Skip to content
The Twenty Minute VCThe Twenty Minute VC

Pat Grady: Sequoia Partner on Investing Lessons from Doug Leone, Roelof Botha and Alfred Lin | E1174

Pat Grady is one of the most successful growth investors of the last decade. As the Head of Sequoia’s growth investing practice, Pat has invested in companies with a combined market cap exceeding $250BN. Among Pat’s immense portfolio is Hubspot, Snowflake, ServiceNow, Okta, Amplitude, Zoom and Qualtrics. Pat is also one of the best acquirers of talent in venture hiring Andrew Reed, Matt Huang, Julien Bek. ----------------------------------------------- Timestamps: (00:00) Intro (01:18) Background (06:58) Bleeding Green Through Brand Hits & Challenges (08:44) Balancing Accountability & Culture at Sequoia (10:07) How Investment Process Evolved Over Time (15:26) A Founder Who Outperformed & Accelerated the Most (18:11) Pat’s Founder Evaluation Framework (21:07) Reflecting on Founder Selection Mistakes (22:54) Does Sequoia Really See Everything? (26:45) Who’s the Best Sourcer & Picker at Sequoia (29:39) Pat’s Favorite Winning Story (36:09) Impact of Investors on Enterprise Value (41:03) Maintaining Focus Amid Diverse Investment Strategies (44:14) Learnings in Hiring Investment Talent (48:14) Insights on Timing Sales & Holding Investments (52:50) Pat’s Strengths & Weaknesses (54:55) The Advantage of Sequoia on Your Cap Table (59:02) The Hardest Aspect of Pat’s Job Today (01:00:57) Foreseeing Sequoia's Challenges in the Next Decade (01:03:11) Quick-Fire Round ----------------------------------------------- In Today’s Episode with Pat Grady We Discuss: 1. The Sequoia Investment Process: What is the Sequoia investment process today? How has it changed over time? What could be improved about the process? Where is it weak? What is the biggest strength of the process? How do Sequoia remove politics from the investment decision-making process? Are the best deals “contrarian”? What does Pat mean when he says you do not “get extra points for being contrarian and right”? 2. What Sequoia Look for When Investing: What is Pat’s framework for assessing founders? How does it differ when investing early vs late? Team, traction, TAM, how does Pat rank the three when investing? What have been Pat’s biggest lessons on market sizing? Does Pat take market timing risk? How much weight does Pat place on “traction” when investing? How sustainable is PMF? 3. The Three Core Pillars of Venture: Sourcing: What does Pat rank Sequoia for sourcing? Who is the best at sourcing in the firm? Selecting: How does Pat rank Sequoia at picking? How has it changed over time? What could Sequoia do to improve their picking ability? Servicing: What does Pat give Sequoia for their “value add”? To what extent does Pat truly believe that venture investors do add value? 4. Pat Grady: AMA: Pat has hired some of the best in the next generation of venture investors; what are his biggest lessons in what he looks for when hiring investing talent? What is his single biggest takeaway from working with Alfred Lin, Roelof Botha and Doug Leone? What are his biggest takeaways from working with Hubspot, Snowflake and ServiceNow? ----------------------------------------------- Subscribe on Spotify: https://open.spotify.com/show/3j2KMcZTtgTNBKwtZBMHvl?si=85bc9196860e4466 Subscribe on Apple Podcasts: https://podcasts.apple.com/us/podcast/the-twenty-minute-vc-20vc-venture-capital-startup/id958230465 Follow Harry Stebbings on Twitter: https://twitter.com/HarryStebbings Follow Pat Grady on Twitter: https://twitter.com/gradypb Follow 20VC on Instagram: https://www.instagram.com/20vchq Follow 20VC on TikTok: https://www.tiktok.com/@20vc_tok Visit our Website: https://www.20vc.com Subscribe to our Newsletter: https://www.thetwentyminutevc.com/contact ----------------------------------------------- #20vc #harrystebbings #patgrady #sequoia #venturecapital #founder #ceo #hubspot #snowflake #hiring

Pat GradyguestHarry Stebbingshost
Jul 8, 20241h 12mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 1:18

    Intro

    1. PG

      If you have Sequoia on your cap table, chances are your life just got a lot easier. There are kind of two things that I care most about when assessing founders. So one is founder market fit and two is the vector that describes them. The market determines how big a company can get. The founder determines how big the company will get. I'd say on sourcing, we are eight or nine out of 10. On picking, I think we're maybe a six out of 10. When a company is a wild success and you don't see us in the cap table, chances are at some point we screwed it up.

    2. HS

      Ready to go? (instrumental music plays) Pat, I am so excited for this, my friend. I mean, we've known each other for like nine years and-

    3. PG

      It's been a long time.

