia. I was 1A. I was the COO if it helps.

8:35I understood that would not be a winning formula. I always thought that great CEOs would make lousy CEOs. Now, I'm not the CEO here, but you get the point. And so I took myself completely out of the comfort zone and understood I had to rely on intuition. And when I was tested, and my is rigged by a lady that tested me, she was shocked by the transformation. And she said, you and Michael Dell are the only two people I've ever tested that have made that change.

9:04And when I hear people can't change, I chuckle a little bit because I felt like I changed. I felt like I had to rely on my gut. And I can't have all the answers in tree structure prior to letting people create. I can't manage every inch. I just have to let terrific people do their thing. Well, I can totally imagine the things that we're going to talk about that you championed here at Sequoia.

9:31Doing that is I think what led to a large part of your success. So you finish high school. You must have been a pretty good student. You go to Cornell and then Columbia to study engineering, right? So I was a great student until I grew up. I went to Cornell. I got thrown out of Cornell after my first year. My first two seniors. That's not your bio. My first two semester grades were one, three, four, and one, two, two, which is not easy to do. I did not see half of my professors because I just never went to class. And what was behind that? And I'll mention in a second. What was behind that after being abused in high school, I was never abused when I was in Italy. I was a smart kid who was athletic in high school. Oh my God, that was rough. At Cornell, I became normal again because when I went to Cornell, I could speak English. And no sudden, I was one of the very accepted kids.

10:27And I kind of lost my mind. In some ways, I lost the opportunity to learn, but I became normal again. Now, for a fall term, I went to a two-year school to make up a couple of classes where I got F's.

10:41mainly math and physics, which are my strongest classes. I mean, I love math and physics. And I also was working part time, doing the deliveries, talking to truck drivers, and it just showed me a range of life of what life could become. Nothing wrong with truck drivers. Don't get me wrong. Was it right for me? Probably not. So a little bit of the carrot and the stick. I went back to Cornell. I did fine. I graduated and I went to work and I decided that I needed to do something. And that's something you end up in sales. Was prime computer your first? No, the first job was selling computers for Hula Packard. I remember there were three people, there were two people in a room, age 45 to 50, and they said, quote,

11:26Kid, don't worry, we'll split Manhattan into thirds. And I didn't know anything, so I trusted him. One got all the Wall Street, one got from Wall Street to 96th Street. And I got, by the way, this is 1979 where...

11:41It wasn't safe to walk north of 79th Street. And that's her territory. Mine was north in 96. I didn't even get 79th Street. This is pre-Julyani in Bloomberg. Oh yeah, pre-Julyani. Well, pre the fact that we became urban and so on, burned out buildings and so on. But that was a lucky break because one thing that's up there is Columbia.

12:05And I remember there was a dean of the School of Engineering, Dr. Trial, but still remembers his name that came from CMU. And he explained to me what the ARPANET was. And he explained to me what open systems were. And yes, I went to Prime for a year and a half because I wanted to sell computers on Wall Street because I knew that's what the money was. But that was with a short-term money was. Was there prestige associated with that, or was it just that- Selling money on Wall Street was money. It wasn't prestige. It was money.

12:33And Prime was the second youngest company to be invited in New York Stock Exchange. It was a go-go company I chosen well. But I realized that was only a sales career. And I was beginning to crave for something more. I wanted to quote, make it. What does that mean? I remember walking on 6th Avenue and seeing all these buildings. I said, how do people...

12:57become successful. Clearly, there must be more. And so, I said, probably I want more risk. So, I co-call Vinod Kosla. Well, actually, it was Owen Brown, which was the CEO at Sun at that time. I got a job because of open systems. I went back to Columbia Open System, call Sun Microsystem. Employee number, I don't know, 50, 60, I can't remember. First people, the first...

13:22person in five states. And I started doing volumes of business so much so that the board wanted to know who this kid was. Vinocostla wanted to know Scott McNeely wanted to know. And I had an idea to open Wall Street. And the reason I did that, I learned of a machine called convex, which back then was on processing math.

13:45processing type of machine, and I read in business week that PhDs were dropping out of Yale going to Bear Stearns on Wall Street. What does that mean? And I don't know if you want to hear the story, but the story was, I got a call from Bear Stearns. They said, can we get a budgetary quote? A budgetary quote is, somebody you haven't met, just wants to know how much. I gave someone, and my quota was two million.

14:08I gave someone a budgetary quote I hadn't met for 2.8 million. I went on vacation for two weeks. I came back and there was a purchase order on my desk for 2.8 million. I said, truly, holy cow. That is the definition of product market fit right there. Exactly. And so what I did is I poured all my time on Wall Street. So much that my office was a depot.

14:31because son could not support these systems. So my office, my desk was a printer stand that I had a hole in it for the paper with messages all around it. I had computer systems that were missing out of son.

