20VC: Sequoia's Doug Leone on What Has Been Instrumental To Scaling Sequoia Over Generations, How Sequoia Think About International Expansion and What They Learned From China and India & Why When You Lose Pre-Seed You Become Private Equity

Doug Leone is the Global Managing Partner @ Sequoia Capital, one of the world’s most renowned and successful venture firms with a portfolio including the likes of Google, Airbnb, Whatsapp, Stripe, Zoom and many more. As for Doug, he joined Sequoia over 33 years ago and has led investments in Nubank, Meraki, ServiceNow and TradeRepublic to name a few. In Today’s Episode with Doug Leone You Will Learn: 1.) How a 5PM Monday meeting with Don Valentine led to Doug joining Sequoia over 33 years ago? What did Don ask Doug in the meeting? What does Doug believe led Don to offer him his first role at Sequoia? 2.) The Leader: How did Doug change when he made the transition from a "COO" role to more of a "CEO" role with Sequoia? Doug has previously said, "Sequoia is a team, not a family". What does he mean by this? How do Doug and Sequoia do to give the team an unwavering sense of duty to the Sequoia brand? What does Doug believe Sequoia have done so well to allow them to move seamlessly from generation to generation? 3.) The Investor: Doug's first 3 investments all went on to successful IPOs, how did this impact his mindset at the time? What does Doug mean when he discusses "the abyss" he went through post this time? How does Doug advise others going through the abyss? What are the signs certain people will make it through vs not? 4.) The Landscape Today: How does Doug think about and react to newer entrants like Tiger and Softbank? How does Doug think about and assess his own price sensitivity today? How does Doug determine when to be disciplined vs when to pay up? Through what lens does Doug assess the compression of deployment cycles in venture today? Should we "play the game on the field"? 5.) The Expansion: In 2005, Sequoia expanded to China. Why was this the right time? What was the decision-making process for the Sequoia China team? Why does Doug believe, "when you lose pre-seed, you become private equity"? How does Doug react to the notion that success in venture is cyclical and compounds? Item’s Mentioned In Today’s Episode with Doug Leone Doug’s Favourite Book: The Fountainhead: Ayn Rand, Antifragile: Things that Gain from Disorder

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Welcome back to 20 VC with me, Harry Stebbings, and today is likely one of the most excited and proud that I've been to release an episode. An incredible individual, and so I'm very honoured to welcome Doug Leoni, Global Managing Partner at Sequoia Capital, one of the world's most renowned and successful venture firms with a portfolio including the likes of Google, Airbnb, WhatsApp, Stripe, Zoom and many more incredible companies. As for Doug, he joined Sequoia over 33 years ago and has led investments in New Bank, Meraki, ServiceNow and Trade Republic, to name a few. But before we move into the show today, I just love using Angel List's Fund Admin platform to manage my investments. The team in the platform at Angel List takes care of all my back office needs so that I can focus on working with great founders.

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• 1:24Harry Stebbings?

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• 2:10Harry Stebbings?

  You onboard new hires in literally 90 seconds. You can instantly set up people's payroll, benefits and all of their apps like Slack and GitHub. And so if you're looking for an easier way to run your startup remotely, or just a better way to manage your HR and IT, visit rippling.com/20vc. That's rippling.com/20vc. That is quite enough for me though. So now I'm so, so excited and proud to welcome Doug Leoni, Global Managing Partner at Sequoia Capital.

• 2:42Speaker 01

  You have now arrived at your destination.

• 2:45Harry Stebbings?

  Doug, this is such an honor to do. I mean, it's a far cry from breakfast at the corner, but I cannot thank you enough for joining me today. So really appreciate you taking the time.

• 2:52Speaker 02

  It's my pleasure and honor to be here.

• 2:54Harry Stebbings?

  I would love to start today though. What an incredible 33 year journey with Sequoia. But I did my research before this and Pratt's Guide to Venture Capital, 5pm meeting with Don Valentine. How did you get it? And how did the meeting go? What did Don ask?

• 3:08Speaker 02

  Well, some of the training for that cold call came from my sales days. And when you sold computers back in the late seventies, you had to get past what was then called the secretary to get to someone who might have a budget. And so it was really no different. And the lady who answered the phone, she was not a secretary. I did not know that. She was the right-hand person of Don Valentine. She was a shrewd, tough, great sense of humor and New Yorker, who would not be bullshitted, if you will, by anybody. We started the call. I quickly sensed what she was. And we had an honest and real conversation, a firm conversation, between two people who had spent a lot of time in New York and we hit it off.

• 3:51Speaker 02

  And I was told afterwards that she walked into Don's office and she said, this kid may have something you might want to interview. And that's what led to my 5pm Monday meeting with Don Valentine.

• 4:03Harry Stebbings?

  And so tell me, how did the meeting go? What did Don ask?

• 4:06Speaker 02

  It was a tough meeting. Don had a little round table at the corner of his office. Don was the kind of person that silence would not bother him. In other words, if you answered a question, he could sit there for thirty seconds in dead quiet and his heart rate probably wouldn't increase, what yours probably doubled. And so he asked me one question, what's important? And I rambled for maybe four or five minutes. And now it was followed by dead silence. It felt like an hour. I'm sure it was twenty seconds. And then he said to me, what else? And I started laughing. And I said, what else, Don? I gave you everything I have. And then we warmed up from that point on.