    4. HS

      ... we've never done this in person.

    5. PG

      Been a long time. It's good to be here.

    6. HS

      Thank you so much for coming. Now, I spoke to literally everyone on the team, I think, and I said to you before, everyone responded, which has never happened before, which is testament genuinely to you as a leader.

    7. PG

      (laughs)

    8. HS

      Really, it's amazing to see the culture that you've built.

    9. PG

      We have a great team.

    10. HS

      But I spoke to Sean McGuire and he said, "You got to just start with the upbringing." And Matt Miller said this too. He said like, you know, growing up in Wyoming, you know, doing roofs in the summer holidays?

  2. 1:18 – 6:58

    Background

    1. HS

    2. PG

      (laughs)

    3. HS

      Just talk to me about the childhood in terms of what do you think shaped you most? So you don't need to give a narrative on what-

    4. PG

      Yeah, yeah.

    5. HS

      But what shaped you most?

    6. PG

      I think my one-liner would be happy but desperate. And the word desperate-

    7. HS

      Sounds like my love life. (laughs)

    8. PG

      (laughs) The word, the word desperate is probably a bit too dramatic in the context of the first word, because it was, it was very happy. My parents were wonderful people. I got a great, great brother. You know, it was a very loving family. There was no trauma. There was no suffering in my childhood. But the, um, uh, but the desperate piece, I think like a lot of people who grow up in small towns, you just have this desperate need to figure out what else is out there. And when you're in a small town, even if it's a very nice town, and, and we lived in Gillette, Wyoming, which is in the northeastern part of the state, and it's coal mining country, but it's a really, it's a really nice place to grow up. Even when you're in a nice place like that, you just feel like the world is small and feel like there must be more out there. And you kind of have this desperate need to go figure out what that is. And so when I was in high school, I think the, my greatest fear was boredom. And I think now, that kind of translates into my greatest fear, which is probably irrelevance, just kind of feeling like you are living a life that is worthwhile.

    9. HS

      When you say your greatest fear is irrelevance, unpack that for me. Like, why is that the biggest fear for you now? And what does that mean?

    10. PG

      Well, I mean, we're gonna go, you're going pretty deep right off the bat here, right? So (laughs) -

    11. HS

      Well, you, you started it. I mean, that was, that was a great intro. My word.

    12. PG

      So different people have different answers to the question, you know, what is the meaning of life? I think the simplest and most straightforward answer would just be happiness, but then it's kind of a recursive question. Okay, well, how do you define happiness?

    13. HS

      Mm-hmm.

    14. PG

      And I think for some people, the greatest happiness comes from some feeling of productivity or some feeling that you've contributed something to the world around you. Right? And so when I say irrelevance is my greatest fear, it would be the point at which I am, I am not a good husband. I am not a good father. I am not a good partner. I am not contributing to the world around me because I think that's the thing that most people get the greatest sense of satisfaction or joy out of.

    15. HS

      Do you score yourself? Like do you measure that?

    16. PG

      Hmm. No, I don't. Should I?

    17. HS

      Yeah. I, I don't know if you know-

    18. PG

      How would you measure it?

    19. HS

      So Matthew McConaughey does it very well actually, and he basically, um, thinks about it in the red or in the black.

    20. PG

      Okay.

    21. HS

      And he plots his life in a quadrant, which is, it's friends, it's family, it's work, and it's marriage. And he basically puts a red or a green at the end of the week, I think it is-

    22. PG

      Okay.

    23. HS

      ... in each. And if consistently there's red in the same spot, he knows that he needs to rectify something in his life.

    24. PG

      Hmm. I do this annually. So I actually have a scorecard that I do once a year.

    25. HS

      Huh.

    26. PG

      And it has different buckets on it, and it's similarly red, yellow, green. And then I figure out what I can do better the next year.

    27. HS

      Do you consistently have the same reds?

    28. PG

      No, actually. Um-

    29. HS

      That's good. So then you do learn and improve.

    30. PG

      Theoretically, I would just get everything into the green and stay there. (laughs)

  3. 6:58 – 8:44

    Bleeding Green Through Brand Hits & Challenges

    1. PG

      about.

    2. HS

      Does it hurt you when you have brand hits and when you have some of, of the challenges that we've seen over the last few years? Does that hurt you 'cause you bleed green -

    3. PG

      Does that... Oh, does that hurt me personally?

    4. HS

      Yeah. 'Cause you bleed green, and I...

    5. PG

      We-

    6. HS

      People said this in emails, you bleed green.