14:45All around me, because if you were down, I brought you back up in an hour and a half. I just drove to Wall Street with them. And Scott McNeely... So you're a support engineer. I was doing all this volume. What's going on? Scott came to see my office. He was impressed and horrified at the same time. This is the CO Sun Microsystems. And we just did lots of business. And long story short, I met Vinod Kosla, Venture Capitalist, what the heck is that? And I want to be one of those.

15:15Boy, one, three, four, one, two, two. How do you get into business school? So I went to get a Mass at Columbia. I got in luckily and I did extremely well, which padded the resume a little bit so I can get into business school. And I went to business school and then I co-called my way into the venture industry. Yeah, from what I could read, you sent and called 80 different firms. So there was back then there was a big green book called Pratt's Guide to Venture Capital.

15:45sources. Somebody should publish that again today. And I took all the venture firms in three states, Connecticut, none of four, Connecticut, New York, Massachusetts, California. And I just actually wrote letters because you wrote letters during those days. And in California, I would say things like, I'm going to be in California. Of course, that wasn't going to be in California.

16:08follow up as if, as if, you know, I know it was coming to California. How many entrepreneurs do that to Sequoia now too? Well, I'll be down in the Bay Area in case it happens to work. Well, I pushed a little and in the case of Sequoia, there was an assistant, a spicy New York.

16:25person called Barbara Russell that worked for Don, did the distribution, may have been a reception, you know, it was at a time when somebody did it all. And so I sweet talked my way with Barbara and she tells me she's become a very good friend. She's no longer here. She's retired up in Seattle. She said she went into Don's office and she said, this kid may have something. You may want to spend some time with him. And so on a five o'clock on a Monday.

16:54I was interviewed by Don. What did he ask you? One question. What's important? And I talked for three minutes. And silence didn't bother Don. He could just speak. We could be quiet for an hour. It'd be okay with him. And he waited 20, 30 seconds. Would seem like an attorney. Terrifying. And then he said, what else? And I laughed. I said, Don, what do you mean what else? I just told you everything. But, you know, he liked my, how genuine I was, I think.

17:24He loved the sales approach because a great company has product from the inside out and sales from and the customer from the outside in and He read correctly that I'd be a hustler but not in the word hustler that I would hustle that I was smart. I was human and He knew the question was can we reprogram him?

17:50can we break them down to pieces and will he build himself up? Doug, what do you think in retrospect are the differences between what has made you an amazing technology investor versus what you thought would make an amazing technology investor at that point in time? It's a difficult question for me to answer because I don't think I thought. I didn't know anything about what would make a technology investor. What has led to my success is I hustle a lot. There's people like Jim Gets who can product manage with a founder or product. There are people like Mike Moritz who have incredible intuition. Guess what I did. I bet you can guess. I made thousands of cold calls. I get in front of everybody. I am not kidding when I said I went from being insufferable.

18:44to sufferable over time. Charming was maybe the last five years. And so exactly was complete journey. And so I just worked and build knowledge and I developed a network and some luck. There's always some luck. Lots of hustle, some brain, some skill.

19:05I was able to generate some of the right deal flow and had a very lucky good start. My first three investments were IPOs, which was good but it also built a false sense of confidence because after that, I thought I knew something and I woke up one day in 2001. I looked at my 10 boards and I said, oh my god, there's not a winner there. And so it was an early success.

19:30Go through the abyss and I see investors here go through the abyss and when someone goes through the abyss You got to let them pull themselves out. Yeah, if they come out the other side, they're terrific Yeah, and so I went through the abyss and and then I went what were those first three and it were IPOs there was Arbor software, which is a darling software company that went public and then would merge with Iperian. When in when public it was the largest win Sequoia had ever had. A company called INS which was a services company built on the notion that companies cannot swallow routers as fast as they'd like to swallow routers and therefore we could have a services company. A company we took public and sold for $7 billion to to loosened. $7 billion in 1990.

20:18aid was a lot of money. And a company called Renaissance Software, which was a Wall Street trading system, which was really my strong point. I understood what I was looking there. I did not know that was a coin investment. And a funny story in the case of Arbor Software, if you want to know the real story, I was here for three years. I almost got thrown out. People wanted me out. Don is the one that saved me. Give, quote, give the kid more time kind of attitude.

20:48And I needed to get something done. The founders of Arbor were two weeks from bankruptcy, personal bankruptcy. That night, they came to my house. I said, you gotta get a deal done. I gotta get a deal done. I think you're investible. We created the presentation. That got presented the next day to Sequoia. And the inside I had, and Don Valentine helped with that, they understood the problem. As consultant, they understood the domain of the pain.

21:16and they just didn't know how to articulate it in a fundraising pitch. And so we created a pitch and we got the company, I say we, because even though it's a Sequoia, we got the company fund it. The partners trusted me so much that one partner and I won't tell you who the only reason why I did it is because there was a credible co-investor in his mind, nothing to do with what I knew instead, but we got the deal done and we got the investment made.

21:44Just starting with two people not a line of code Yeah, a seed if you will back then although it was a series a two million and we made it 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 It used to be that you proved that you were secure once a year on audit or a static PDF Then everyone would not and you're done, but in an AI first world that doesn't hold up anymore Yup, your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this, quote unquote, shadow AI running with no security review at all. Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap.