• 4:48Speaker 02

  And I think what Don noticed, that he had someone who was an em missile. Back then, I'd say an unguided type of missile. But someone who had the courage, the humor, and from his point of view, who looked at business from the customer in, not from the technology out. And he liked that as a compliment to some of the people who had a Sequoia that looked everything from the tech out, and which is why he hired me.

• 5:16Harry Stebbings?

  Now, I also love that question because I just got off a call with David at New Bank. And I said to him, hey, I've got Doug coming on the show. What should I ask him? And he said Doug is the master question asker. When he interviews people, ask Doug, what question does he ask? So what do you ask? And it's the same as Don?

• 5:33Speaker 02

  Things have changed because the type of questions you can now ask are very different than the types of question you can once ask. But I have some favorites. And I said, I don't want to get too personal. But I ask them if they have a sibling close in age. And then I ask them, use three adjectives to describe your sibling. And I make it very clear, this is not about their sibling, and to describe themselves by comparison. And so, you know, in a law of diversity, two siblings are less likely to be alike than two strangers. And so how they describe their sibling is usually the opposite on how they describe themselves. It's a self-awareness question, so on. So I always like that. I like to ask What are the things that you've always done well because of genetics, because of early upbringing?

• 6:18Speaker 02

  And the things you struggle with that you have had to improve on because you are a smart person? And you're tired of making the same errors over and over again. I really try to get into not the professional quality of the individual, but more of the personal quality. It takes about thirty minutes with someone to relax, which is why I refuse to interview someone for thirty minutes. After thirty minutes, then I ask a little more about business, the key drivers of a company to them, why they did certain things and so on. But I focus very much on the why and a lot less on the what.

• 6:51Harry Stebbings?

  You mentioned the sibling question there. I hope it's not too personal, but you said before about being an only child and, you know, about your parents growing up and, you know, seeing your father, you know, doing his profession. And, you know, I think you said at the peak he made twenty five grand, working incredibly hard. I was intrigued. What were your biggest takeaways from seeing the work ethic of your parents and all that they did for you in those early days? Having had that perspective and those takeaways for you.

• 7:14Speaker 02

  Lots of great lessons. First of all, it taught you the simplicity of everyday life and what's really important. It also taught you how to live within your means. If your dad or your mom is making twenty five grand and you have no debt, you're living with that twenty five grand. It taught you the value of education because you don't want to grow up and make twenty five grand. I remember wanting to go on a date and the only car I had was my father's car with a bashed in driver's side door. And let me tell you, that builds character. It taught you hunger.

• 7:47Harry Stebbings?

  At least you had a date, Doug. That's more than me. I might have a nicer car, but I don't have the date.

• 7:51Speaker 02

  You know, I hate to admit that was my only date in high school, my only one. And it taught you hunger because if you wanted anything, I made it, it became very clear it was up to me. Not a lot of people have trust funds. I certainly didn't have a trust fund. I had parents who could pay very little for my college education. I had to take loans and scholarships. And I benefit from scholarships from people who I would never meet. Which is why the first thing I did when I made a little bit of money, I created scholarships in the honor of my parents at Cornell to return the favor. But it Played a solid foundation of good values and a fear of what you didn't want to be when you grew up. And so as the years went by, this would serve me extremely well.

• 8:35Harry Stebbings?

  In terms of the changing person there, I do want to kind of move to you and focus on you as the leader in many respects. Because again, I did a lot of research before this. And you said that when you moved from the maybe more kind of COO role to the more central CEO role with Mike kind of, you know, stepping aside in two thousand and twelve. You said that your Myers-Briggs changed as a result so significantly. I was too intrigued. How did you change? And what was the most prominent changes in that Myers-Briggs?

• 9:01Speaker 02

  So people have called me more than once a bit of a control freak. I can make the trains run on time. If you ask me to take a hill or to get something done, I will commit to you that things are going to be done on budget and on time. If I'm on a board of a company that fails, it fails in a very organized way. If I'm lucky enough to be on a company that succeeds extremely well, it succeeds in a very organized way. But I knew that those traits were not conducive to being a leader. Those are great traits for being a manager. And I read a whole bunch of books. As soon as Mike Moritzus stepped down, I went to the bookstore. I might have bought twenty books on leadership and I might even have read another twenty. And it became clear to me what leadership is and what management is.

• 9:45Speaker 02

  And leadership is really a vision. It is inspiration, it's execution, it's instincts. It is not just let the trains run on time at all costs. And so I understood, if you will, to let the horses run, to hire great people, set the direction, let the horses run, use my instincts a little more. And again, I mentioned self-awareness. I think that is one of the greatest things. It's good to know, it's good to not know, which means you can learn. It is not good to not know what you don't know. And that is the killer. And I was lucky enough to know what I didn't know and do something about it.

• 10:21Harry Stebbings?

  You said that a set of vision, I think it's a very important one. And you know, a line to that is kind of setting the culture. And I remember before hearing you say that Sequoia is not a family, we're a team. I was intrigued to kind of dig deeper on this. You mean by this, what does that mean to the team? And what does that mean kind of number one is?

• 10:38Speaker 02

  So the first thing I did when I took over the sole, you know, whatever title that you want to give me at Sequoia, the leader of Sequoia, I wrote the tenets of Sequoia Capital. It's a play on words with ten tenets. And I put performance as one and teamwork as two. And you've heard me say in other interviews that if you're missing one, the other nine don't matter. And if you have one, then you better have two teamwork. We hate the I pronoun at Sequoia Capital. In order to perform, we can't be a family. We all have family members we're stuck with. I know your family. I'm willing to bet you can point to a family members that is going to be a family member forever and is not a performer.