    7. PG

      The answer is nuanced. If the brand hit is fair, the fact that we're taking the brand hit doesn't hurt me. The fact that we screwed up and deserve the brand hit is what hurts me. If the brand hit is unfair, that hurts a little bit, but I tend to ignore it because I know that it's not reality. And so the thing that hurts me is not people talking about our mistakes. The thing that hurts me is when we actually make mistakes, particularly when they are self-inflicted wounds, they were avoidable, we should have known better. That's the stuff that's painful. And you can only have so many of those and continue to perform at eye level.

    8. HS

      What do you think is a fair versus unfair brand hit?

    9. PG

      The stuff that's unfair I think is just related to misunderstanding about how Sequoia works. And so a lot of what you read about leadership transitions and that sort of thing is out of date.

    10. HS

      Mm-hmm.

    11. PG

      You know, again, the leadership has been pretty stable in the US Europe business for the better part of a decade. Um, the stuff that is fair, anytime we have an investment that blows up, um, that is our responsibility. The reason limited partners trust us with their money is because they trust us to find the right investments, make the right decisions, do rigorous diligence, and there's always some other card that you could have turned over to produce a different conclusion. And so anytime an investment blows up and people give us flack for that, that, that's deserved. Like, that's our job. We're in the risk-taking business and so not every investment is gonna work, but at the end of the day, anytime an investment fails, that's

  4. 8:44 – 10:07

    Balancing Accountability & Culture at Sequoia

    1. PG

      on us.

    2. HS

      When an investment fails, Sequoia has an extremely high bar. How does that go down internally? 'Cause you want some accountability, but you also don't want a culture of fear.

    3. PG

      Yeah.

    4. HS

      It's something that I struggle with building a firm today, honestly.

    5. PG

      You will never see anybody at Sequoia reprimanded, fired, chastised for a failed investment. You will never see that. Similarly, you will never see anybody at Sequoia promoted, lauded, praised for a single great investment. And again, it's 'cause we're in the risk-taking business. And so if you have a string of bad investments, there's probably something wrong in your process. If you have a string of good investments, there's probably something right in your process. And so one data point doesn't make a trend. If somebody has a bad investment or a great investment, we're not gonna... We're not gonna react. Um, we do try to inspect the inputs as much as possible because we're in a long feedback cycle business, right? And so the, the activities that somebody is doing today may not produce tangible results for another five or 10 years. And so we try to inspect the activities. We try to inspect the behaviors. If the activities and the behaviors are good, but one of the outcomes happens to be bad, that's okay. If the activities and the behaviors are bad and one of the outcomes happens to be good, that's probably

  5. 10:07 – 15:26

    How Investment Process Evolved Over Time

    1. PG

      not okay.

    2. HS

      Can I ask you bluntly, what is your process today and how has that changed over time? I've always said this about you to everyone who will listen to me, uh, which is, you know, mostly my mother these days. Uh (laughs) -

    3. PG

      (laughs) .

    4. HS

      ... uh, but I think you are the most incredibly structured thinker I know.

    5. PG

      (laughs) .

    6. HS

      No, no, really, you take very complex things and you break them down into very cohesive structures that are understandable. And then everyone else on your team said the same, which made me feel vindicated. So, yes.

    7. PG

      (laughs) .

    8. HS

      (laughs) So my question to you is, like, what is the process for you and did it change over time?

    9. PG

      Conceptually, it's pretty straightforward. Conceptually, it's a process of crystallizing the thesis and then stress testing it to make sure that it's real. And that's it. But the crystallizing the thesis part of it, I think one mistake people make is they sort of launch into diligence on something before they really have figured out what they want to diligence. So the crystallizing the thesis part of it, that is the declarative statement, "We should invest because..." We should invest in Zoom because, A, spectacular founder, B, someday every room will be a Zoom room. That's it. It doesn't have to be a complicated thesis, but it does have to be a crystal clear thesis.

    10. HS

      Does it have to be a counter-narrative? Can it be a prevailing narrative, which is-

    11. PG

      Well-

    12. HS

      ... everyone sees it and we all agree, or does it have to be, like, a narrative violation?

    13. PG

      I don't think that there are any bonus points awarded for degree of difficulty. I think because there are a lot of very smart people in the world of venture capital, one currency is, "I'm going to be contrarian and right and then I get to be smarter than everybody else." I, I don't care whether we're contrarian or not. I just want us to help the daring build legendary (laughs) companies and generate exceptional net multiple money returns for our limited partners. And so some of the investments that I've been a part of... So for example, HubSpot back in the day, we led the series D in 2011. We would later find out that we were the only term sheet. Nobody else wanted-

    14. HS

      (laughs) .