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23:41We ended part one of our Sequoia history with Don in 1996 calling you and Michael into a conference room and passing the firm over to you. What was that day like for you? I assume these three companies had become winners. I could imagine the conversation to we should make Doug a partner. I'm sure it wasn't an easy one. In one case, I had a track right in the other case, remember the insufferable part.

24:08And the conversation must have gone around. What is he going to be like if he's a partner, is he going to turn into a monster kind of conversation, which I did, obviously. It's not as black and white as Don turned it over to Mike Moritz and me. I actually went back and looked at carrier location, not because I wanted to see how much carry I got. I wanted to save my memory, serve me right. It turned out that Mike and I had more carry than the other folks. It wasn't the black and white. It's yours. We were the ones with the track, right? Well, I got promoted to GP. I had one, you know, one tenth of the carrier down Valentine in Sequoia 6. And a year into the fun, Don said, we ought to change all the carry and make us all equal.

24:51He understood that he needed to make sure the young people were not going to act like associates, even though there were partners. And so he flattened the partnership and in Sequoia 6. And now it's Sequoia 7.

25:06It was more Mike and I were the more aggressive ones, the ones that had a bit of a track record. I remember Don set with Mike and I, and he didn't say, you're the leaders. He did not annoy us, but he had a conversation just with two of us. And Don had a green shoot of paper with all the things an investor does and check marks next to what he's willing to do. And he pushed a paper as he always would and said, you figure out if you want me around. And this is what I'm willing to do.

25:34He wanted oh we offered Carrie in that fun We gave Carrie down the next one which turned out to be the Google fun. We actually took good care of Don We gave some Carrie not GP Carrie of a couple more funds never aggressively asked for it I remember when I had to walk into Don's office and tell him no more carries. Three funds later, and he chuckled. He said, what took you so long? But Mike and I were the two, if you will, more senior. We rotated the partner's meeting who would write down the company. Who was the leader of the partner's meeting for a year or two until Mike stepped up and said, this is not going to work. He offered to be the one doing it.

26:20We all agreed, he did it, and so it became that Mike was really one, and I was one age, just two, I don't want to rewrite history. One age, we had exact comp, Mike was a CEO, if you will, I was a CEO, we're a partnership, and that's how we ran Sequoia until 2012, when Mike stepped down for health reasons.

26:43And Doug is a point of clarification. When you say Sequoia 6, Sequoia 7, can you explain a little bit about that? Sorry, they had the funds, the success of funds. Sequoia 6 was a six fund. I see. Where I became a general partner was the last really true partnership where Don was full full time. Sequoia 7, Don was a general partner. He had less, you know, and the partnership was run by five or six other partners. And then Mike, where it's took the lead and I became 1A. And give us a sense of what early stage fund number are we on now? We are in 17. Got it. So right when this happens, the transition to Sequoia Fund 7, the whole world is changing, right? Like, because Sequoia...

27:30Originally and Don came from the semiconductor industry and then there was the PC software wave but now the internet is here. Yeah well not yet there's actually a few parts and part was first of all Sequoia 5 was 67 million because a truly lack of ability to raise more money. We had raised a growth fund for 165 million that we didn't know what to do with. In fact we invested the growth fund.

27:56and the average check size in that fund was $2 million. That turned out to be a 4.5x net funds, which is a terrific performance, because we invested like a venture fund. When we raised Sequoia 6, which turned out to be the Yahoo fund, the returns from five were not yet visible. When Mike and I went out fund raising Sequoia 7, the limited partner said, who the heck are you guys? And we lost some big clients. And we lost some big clients. Wow.

28:25And Sequoia 5 turned out to be a fabulous fun. Sequoia 6, an incredible fun. Sequoia 7, a spectacular fun. Sequoia 8, the Google fun, an amazing fun. So Mike and I, and the other partners got an incredible start. And then 1999, 2009, 2000 happened. We did not know the meaning of the word clawback.

28:48for you listeners, what clawback means is when your funds are doing so poorly, then now you owe a lot of money back to your limited partners. And we had war room meetings here at Sequoia in 2000 where we owed more than our net worth. And how do we get ourselves out of that?

29:05of the fees that you've already taken as compensation. If fees and carry maybe we had an early win and we took carry and the rest of the fund is a turkey and we owe not only... Because you assume when you have early wins you assume that the fund is going to be in the carry but if it's not... And let me make things more difficult and that early win you're given shares that you hold and they go to zero. So you didn't even have that.

29:25So you hold the shares in your account because it's 1999, those are not real companies that shares because they're so we had warm conversations and we had a choice to make. And the choice to make is to borrow a line from golf and I don't play golf called Mulligan. Most of the venture industry considers the funds of that period called the Mulligan. They're crappy, they lost money, but you know what, it's a do-over. We took the opposite approach. No one was going to lose money.