• 11:21Speaker 02

  I know we have a few in our family, but we are a team. It could be a production company. It could be the making of a movie or a show. There are actors, they're called the investors. They're supporting casts. They are the producers, the writers, the lighting people, even the people that make lunch for the actors and everybody else. Same at Sequoia, we have people who invest, people in data science, our assistants, finance and so on. And we better have high performance in all those areas. And we better have a good deal of expertise in using the we pronoun. That is the only chance we have. And if you don't perform at Sequoia, we will give you some time. We will figure out a way to help you. But at the end, the very first person that knows they're not performing

• 12:05Speaker 02

  is the individual himself or herself. And then when we part ways with people, it's usually with a little bit of forward vesting, a little bit of forward payment, a hug and how can we help you? We've learned not to make enemies with the few people with whom we part ways.

• 12:21Harry Stebbings?

  You said before self-awareness is key. If I'm honest, one area where I suck is like not identifying performance challenges early, but actually acting. How long does one give someone? And how does one communicate in that time of doubt of performance?

• 12:36Speaker 02

  Keep in mind that the venture business is a latency business. If you're investing a hedge fund, you have a At the end of each day of how you're doing and you can actually have a numeric score every day, every week, every month, every year, every three years of how well somebody does. In a venture business, you make a seed investment, you might not know the answer for twelve, fifteen months. There are some indicators as a company on plan, not on plan and so on. But it is a latency type of business, so you have to be almost a hawk. Point one. Point two, you have people of different age groups and different experience. And I found possibly because I was one of those candidates, you want to give young people a little more runway.

• 13:17Speaker 02

  I will tell you, there were people who wanted me out at Sequoia Capital after twenty-four months. And it was only through the good graces and good judgment, I now say from Don Valentine, that I'm still here. And so we've learned to give people some time. Keep in mind, the people we hire are not the people who are the quarterback of their football team. They weren't the popular kids. They're a bit of the outlier kids. They're the people that spend time alone. Most of us never knew the we pronoun coming up because we is taught in team sports and all those things. You know, I think that most of us were quirky, loner in the type of individuals. And so we bring them in, we want them to really work on their incredible trait.

• 13:58Speaker 02

  We want to take advantage, and I mean in a good way, of the incredible trait, round them off in the other traits. So they become sufferable because I was insufferable and I became sufferable. And then we teach them to use the we pronoun. Teaching someone to use the we pronoun is not just words, not just culture. You've got to get the compensation right because if you say we, we, we and one person is the one that makes all the money. It's a lot of words. What you're doing is talking the talk and not walking the walk. So we've learned to get all the aspects right, including the compensation. What does that mean, getting the compensation piece right? It means not having Suzie make three percent more than Johnny. It means saying either you're in or you're out.

• 14:43Speaker 02

  And if you're in as a partner or as an associate or as a something in between, there are compensation level. And when you finally make a partner, there's not. levels, we don't use the word junior, we even call in the US associates, we even call them partners. There's no need to belittle them in public. If I'm in a meeting with someone who's twenty four years old, I don't have to say this is our associate. Everybody knows this is our associate. And so to make sure we show people the right level of respect, we give them the right level of feedback. At times means giving them more feedback, at times giving them less feedback. You want them to struggle at times and overcome the challenges in front of them, just to make them better.

• 15:25Speaker 02

  It is getting all these things right. And at the end of the road, if you've seen all these monkey experiments where monkeys are being given, they love grace, but they love the bananas over grape, one monkey, then we'll get a banana and the second monkey, then we'll get a grape and the monkey that gets a grape throws the grape out the cage, screw you. You gave him the banana, I want a banana too. And so we've seen all those experiments, just make sure we get those things right. So that everybody feels they treat it fairly. And basically, I tell founders the same thing I say internally. Assume that everybody's comp is posted someplace in the office and everybody has to feel good about it. There are always some people that they'll never feel good about it, but we can't help that.

• 16:05Speaker 02

  It's got to be a fair system where producers get paid and we don't have nineteen levels, mechanical levels. You're now VP one A, VP one B. We don't do any of that.

• 16:17Harry Stebbings?

  The thing I ask on the team that I find so fascinating is, you know, I've been friends with Pat Grady for six years now. I think he was an associate when we first became friends.

• 16:25Speaker 02

  I already hear that.

• 16:25Harry Stebbings?

  There you go. And it's been tough with Pat, you know, this guy's got Sequoia tattooed on his back. When you cut him, he bleeds green. And it's the same for the rest of the team, though. My question to you is, what do you and what does Sequoia do to give this almost like cult, not cultish, but like ownership and duty to the Sequoia brand that I think is unlike any other firm bluntly?

• 16:47Speaker 02

  Two or three things. One, most of our clients are endowments and foundations, and we take that very seriously. Why should I limit myself in what I can invest in a venture fund for a very rich private wealth operation or someone who's worth 22 billion? Why should I make a rich person richer? So first of all, we're mission driven. Second, we take our position in between these nonprofits and the people that can see the future, these founders, very seriously. Third, they know we are incredibly fair. We're successful. We're very insecure. The type of person we hire, as I said, is by nature, an insecure person. An insecure person that has something to prove, maybe their brother

• 17:31Speaker 02

  beat them up a little bit. They want to show how much better than their brother, or their mom and dad didn't tell them I love them one extra time, or something happened in their upbringing that puts a drive in these folks that never goes away. I will tell you that most of the investors at Sequoia grew up in very modest means. We're fair. We want to win. We're ultra competitive, and we believe, and we do this every day, starting with me and the more senior people. More cases at Sequoia where partners have been asked to be paid less rather than be paid more. I want you to hear that. I've been in more meetings in my 30 years at Sequoia in people asking for less compensation rather than more, so