29:52That's a boy capital. So we took funds that were 0.3x Meaning if it was a hundred million dollars that fund was worth 30 or in that case it was 300 to 500 is worth 30% of that and we brought them up to close to 2x just by giving up fees Not collecting them and reinvesting money every time we had a game we reinvested it reinvested it because We wanted to have the pride of never losing money. And so those were formative time for the culture. And it would have been so easy for you guys. To most other venture firms did say, call Muggen. We're going to take the loss on this. We'll start a new fund that we get fees on. Yeah. Well, think about it. Sequoia 4 is the Cisco fund. Don Valentine's. Sequoia 5, younger team, older team, terrific fund. Sequoia 6, Yahoo and many others and video many other. Sequoia 7.

30:41many companies, Sequoia 8 Google, it would have been so easy for us to call it and we just refused to. And we just refused to. Doug, it reminds me a lot of the 2008 story where Ford refused to take the federal government bailout and say, yeah, yeah, it would be easy for us to do this, but reputationally it's important to us and all of our customers are your clients for the next decades to come that we don't do this. Absolutely. And while I tell clients, Those times won't be chapter one in the Sequoia book. They'll be a chapter. There should be a big chapter. That's the word. It is maybe our proudest moment at Sequoia Capital. It is not when we've had, you know, we have added funds close to 20x. It is not those 20x fund. The most proud time is when we decide it, no one's going to lose money at Sequoia Capital and we're going to go to work. And we went to work for 10 years.

31:34because the other aspect, less listeners think this is just about reallocating fees or whatnot, it's that you had a lot of work to do with those companies because you still had those investments, it would have been easy to say, yeah, these are zeros, we're just gonna do whatever, but you roll up your sleeves and say, no, we're gonna turn these into returning capital at a minimum. So Mike Moritz is a Brit strategic, man a few words, things 14 step ahead.

32:04I'm my gregarious Italian, and I'll tell you, it hasn't always been easy. Mike would say the same thing, but we made it work for 20 years, and I'll tell you, during those times, we thought exactly alike. You can burn us cigarettes in our arm, and we're not going to flinch. We're going to bring these funds home. And it was amazing how two different cats, with two different backgrounds, with two different styles, who got along a lot, and really argued.

32:33Some, as you would imagine, which is terrific because that means we pour two different views and issues. That is a strength. During those times, there was no question what we're going to do. I don't think we ever had the conversation. I don't think we even said should we do this. I just think we had to. That's a special thing to be able to get in that lockstep with another person. Do you feel like that sort of that rare thing that happens once or twice in a person's life? And how do you attribute Sequoia's success to you YouTube being in lockstep like that on that issue. Yeah, look it happens in sports teams It happens when people go to war they never

33:16Again, why do people keep on going to Afghanistan? The reason they do that, they missed that sense of camaraderie. I don't know if you study situations like that. That was wartime. Make no mistake. We weren't, it wasn't our lives. I don't for a second. I love in respect to people that serve a country.

33:34the things they do are far more important, far more courageous than what Mike and I did. I want to make that crystal clear. We should be grateful to them, but it was a similar sense of camaraderie. It was your business life. No, nothing to do with business lives. It was the fact that each one of ourselves in our body could not do that. Nothing to do, we got to save our career, our money, none of that. It had to do with being a badass.

34:04and doing what nobody else would do. That's what it has to do with. Do the right thing when it's inconvenient to you. Yeah. Yeah, it would have been so many other firms did throw in the towel, get them all again, their business lives were fine. We're talking about this era right around Google's founding and we're talking about your partner, Michael. There's a quote that I've heard you mention in the past where it's something along the lines of Michael telling you a few months after making the Google investment, we've never paid so much for so little.

34:34I think that quote is what John Doar told Mike Moritz. We did know what Google did for a long time. We knew we had smart founders. We knew we were aimed at DNA and we just knew we had to be patient. Sometime patients sit on your hands. You know, I had a similar but a smaller story in Miraki.

34:57Smart founders couldn't figure out which way to go. And if you talked to them, what does Sequoia do most? They left us alone and let us figure it out. We hear that from so many founders on this show that partnered with you guys. That's one of the biggest differentiating factors is let us, you know, we're in the driver's seat, let us figure it out. If it's creation time, the founders create. Now, there could be execution time where they don't execute as well in which case you help them.

35:27The thing I tell founders, you get to do product market, you should do product market fit. We can help you there. If you got product market fit, we can help you with everything else. And so when founders are meandering their way early on and focusing on something that's gonna work later on, you just let them create. They're the creators. All right, listeners.

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38:05How did how did that initiative happen? So the first thing I Don't like the notion of you and Michael It is we're all standing on each other's shoulders Michael stood on down shoulders I'm standing on Mike's shoulders and Jim gets a shoulder and rule of shoulders. So it is really we. It is really a we effort. And the other thing, when confused, there's only one curve I look at for the decisions I have to make. It's the exponential curve of accelerated change. It's not linear. It increases through time. Which means if you believe in that, which means that doing nothing is the worst thing you can do. It's the riskiest thing you can do. And then we also know that in the early days of the curve, you over-forecast because you're a linear thinker in the later days of the curve when the curves keep you on the forecast. So I'm not that smart a person, but I know these simple principles. And I know that doing, you know, do stuff, take the shot, and we'll talk more about what that means.

39:14But turn the clock back to 2003, 2004. Mike and I are both immigrants. There's other immigrants here. Founders we look at are immigrants more and more founders. And so I started wondering what happens if the world becomes globalized?

39:33They're gonna go home and I thought of NEA's offices with posters from India companies in India and the US India founder coming here and we don't have those posters. I thought oh my god defense. But defense alone should make you do things and then you think of the world that's more globalized the world is flat blah blah blah and I thought maybe we should go there. I learned that other firms were doing flyover.

39:59going there and flying and flying and making investment or making investment dual brand. And so, you know, a few brain cells said, if we're going to do something, where are the large and growing economies that brought us to India? So China and India. It didn't, as I say, didn't bring us to Vietnam because it grows, but it's small. It didn't bring us to Europe because it's big, but not growing. So those were the two years. So we started making trips.

40:27in trying to meet teams, trying to figure out how to get there. Investing teams are a founding team. Investing. Founding investing team. And I'm very mindful of a line from an old sitcom, from a scene, that the sitcom is Hogan's Heroes. You know, Hogan's Heroes? So Colonel Kling is the commander of a POW camp. And, you know, he's a putt's obviously in the show. And Colonel Hogan is the American who's very smart. And Hogan and Kling have a safe.

40:56And if you turn the handle one way, you open a safe and there's money. If you turn the handle the other way, it blows. It blows out. And Hogan looks at Kling and says, Kling, which way? And Kling goes left. And Hogan pulls it right and it opens. And Kling goes, how did you know? And Hogan says, I wasn't sure whether I'd get it right.

41:18but I was sure that you would get it wrong. And believe it or not, that scene is the scene that caused me to say, I know for sure, Mike Muritz and I, if we make investments.

41:30in China, we'll get it wrong. We didn't know if the team we found would get it right, but we thought that was the least riskiest thing to do. And so we're shopping for teams, and we came across, it's funny, I made 20 chips to China, and then the team were introduced, what was introduced to us by a founder of Bill Point, which was a predecessor to PayPal, sold to eBay. She introduces two Chinese nationals that grew up in China, had gone to school here, which is exactly what I want to have moved back to China, had served on the board of the same company, focused media. One was an investor, a DFJ. One was a founder, a co-founder of a company called C-Trip. We met him on a Tuesday. We met him again on a Thursday, and on a Friday morning and a conference to Massacoya, we did a handshake deal. No contract, no anything.

42:23There were going to another venture firm in the afternoon, they canceled that meeting. By Monday morning, Mike Moore, it's God bless him, had a PPM private placement for Sequoia, China one, and gave it to them. With a notion that you want to delight your partners. When people do a deal, after deals done, you always find out it wasn't as good as you thought. We loved doing the opposite. We want people to be blown away. Holy cow. Sequoia culture. And of course, the second person there was...

42:49Neil Shen. He was Neil Shen. There were two founders. One of them was Neil Shen. And so we weren't fundraising. We still didn't have a sign contract. And we raised 160 million dollar fund. We were ridiculed by limited partners. We held the annual meeting in Beijing in a brand new hotel with a heat broke. Everybody was freezing. We were slightly abused. That that has turned out to be a spectacular fund.

43:13and the rest is history. Yeah, what are some of the companies that Sequoia China has invested in? Pin Do Do, Alibaba, Maytuan, Bike Dance, Dot Dot Dot. We've had somewhere near 50-60 IPOs. And so I had the idea on a one-page sheet, but if I tell you that, that would leave you with a wrong impression. At critical times where we needed, this is kind of funny, when we needed Operational's move, it was Mike that had the insight that we needed to make those movies, it was Mike that made the moves. So I never told Mike this, I was incredibly grateful that Mr. Intuitive, as I had him slaughtered in my brain, became operational at key times, even better than I was, if truth be told.

44:05And so it wasn't me, it wasn't Mike, it was also quite because as we're doing this, other people were carrying the load in America, you know? And so it was a team, it was truly a team effort. So while you were, and you and Mike were sort of championing, hey, we should be doing this because we think that the rest of the world's gonna hit this inflection point or at least these areas.

44:26Did you have this, this is sort of a bezosism that's more recent, but was there this sort of disagree in commitmentality for anybody who was here that knew that they had to hold down the fort? Even if they weren't pounding the table like you were, how did that go? Look, for many years, there was sniping in the troops.

44:43Why are we doing this? Why are we wasting time? Because keep in mind that this is not about money. No one's making more money because we all contribute the same amount, China contributes, we contribute. You know, it is not... We're talking about the mid-2000s when, you know, Tencent and Alibaba exist, but like, it's not clear that China is going to be what it is. It's about building a dominant...