• 18:14Speaker 02

  we can spread it around to other people. When you put all these things at work, including the success, including the rides, including using the correct words, we're not investors, we're business partners to founders, it is not a deal, it's a company. You've got to get even the words right to really mean everything, and you've got to pay attention to all the little things. And furthermore, we're so insecure, we're always asking ourselves, how do we put ourselves out of business? Because if we don't execute those things, somebody else will. We know by definition, there are partnerships and firms every day that try to take it to us, that try to put us out of business. We act very aggressively. We are fearless about taking chances. We don't want to risk the

• 18:57Speaker 02

  Franchise by doing something stupid, but the only way to stay alive is to take risks. And that's embedded in our DNA because at the end of the day, while we have all these lines of businesses, we have venture investors at heart. We are much more comfortable with someone who is a twenty-two-year-old young person that has a vision than someone that looks like Doug Leone. How's that for a sentence? I probably broke some cultural norms by saying that, but that's.

• 19:24Harry Stebbings?

  I think it's totally fine. Interesting that you said they are kind of about changing models of venture and it's off schedule. But I spoke to, you know, founder of a big multi-stage firm this morning and he said, if any partnership today in multi-stage is not talking about Tiger and how they're changing the game, they're not being honest. Would you agree with that? And how do you think about it internally in terms of Tiger changing the game?

• 19:45Speaker 02

  Well, look, over the years, we have had numerous entrants trying to change the game. First of all, it's not the game. Remember I said we got to get the words right. It is a business where people's lives are at stake, their careers are at stake, I should say, and capital for investors, in our case nonprofits, are at stake. So we don't view it as a game at all. Second, once upon a time, before your time, there was ICG, CMGI, firms that institutionalize things. Now we see Tiger, well, we had SoftBank a few years ago, Tiger now, there's all these attempts to short circuit what we do. What we do is company building. We'd like to get there early.

• 20:27Speaker 02

  We'd like to be the first investor when there's one employee, such as New Bank, since you said that you talked to David, and help set the DNA and then stay with these companies for the next fifteen years, maybe twenty years. Like, which is why we now have a hedge fund, because we'd like to say we want to go from seed to IPO and beyond. And doing that takes headcount, takes time, it takes a lot of things above and beyond trying to be an index fund for every Series B out there. And we believe that what we do will form a competitive advantage if we do it right. So what we tell founders, you've got to get product market fit. If you can't get product market fit, I doubt Sequoia Capital or any one of us.

• 21:07Speaker 02

  That is the black magic. That is really the art. Once you get product market fit, we can help you with everything else. We've done that a thousand times. We iterate on how we do things, whether it's hiring people, the type of people, when, how, customer introductions, board building, a whole bunch of other knowledge. Product market fit is yours. We do everything else. You cannot do what we do if you're investing in five deals a week. There's no way to do that.

• 21:32Harry Stebbings?

  And listen, I totally agree with you. I do wanna talk about some of your early investments today because your first three investments all went on to very successful IPOs. How did that early success impact your mindset at the time, Doug?

• 21:44Speaker 02

  It screwed me up. And the reason.

• 21:47Harry Stebbings?

  How so?

• 21:47Speaker 02

  Well, it's even worse than that. While the first three are IPOs, the next four were nice M and As. So I got a blazing start. And why is it? Because I landed in the middle of the land. I landed at the beginning of software, so I was in the right place, right time. It was as much done to skill as it was to luck. I wanna be perfectly frank. But it gave me a false sense of confidence. Boy, here I am. I know what I'm doing. And so in nineteen ninety-nine, nineteen ninety-eight, I jumped in with both feet, both arms, I had the whole body into telecom, optical networking. That was gonna be the best thing. And one day I woke up in two thousand, I was on twelve boards and there wasn't a winner there.

• 22:30Speaker 02

  Now that was a teaching lesson. I will tell you, I learned more from that lesson than I did from the first seven wins, three of which were IPOs, as you mentioned.

• 22:38Harry Stebbings?

  What did you learn from that?

• 22:40Speaker 02

  It learned that I didn't know much. It learned that I had to do careful due diligence. It learned that I had to raise the bar by a whole bunch. It humbled me. And it also taught me, when I became a leader, when and how I should help people. I went through the abyss on my own and I came through the other side. But people are different. There are some of our partners that went through the same thing that I made the judgment called leave them alone. Let them come out themselves. And there were others that I didn't think they could and they needed a little bit of a hand and they made it to the other side. And they're terrific investors. Learn the value of the abyss and the abyss is huge value.

• 23:20Harry Stebbings?

  What are the signs that someone will go through the abyss successfully versus not be able to overcome it? You've seen many go through it over the years, I'm sure.

• 23:28Speaker 02

  So when someone finds themselves in the abyss, if they start to fib on their performance of the companies. If they wanted to continue to invest at a rapid pace, almost not really caring about the mistake. There are some investors who, yes, like a baseball player, you have to forget about the last bat or or as a goal scorer, you know, you have to forget about the last game if you didn't have one. I find people that lack empathy in some ways are a little too easily forget about the forty million they lost. A little unnerving. I was never able to do that. Those are the telltale sign. They're political, they rally the troop on the inside, they're hide between right behind the votes of senior investors.