45:07world-class global powerhouse that at the same time can act very local because the foundation of our business is seeds if you lose seed and venture you become as I say private equity firm because later on all you have to compete is on price and so how do you at the same time go global while not losing an inch on the local side and some of the best seeds were made during those days And so we somehow managed to pull that off by isolating well the thing I initially became the global person nobody else had to do that somewhere along the line Mike and I reverse roles where he was mr International I spent more time in the US and in 2012 when Mike stepped down due to health reasons

45:58We thought about should three of us run it, you know, and we made the decision that I should run it, but we should have second-in-commands, and the logical one was someone from the US, Jim Gets at that time, and Neil Shen. Yeah, that makes an incredible story. Thank you for sharing all this. At the same time that you're expanding geographically, you're also expanding the suite of funds in each geography, right?

46:26In terms of adding the growth funds then ultimately the global growth fund How did you how did you think about that decision and doing that as separate funds versus one fund together and obviously the company needs were evolving with state private longer and everything so the most important thing as I said is to be the first $100,000 to help that founder. So whatever we did, we understood that is the strategic part of the house. We've always done seeds, but we thought both for clarity of thought, marketing, we should do it C fund, because we're starting to have a lot of C programs, such as a scout fund and a whole bunch of others we don't really talk about. Then the world continue to change, and while it's never been cheaper to start a company, and by the way, I think the world change with Netscape.

47:17at least it had a major change, which meant that we went from being deep technology investors, where we really only invested in technology, pre-netscape, to being application layer investing across many market segments, travel, shopping, iPhone.

47:34Internet being part of the reasons. So I think started to happen. It's never been cheaper to start a company. I see it investing when when you're doing deep tech investing. There's no need for seeds. It takes you two years a little bit of product. I know if you can be seed with 600,000 I think that your box was 1.2 million. But that's because an app can be built in a month. At the same time though, it's never been more expensive to launch a company. Why? You've got businesses that have the words you in the economics, the O2O online to offline Uber, door dashes, the card, and so on. And then if you don't have those businesses, turn the clock back 20 years ago, we used to launch the US, let's say in B2B, we used to be profitable, five years later, we used to go to Europe, you can't do that anymore because if you wait, you have to...

48:20But you can't do that. You launch a US six months later, you launch Europe because if you wait, by the time you get to Europe, there'll be 20 competitors, half of which want to come to the US. So you've got to run fast, which means you have to spend a lot of money, which means it's bigger and bigger rounds.

48:34We were seed and venture when we understood the companies need a more money. And keep in mind, we're the folks carrying the suitcases. We're there from day one, we're carrying the luggage. And we thought to ourselves, yes, we want partners, but why are we letting other people come in and dictate terms to our companies? We were vulnerable and weak, so we got deeper into the growth business. We vertically integrated.

48:56And then when rounds became even larger, and we have this incredible portfolio today of maybe five, six, seven hundred companies, we launched a global growth. The global growth is a global vehicle to double and triple down in the best company in the Sequoia portfolio. And yes, we partnered with other firms and so on, but we're able to enjoy the full ride.

49:19I view those as being more tactical product versus C being more strategic. That's the most important one. And then we also add a hedge fund because we realize that it's way tougher to go from 0 to 100 million in revenues from 0 to 5 billion in market cap them from 5 to 25. And so we talked about this a lot in part one of this our Sequoia history. The vast majority of the magnitude of gains of returns happen Post, post, post IPO. And so we, you know, we learned to distribute shares to our clients carefully, not the week after the IPO or the week after the lock up. We learned that a public investment vehicle would help us many ways, including how to look at these companies retrospectively. If you're in the hedge fund, you look back to, to youth and you explain how youth can grow up.

50:10Most of us that invested in scene and venture look up. We looked from zero to something. The hedge fund guys looked from a lot to something. So we were able to have deeper conversations about companies and what companies could become, dare to dream of what companies could become. And so we found that to be quite useful. And then we launched the Heritage Business, which is to make it easy. It's a family office and downman style. And the reason for that We have founders and friends of Sequoia who had done quite well, and wouldn't that be a terrific way to maintain a relationship for another 30 years? And so that's why we did it. These were just to try to build a global powerhouse, which is what we want, where we conserve founders from idea to IPO and beyond.

51:01to personal needs. I'll go so far beyond when they have the personal needs so we can have these relationships that will last the lifetime. We all take a equal percentage of our profits. The venture group is Walnuts.

51:17China is peanuts. The heritage fund is cashews. We blend them and then we redistribute them so that we all get a share of mixed nuts. But no one, but no one gets more nuts. It's just different kind of nuts that financially intertwine us. I see. But nobody makes one money, but we all have bought in that we're part of this team, this global team where we help one another.

51:43while doing the very right things for the founders, because it is all about the founders. Founders come first, by far, limit partners, most of ours are nonprofits come second, and we come third. And it's not because we're altruistic, because that's, if we achieve that, then it's the way to run the business for the next 100 years.

52:02An interesting takeaway here is, as it became more and more expensive to get to your IPO, or to get to be a scale global company, because you have to do things exactly like you're talking about launch new Geos faster, grow more quickly to get ahead of your competition in these winner take-all markets.

52:18You know, a major takeaway is a lot of firms took the specialization route where they say we're purely series a and they stay smaller or we're dedicated seed where this new asset class we're pre-seed we're growth or you know these these large public equity institutions come private and just stay growth capital but what Sequoia said was look We're just going to grow with the company the entire life cycle and take a very different approach rather than specialization Exactly what you're saying to follow them and have the right products for them along their entire growth curve It's just a very different approach than then a lot of people took and and certainly there are other people doing something similar today But it feels five ten years later than then when you did it at Sequoia I'll make two points the first thing is I will add I agree with everything you said and to get there as early as possible

53:05to be the first dollar. Second, if we said we're only an A firm, what happens when, and no company has a linear trajectory? Remember your Google question. They all have a little bump. What happens when that company is a little bump and you have to invest in that questionable round? If you're an only quote A firm or only C firm and you own 20%, where's your capital?

53:32to show to the new investor that you believe. And so because it's never linear, because it's never slammed down from day one, by being there, you can support the companies at times where there are darker clouds in the sky, which helps attract other investors to then get to the sunny skies. This is the perfect time since I know we're running out of time to switch over to playbook. I think there are two questions I really want to ask you.

54:02in playbook for listeners and for you to playbook is we talk about let's abstract out some of the themes from this conversation to what's applicable to entrepreneurs running their businesses to us as we think about parting with companies the first one is it's to struck us in doing part one of this koya history would actually like get the core makes the koya successful is some pretty simple things it's focus on the market founders come first Listen to what entrepreneurs tell you, don't run your mouth, be a business partner, not an investor. You guys and you thought about staying disciplined on those core things as you've grown so much. I imagine that takes a lot of active focus and effort. Yes, there are many answers. I think our little secret is our culture.

54:53And when I was young in business, I used to hear CEOs talk about culture. I used to thought it was a talking point handed to the CEO by marketing. Nothing could be more incorrect.

55:05And the culture at Sequoia, if I can spend 10 seconds on it, is finding these quirky individuals who've had shock to their systems, who have something to prove, who, as I say, were not the quarterback or the football team in high school. And you know what I mean by that? They were the shun ones, if anything. Maybe a couple IQ points high or something to prove. Maybe something happened in a family. Put them in an environment of teamwork and trust, were relatively flat at Sequoia, so we've taken comp off the table.

55:33letting them know it's okay to make mistakes, and instilling a culture that we're looking for the truth. Not your truth, not my truth, the truth in the middle of the table that helps the founder. A number of times I set in a partner's meeting after proclaiming a point. I hear one of my young partners making a point. I say, hold on a second. I didn't think of that. His point is better than my point. I changed my mind. And applying that to everything that we do.

56:00and realizing that we've done nothing, realizing our worst enemy is the success we had. Realizing that by virtue of our market position, not because people hate us, because who else are you going to attack? Not the number 14 for a number of them at three firm. It's just more fun to attack the number one firm. It's what I would do. It's just more of a sport. No one butchnell told us sometimes, or no, it was Trip Hawkins. Sometimes you don't want to be number one, because then there's people sniping at you from behind. I actually argue that Don used to say that.

56:29Don Valente say, let's let somebody else be one. It's better to be two. And so how we do that is making sure we have a mindset that we've done nothing. We have a mindset that we are here from going out of business. If you're Amazon, you've got customers, you've got billions, you've got a relationship. If you're Sequoia, you have 20 chickens walking in the back. That's all you have.

56:5220 chickens and a reputation. So I tell people, take the darn shot. Everybody, it's a coin with no, we'd rather go out of business in a week than in five years. For sure.

57:03And so it just have the mindset of take no prisoner. Do the right thing when it's painful to do so. Help the founders recognize when there's no product mark. You know, it's not always helped. It sounds so wonderful. At some point, there's no product mark. If it the market is spoken 19 times, then you've got to have a different conversation with the founders of five EPs come see you and they say see their him or her or all of us. Those are tough times. But that happens once out of 20 times.

57:30Some firms do the calculus that says, oh, we don't want to ruin a reputation, let bygones be bygones, we can't do that. It just goes against, remember the 1999 thing? It goes against every bone of a body. You have to help as much as you can. It's interesting that you talk about how it's a negative, all the previous success. And I've heard you talk before about how you pulled down all the posters on the walls here of all these IPOs that you had. Baron.

57:55No posters in this room. It's very true. It's still very lovely. It is lovely. Someone argue that the way that the Venture Model works a firm like Sequoia has massive benefit from this momentum of you've made great investments which then in hindsight make you sort of look like a kingmaker and so then you get all the best deal flow now because everybody wants to be a part of this aura that you've created. Do you think there's truth to that or do you think that's total? There's a modicum truth to that but success is a drug.