• 24:11Speaker 02

  Those are all the negative traits. Conversely, someone that fesses up to what they have, takes a aggressive stand in helping those founders realizing in many cases, there's no market for their business. They develop an area of expertise, they become ultra focused and are twice as careful in what they do. They've been humbled to death. Those are the great signs, in my opinion.

• 24:35Harry Stebbings?

  Can I ask, on the flip side, again, you've seen many different investing careers start at Square. What happens when someone actually has a bad first investment? And it's not what you went through, which was the incredible success of Start, but it's a bad one and it knocks their confidence incredibly. And it doesn't mean they're a bad investor. It could have just been one bad investment. What's the lessons there in terms of their progression?

• 24:55Speaker 02

  I think early on, a pat on the back, a reminder that maybe five out of ten, six out of ten investments don't work. And let's keep on going. That's all that you need in someone that does that. I don't think the first bad investments is as dangerous and as fruitful a lesson as waking up one day and you're on six boards and you've got four bad investments. Cause that takes a whole bunch of time. I think the first bad investments, it's a lot easier situation from which to recover.

• 25:25Harry Stebbings?

  Can I ask, there's two situations which are Struggling with today, honestly, and I just love your advice. And it's like, one, we've never seen prices at this current level. I get some advice that says, you've got to play the game on the field, deploy, deploy, deploy. It's about playing the game on the field. And then there's others which is like, no, this is fundamentally ill-disciplined and not right. What do you advise me? And how do you think?

• 25:46Speaker 02

  First of all, stop using the game on the field, deploy, deploy, deploy. Let's change the question. In a world where the breadth of opportunities has never been as broad. If you look at the number of one billion dollar market cap companies, or 10 billion dollars, or 100 billion market cap companies, and you compare 2005 to now, it's a drastic number. It's a drastic increase. And furthermore, the largest increase in the number of largest companies in percentages. Okay, so you have to recognize that the opportunities are getting broader. But at the same time, you have to recognize competition has gotten greater, and we face irrational type of competitors. And so that is the situation analysis. And so it does become a pick 'em business.

• 26:30Speaker 02

  Meaning deploy, deploy, deploy. It's a pick 'em business. The further you are to the funnel, seed investing in the top of the funnel, the broader you can be. And you can, you know, at the end of the day, what is seed investing is a smart person in a generally interesting area. That's it. There's no need to overthink it because they're going to zig and zag in ways that you can't predict. As you move down the funnel, venture, growth, pre-IPO, the checks get larger. The valuations get a lot higher. And the further down you come, the better you have to get at picking them. And if you go broad there, you're going to get stung. And so the further up you go, the looser you can be in your aperture, because that's part of top of funnel.

• 27:14Speaker 02

  That is the mandate of top of funnel. But as further down the funnel you go, further down the river you go, the better you have to get at picking them. And if you pick them right, you'll be rewarded at the end because of the large market caps being created. But if your attitude is invest, invest, invest, price don't matter, don't matter, don't matter, that is going to serve you well in a momentum-driven economy. They serve you well for one fund cycle, maybe two fund cycles, as long as the momentum increases. You've got a public market adjustment after a 12-year bull market, or soon to be a 14-year bull market, and prices adjust by 40%, you're in a world of hurt. So I think you've got to go during these times, the further down the funnel you go,

• 27:58Speaker 02

  the more attached to quality you have to be.

• 28:01Harry Stebbings?

  You mentioned that kind of seed and its attachment to, you know, bluntly, the funnel. You said before, when you lose seed, you become private equity. What did you mean by this when you unpacked that?

• 28:10Speaker 02

  Well, I'd say when you lose the early stage of building a relationship with the founder, you become private equity. So what I mean by that is they already have their boards, they already have a relationship, and you become a price take. And the selling things that you have to a founder, how you can help them become less and less. Now, we're lucky enough that we have operating people. I think we have the best people in any partnership. In engineering, Will Billcorn, who used to run Google search. In Bogomil, who did the same at VMware. In product management, product marketing. And Carl Leishenbach, you probably knows, who ran a sales operation from 60 million to 6 billion, and so on.

• 28:51Speaker 02

  And so what you need is the larger you go, the later you come near these companies, the more you have to convince the founders that you have real operational muster to help them. So why were we investors in Zoom? I can tell you that Eric Wan didn't need money, but he needed Carl Leishenbach. And the same can be said for many of us. It's happened many times. Same thing with ServiceNow and me, and so on. But it is better to do this at the seed stage, because then you can help them set the right DNA and so on. And of course, if you come even later, at that point, they have everything. They have Carl Leishenbach, or Bogomil, or Doug Leoni. At that point, it's purely price. You know, there's nothing to tell a founder, we can help you with the IPO. Well, that is a commodity type of benefit.

• 29:35Speaker 02

  That help can be gotten many different ways. And so you want to get early. Now, going that early isn't just writing checks early as these latest-stage partnerships now are looking to do. Let me get into A's, because they're missing the Company building know how they're missing the forty nine years fifty years of expertise. And that's what we can bring to the table. So it's not as easy as investing early. It's everything else that goes with investing early. That's the tough part.

• 30:00Harry Stebbings?

  But I do want to ask Doug, I'm too interested, you know, in terms of the geography and the expansions of Sequoia. Brand and and activity, starting on geography in two thousand and five, you made the decision to do Sequoia China. Why was that? And how did you think about that decision?