58:23You know, and you can't fall prey to that. You know, we've had investors here that have been successful, made some money and didn't work as hard. You know, we have 10 tenants at Sequoia. Number one is performance. The other not important, but you're missing one, the other nine don't matter. You could have clarity of thought, you could have teamwork, but you're not performing, you're not here. And I tell people, we are not a family. Make no mistake. We are a team.

58:48If you don't like teams, we are a sure production. Maybe the investors are the actors, but you know, the actors don't look so good without a script, without the lighting person, without a director. And so everybody matters are the team, especially the people that make us lunch and breakfast. They're the ones we have to treat with the most kind of dignity. They are our team members. They're the ones that make this place run. And that's how Sequoia works internally.

59:16One of my favorite books of the last 10 years called Leading with Sir Alex Ferguson about his career, you know, obviously all of that applies to Sequoia as well, but yeah, it's an organization that you're building. It's not a family. That's fantastic. All right, listeners.

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1:00:33on a grading. All right, so Doug, on the show, when we grade an acquisition, you know, we big company buys a little company, Facebook buys Instagram and then we grade how good of a use of capital that was. And that instance, as you're well aware, is one of our far and away A plus of A pluses. And we thought about how do we do grading on an episode like this? And the way that we wanted to pose it to you are, what are some of the things as you reflect back?

1:00:58you know, in your stewardship and all your time at the firm where you would say that was an A+. And some things where you swung and missed or you watched one go by and you say actually, you know, that's a CD or F. And you know, we made out for it in this way, but this is a way to be critical of a previous decision. First of all, I'll tell you the overall grade I'd give us and then I'll drill down. Great. Somewhere between B and a B+. That is what I would give us. I'd give ourselves an A for the war room times of 1999. Those were our best days. I'd give a self an A for the times when we had those 51, 49 conversation where we leaned the right way. And then I give ourselves a lot of F's in things that came through this conference room. And we just got them wrong. And we tend to get them wrong for the most often reason is that we overthink things.

1:01:58Sometimes we see revenue growth even early on and we overthink, well, what can this company be? And at some point revenue growth speaks for itself. I'd give a self fairly high grade on how we treat people, how we wrap everybody in Sequoia. I give us high grades that we bring everybody in in this teamwork approach. When we have an IPO, a big one, we'll send an internal node.

1:02:26About how many people touch a company you would be shocked to see how many names are attached to success I'd give us grades on how we embrace failure our failure. It's always us I'd give us a much less a grade and a missus I'd give us F's because a lot of them came through here so my blended grade If I'm in a Mike Meritz mood, I'll give myself a B and a Doug Leone mood. I'll give myself a B plus. Well, thank you for that. I mean, it truly is hard to imagine a company at some point not coming through the halls here. I'd be remiss not to ask you, can you tell us the Facebook story? This has been an African Hollywood film at this point. How'd that actually go down? So my daughter from Cornell told us about Facebook very, very early on.

1:03:17Kristen George is now product manager at Instagram, and I told it to rule off. And for a number of reasons, some good, some bad, some justified, some not, we would never able to get in. And we knew about Facebook for a very long time, which culminated in that presentation at Sequoia where Zuck mistakenly, and he since said that, obviously, you know, we've all grown up. We don't hold it against Zuck.

1:03:48came to Sequoia. I wasn't in that meeting because I wasn't China looking for teams. But then we had another shot of Facebook. We had a shot of Facebook early on at a very high price. And then we were asleep at the switch when all those eight, nine, ten billion dollar rounds were done completely asleep at the switch. I'd give us lower than enough. I don't know what's lower than that. I'll give us a G. Well, you did have...

1:04:13What's app so yeah, it's let's say that we got some Facebook share fantastic Thank you so much Doug for joining us. This has been really special last question. How can people and especially entrepreneurs get in touch with you and get in touch with Sequoia send us an email I remember I was on a panel once and about 10 years ago and that same question they asked to three venture person and the venture person next to me said Well, we'd like to go through law firms intermediaries to screen. It was my turn. I said eight five four three nine two seven Which was our phone number does that still work? It still works that was I had written down in the next lot of calls, but it's a email us

1:05:01and make it a thoughtful email. If you send an email to 14 of us, no one's going to answer. Send us an email that's, I don't say spend a month on it, but well thought out, you know, I was this, I want to start a company. Would you be interested in meeting? Something like that. There are some emails I just don't respond. There's no chance that There's no chance we're gonna do that and there's us too many. But if you send an email anywhere near the viability that somebody may one in 10,000 chances ever make an investment, you'll get a response. Love it. Be aggressive. Fantastic. All right, well Doug, thank you so much. Listeners, feel free to email Doug. And with that, listeners, if you aren't subscribed and you like what you hear,

1:05:48You should. We're available in any podcast player of your choice. If you want to become a limited partner, subscribing gets you access to our bonus show, where we go deeper into the nitty gritty of building companies in real time. To listen, you can click the link in the show notes or go to glow.fm slash acquired and all new listeners get a seven day free trial. With that, we will see you next time.