• 30:14Speaker 02

  So I wrote a memo in oh four, one page that said, I don't know if we're doing this for defensive reasons or offensive reasons. I was noticing that the founders in California were many ethnic founders from India, China, Italy, France, all over the place. And I said, I don't know what's gonna happen twenty years from now. And I remember saying, if NEA has posters from Chinese or India companies in their offices. And we're attracting US based Chinese or India founders. Are they gonna come to us? Are they gonna go to NEA? I considered that defense. And then I made a point of where are the largest and growing economy? And it was BRIC in Brazil, India, China.

• 30:56Speaker 02

  And we prioritized them. We said China one, India two. Because if you want to be a partner to the most valuable companies in the world, which is our mission. It could only happen in large economies. It's not gonna happen in Thailand, a small economy. And so we decided for defensive and offensive reasons that we needed to be in these other locations. And so two of us went shopping for contacts for teams first in China, then in India. And that's how we came to it. It all started with a one page memo and an off site dinner at some restaurant whose name I cannot recall in San Francisco.

• 31:31Harry Stebbings?

  How did Hogan's Heroes episode impact your thinking around partner selection for the expanded Sequoia China?

• 31:37Speaker 02

  So what Hogan Zero is, is a politically incorrect sitcom that ran in the seventies. About Americans in a German POW in World War Two. And of course, the Americans are smart and the Germans were dumb. And the gentleman who ran the camp, Colonel Klink, was particularly dumb and vulnerable. Where Hogan, the Lee P. W was smart and Hogan's and Kling found themselves in front of a safe in Klink's office that hadn't been jerry-rigged with a bomb. And if you turn the handle of the safe one way, the bomb would explode. And if you turn it the other way, the safe would be open and there was money in the safe. And Hogan, the American, looked at Klink, the German, and said, Klink, which way for the handle? And Klink said, left.

• 32:20Speaker 02

  And Hogan turned it right and he opened the safe and they got some money. And Klink looks at Hogan and he goes, how did you know? And Hogan said, I wasn't sure whether I'd get it right, but I was positive that you would get it wrong. And that little vignette was what Mike Moritz and I used when we went into China. In other words, we were absolutely sure that he and I would get it wrong. We didn't know we were going to recruit Neil Shen. We didn't know we were going to find someone who would get it absolutely right. But we liked the chances of a non-known person. We had more than we liked the chances of him and me. And I brought up Hogan's era to him. I told him the same thing I told you and he agreed. So we took a shot.

• 32:59Speaker 02

  We went looking for people and we luckily, unfortunately, and thank God, we came across Neil Shen.

• 33:06Harry Stebbings?

  I do have to ask kind of beyond that, you know, when you look at Sequoia China and Sequoia India, they've both been so successful. What else do you think you did, looking back now, that drove their success in such a pivotal way?

• 33:17Speaker 02

  Well, first of all, I should explain what Sequoia is. It's a brand that is run by local people in local geos who make every important choice and decisions about investing, hiring, firing. That is the key. It's finding the right people. And by the way, in every line of business, whether it's China, India, Southeast Asia, our hedge fund, a multifamily office called Heritage, we've had to go in and affect changes once. So it wasn't that we got it so perfect from the beginning. So we had to go in aggressively and affect change. But finding great people, going in if you have to, and then leaving them alone most of the time, knowing that local people are the best suited. And then in my role, making sure we all rode the same way. We have one culture.

• 34:01Speaker 02

  We have centralized compliance, financial reporting. Those are secondary. My role is a secondary. Importance to the role of Ruloff in the US, Shalandre in India, Neil in China, Charlie Cow in our China hedge fund, Jeff Wang in our US hedge fund, and Keith Johnson Heritage. The decisions, the important part of the business is there. But that's what Sequoia is. It is a decentralized organization under the one umbrella brand.

• 34:27Harry Stebbings?

  When you look at all those different incredible people and teams, the success that Sequoia have had has been so stratospheric, bluntly. My question to you is, is there ever a time or an inflection point in venture? When you think that success is almost cyclical and self fulfilling now for Sequoia, where the brands, the companies associated are so good, and the work that you've done is so good, that it's almost self fulfilling?

• 34:49Speaker 02

  Look, there are a number of people in the world that think that we Sequoia investor, sit by the couch, we look at the clock, it's three o'clock, let me have a drink, it's three thirty, let me put my net in, oh, here's a fish. Nothing could be further from the truth. It is an every second, everyday thing. There is no such thing as a self fulfilling prophecy. We have gone as far as taking all the posters from our companies away from conference room once upon a time and say, let's act like we've done nothing. In fact, our success is the greatest danger we've had because it can confuse people that yesterday is tomorrow. Success has to do with yesterday, but tomorrow is the only thing that matters. And it's always the next partnering opportunity with founders and success has little to do with it.

• 35:33Speaker 02

  No founder calls us and says, I've got a great investment. Hey, Sequoia, why don't you partner with us? We only want you and so on. No. We're always fighting like cats and dogs for every single opportunity with other venture firms, you know, and so on. So self fulfilling prophecy, I wish. If that were the case, I'd work forty hours, not eighty hours. It is a go, go, go, compete, compete, compete business. And it's going to continue to do that. And anybody else that think they can relax, they will be quickly out of business.

• 36:04Harry Stebbings?

  I remember Pat once said to me, look at every tech company that goes public and is amazing. Yeah, if they don't have Sequoia on their camp table, that's something that I and we have missed and we always work harder together.

• 36:16Speaker 02

  We would like to have A hundred percent market share. We have been responsible somewhere around six and a half trillion of partnering opportunity, meaning the companies with which we partner have generated six and a half trillion of market cap. About a quarter of the NASDAQ, God knows how much of the NYSE in Hong Kong now. Somewhere near three hundred and fifty and four hundred IPOs, but that's all yesterday. That is all yesterday. We've done nothing tomorrow.

• 36:41Harry Stebbings?

  I've got one final question for you, Doug, and it's on the like you said there about the incredible companies going public. On the like sell side, a big question that often is posed, when is the right time to sell? When is the right time to exit a position? I know we don't like the language, so forgive me for the language. But like, when's the right time to sell? How do you think about that? Do you have any lessons that you've learned over the years in terms of the right time to exit?

• 37:03Speaker 02

  So think of all the great companies that you love in the public market. Whether it is Square or whether it's Google or whether it's ServiceNow, pick any company. I will tell you that those companies always beat a threshold sales price that somebody had. In some conference room, somebody said two years earlier, when it gets to forty, we are to sell. And the company gets to forty a year earlier and they probably sold. And I contend that is absolutely the wrong way because all those companies clearly overshot those thresholds. In my mind, there's only one question. What can this company be five years from now? Get away from all the models. The models aren't worth their paper. They're written in past a year or two. And yes, you may want to have a model just to do some thought checking or thought experiment.

• 37:48Speaker 02

  But the only question that to me matters is what can this company be five years from now? Let the dream gene go, not too much, obviously, because not every company becomes a great company. But if you see a company with terrific competitive advantage, take Airbnb. I do not know the numbers. I do not want to mention this quarter, next quarter. This is not that kind of comment. But I would say young people are traveling more and more on Airbnb. The hotel industry is dying. The question for me of Airbnb is not the demand, is the supply? Is there going to be enough supply in years to come? Because that is probably the type of company you want to tuck under your pillow and not look at. For five years because all the trends are in its favor.

• 38:31Speaker 02

  It's a two sided marketplace, global, that if they can get enough supply. We know people of your, now, I've never stayed on Airbnb, but I supported the investment. But people of your generation, the Gen Z generation, you know, they go Airbnb first. And so that's what we think. What can this company become in the next five years? And what is the key question you have to answer?

• 38:55Harry Stebbings?

  Listen, I love that in terms of that key question. I do want to move into my favorite, though, which is a quick fire round. So I say a short statement, Doug, and you give me your immediate thoughts. Is that okay?

• 39:03Speaker 02

  Sure.

• 39:04Harry Stebbings?

  So what's the favorite book and why? What should we be reading this summer?

• 39:07Speaker 02

  Well, when you say favorite in this summer, it implies a new book. My two favorite books that made me, that helped make me as a human being. It started with a fountainhead when I was a confused young man. And it continued with a book called Anti-Fragile by, I believe, Nassim Taleb, of how to make sure you stay as tough as nails as you go through life. So both those books were formative books. And I'd like to think I eventually became. Now, whether I became that or not remains to be seen. But I give those two books a great deal of credit for, for helping me be who I am.

• 39:42Harry Stebbings?

  Doug, you mentioned tough as nails there. I remember your biceps, they made mine look like peanuts. Help me out here. What does the workout routine look like for you?

• 39:50Speaker 02

  First of all, it's important that as you get older, you shrink. And I would advise everybody, as you get older, lighten the weights, increase the reps. And don't worry about size. I've shrunk from an extra large to a medium. I worry about staying healthy, not in pain and longevity right now. Not macho size, which I might have done in my forties. But my workout routine for every body part, just once a week. I lift two hours for one day, two hours another. I hit every body part a whole bunch of times. That leaves five days. I usually do cardio three to four days and I stretch every time I exercise. And so it is stretching, it is cardio, it is lifting, lighter than before. It is eating right, which isn't to say to eat perfect, but you know, to limit your intake of sugar and booze.

• 40:35Speaker 02

  Yes, you gotta live. Yes, you gotta drink a margarita. A beer, a glass of wine, a bourbon, but don't do it to extreme. Have a life, enjoy life. If you're gonna die a year or two earlier, so what? I've seen people at eighty-six, eighty-eight, ninety-two, two years less is okay, as long as they can have a fun time throughout the whole ride.

• 40:53Harry Stebbings?

  What do you think your biggest strength and your biggest weakness is, Doug?

• 40:55Speaker 02

  Somebody said to me about a month ago, a topic that I had never thought of. They told me, my greatest strength is empathy. I have an interest and an ability to put myself in another person's shoes. So, for example, I get really irritated when somebody at Sequoia doesn't clean their plate and puts it in a dishwasher with crust. Why should somebody that feeds us lunch clean our plate? You know, we all have to be treated with respect and empathy and so on. So I think empathy with founders, what are they going through? How do we help them? How to not stress the situation even more? That is my strength. My weakness, I am not proud to say, is insecurity, wanting to look smarter or better than I am. It goes back to the abuse I received in my high school days.

• 41:38Speaker 02

  I still wanna show those son of a guns what I've become and so on. That, unfortunately, those random thoughts still flow through my head and I wish they finally freaking stopped, but I don't think they ever will.

• 41:49Harry Stebbings?

  I don't know. I think they can be positive. They ease me to drive me forward, you know? So I think there's pros and cons.

• 41:55Speaker 02

  I think at the age of sixty-four, I'd call my character weakness.

• 42:00Harry Stebbings?

  I'm trying to find the silver lining here. Okay, tell me, hardest element of your role with Sequoia today?

• 42:05Speaker 02

  Oh, it's dealing with the people, the personalities. You know, there's, everyone has their own needs. Covid has added a whole bunch of stress. The people who are outside of the investment team don't feel as close to the investment team. Rightfully so, by the way. They're not wrong. It's just all the people issues. That's the toughest things, you know? And especially if I have empathy, I feel the individual pain for all these people. And I try my best to ameliorate every situation, which again, may be a character fault. But that is really the toughest people. I love them. At the same time, that's the, probably the toughest part of my business.

• 42:41Harry Stebbings?

  I know you have kind of grown up children, but in terms of like traits that one would want their children to adopt, what three traits would you want your children to adopt?

• 42:48Speaker 02

  Boy, three traits, I can think a whole bunch. First of all, I'd say love. You've got to have a love for your family, love of your friends, love for life. I think if you're negative, it almost doesn't matter what else you do. You affect everybody else in a negative way. The second I would say, reality. A lot of people live in a world that is not real. Can we have free this? Well, there's nothing's free. Someone pays for a thing, things through. Don't listen to these one liners, to what people say that sound good, that are meant to bait you. When you hear something that's too good, it's probably some insane for their own advantages. So, reality, stay real. And if I were gonna pick for third would be courage. Go try and do something. It doesn't mean you've got to be perfect every day. It doesn't mean you got to go a hundred percent every day.

• 43:33Speaker 02

  Look, I see it in sports. The players don't bring their best every single game. It's impossible. But they bring their best during playoff time, championship time, during the games that matter. So, bring it every day and really, really, really, really bring it when it matters. I mean, if you held me down to three, those might be the three that I would choose.

• 43:51Harry Stebbings?

  How did seeing the booms and busts impact your investing mindset?

• 43:55Speaker 02

  Well, I know that things go up and down. And I know things cannot always go up and to the right. Now, in some cases, it may have held me back the last few years. We're in, like I said, in year fourteen. But, boy, it always causes you to ask, what if? And so, one of the exercises I've asked, we run more than once at Sequoia. Let's take a fun, two cycles ago, where the companies are just coming up. How would we feel about those investments if the market just crashed by thirty percent? Let's figure out how many of those were momentum driven? And how many of those are really quality companies? And so, boom and busts inject a sense of fear to balance a sense of greed, a sense of reality. And it just grounds you.

• 44:36Speaker 02

  And it gives you the experience and the strength to overcome the next bust that we absolutely know is coming. I can guarantee that.

• 44:44Harry Stebbings?

  What would you most like to change about ventures today, Doug?

• 44:47Speaker 02

  It's very easy. I'd love to eliminate the irrational competitor. And notice I've said irrational competitors. I didn't say eliminate the quality companies that fight for us in in companies. I'd like to eliminate the ones that come over the top and say, I would do every series B you have at a billion pre. And why would I do that? It's because it sends the wrong message. It's not even for competitive reasons for us. It's because it sends a negative message to founders. What founders need is a true feedbacks type of system. If you build a great product, customers will buy it, valuation will increase, people are going to be interested. But what do you do with founders that build a crappy product? Nobody's buying it and somebody's willing to invest at a billion pre just because us or

• 45:29Speaker 02

  somebody else is in the cap table. And so I would eliminate irrational competitors that always show up with investment cycles. Like I said, the investors of yesteryears recall ICG and CMGI. Go look them up in 2000.

• 45:42Harry Stebbings?

  I will do. You mentioned, you know, the importance of love, and this is the final one. When is Doug at his happiest? When is your true happy place? I'd love to end on like that, actually, because I think it's probably the most important.

• 45:53Speaker 02

  Well, on a personal basis or a professional basis? Both?

• 45:56Harry Stebbings?

  Both, yeah.

• 45:57Speaker 02

  So on a personal basis, I'm lucky enough to have four children, seven grandchildren, all in the Bay Area. I'm happiest when I'm hanging out with them. Last night, I went over our daughter's house. She has a brand new child. I made gnocchi with pesto Caesar salad. I watched everybody munch, margarita, a glass of wine. Everybody was happy. That's personal. On the professional basis, I'm happy two times. When I immediately help somebody win a competitive deal, it's the old sales Doug from the old days. And when I've gone for a long-term ride at David Velez, not now, maybe three years from now, when we come through the other side and I was there watching them grow, watching them build a great business, like to think I've helped during key times, seeing that whole journey, having a glass

• 46:42Speaker 02

  of wine or something with Davi, talking about all the times, that deep friendship that has been built, that is the other time from a professional sense.

• 46:50Harry Stebbings?

  Doug, I've done 3000 shows. This has been probably one of the biggest highlights that I've had in my entire seven years doing this. It's rare that I'm relatively nervous before a show these days, but this was truly special. So I'm really touched that you gave me the time.

• 47:04Speaker 02

  You are too kind. Thank you for the very kind word. It's been an honor to be here with you. I was looking forward to it and stay healthy and do well.

• 47:14Harry Stebbings?

  What an incredible individual. And as I said there, seven years doing this show today really was one of the highlights. An absolute honour to have Doug on the show. But before we leave you today, I just love using Angel List's Fund Admin platform to manage my investments. The team in the platform at Angel List takes care of all my back office needs so that I can focus on working with great founders. Leading fund managers have made over 10,000 investments into 6,000 startups via Angel List, all online and all in one place. And with the recently announced Rolling Funds, you can easily find and invest in these top fund managers on angellist.com/rolling. And Harness is the next generation of wealth management solution, created for builders, individuals founding, scaling and investing in businesses. Are you approaching a liquidity event and looking for expertise on how to navigate stock sales,

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• 48:42Harry Stebbings?

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