    15. PG

      ... to invest. And even inside the partnership, it was controversial. Um, Okta back in-

    16. HS

      Why was it controversial?

    17. PG

      Um, it was controversial for a bunch of different reasons.... the numbers were okay. The product was okay. The storytelling was very good.

    18. HS

      Mm-hmm.

    19. PG

      And the thing that actually got it over the line, probably two things, and this is true of almost every investment, it always comes down to the founder and the market. Uh, hopefully I've gotten better over the years at trying to understand people. In 2011, I was good at understanding numbers, not so good at understanding people.

    20. HS

      Mm-hmm.

    21. PG

      Fortunately, Jim Goetz ... I was number two on the investment, Jim Goetz was number one. Fortunately, Jim Goetz has always had an amazing way of understanding people and when he saw Brian and Dharmesh, he saw something very special. And so that was part of what got it over the line. And then the second thing with the market, um, and this might be where I contributed a little bit, we had done a bunch of work around marketing, we were trying to understand the structural changes in the market, and HubSpot fit really well into the overall market thesis. So there's a little bit of a market thesis, a lot of Jim Goetz' magical (laughs) understanding of human beings, and then quite frankly, they ... the way that Brian and Dharmesh executed on that business is fabulous.

    22. HS

      Uh, I, I remember speaking to Brian when I had him on the show and-

    23. PG

      Yeah, yeah.

    24. HS

      ... him talking about your rigorous diligence process.

    25. PG

      (laughs)

    26. HS

      What do you do when you have an-

    27. PG

      Every time he tells that story, it gets longer.

    28. HS

      Oh, longer and longer.

    29. PG

      In, in, in reality, it might have been three weeks. (laughs)

    30. HS

      And then, "And it was two years and he took my house and ..."

  6. 15:26 – 18:11

    A Founder Who Outperformed & Accelerated the Most

    1. PG

    2. HS

      Which founder that you've worked with most exemplifies or comes first in mind in out accelerating the company and-

    3. PG

      Oof.

    4. HS

      ... outperforming that five-year end of model mark?

    5. PG

      You know, there, there are a bunch. Um, (laughs) I've been, I've been lucky to work with some pretty excellent founders.

    6. HS

      I'm forcing you to choose your favorite, Charlie. (laughs)

    7. PG

      (laughs) Um, this is not, this is not a favorite, um, I have, I have lots of favorites.

    8. HS

      Mm-hmm.

    9. PG

      But, um, I will choose Brian Halligan again because I think if you look at ... So by comparison, if you look at Snowflake, amazing product in an amazing market.

    10. HS

      Mm-hmm.

    11. PG

      Right? If you look at Zoom, amazing product in an amazing market. If you look at Okta, amazing product in an amazing market. And so there, there were really powerful tailwinds for those products in those markets. If you look at HubSpot, mediocre product in a crappy market.

    12. HS

      (laughs)

    13. PG

      Uh, not today.

    14. HS

      Oh, shit. (laughs)

    15. PG

      Not today. Not today. Circa 2011, okay?

    16. HS

      (laughs)

    17. PG

      And th- and so the reason I say Brian is because one strategic decision after another, he and Dharmesh just absolutely nailed it. There was the decision to focus on the SMBs where all the math told you to go upmarket, and Brian and Dharmesh correctly concluded, "Well, everybody else is doing the same math. If we go upmarket, it's going to be a red ocean. If we stay down here, it's going to be a blue ocean. Someday we'll become the default and the unit economics will get better." That's exactly what happened. It was acquiring Performable back in 2011, a few, a few months after we got into business with them, because they wanted to build out this new part of the product which was sort of the middle of the funnel. HubSpot at the time was top of funnel, lead generation. Performable was middle of funnel, marketing automation. That ended up being a transformative acquisition because the engineering team there was excellent and one of the guys that they, um, brought in with that acquisition is still the CTO of HubSpot today. Um, one of the other guys they brought in with that acquisition was the chief product officer until a couple years ago. And so that was transformative 'cause that took them from good story, bad product to good story, great product. And then the other one was when they had kind of built out the full marketing suite and they said, "Okay, we got the full marketing suite. What's next?" Well, if you got marketing, the logical act two is gonna be sales. Traditional way to do that would have been to just build some mediocre sales product and hand it to your go-to-market organization and let them sell it. And they decided to put a hard constraint on it and say, "Look, nobody is allowed to touch the sales business. The sales business has to stand on its own two feet. Hey, sales team, or sales business, keep building stuff until you find something so good it sells itself." And so putting a hard constraint on it and saying, "Look, we don't wanna live with a three or four or five, you know, 5X LTV to CAC sort of business, we want to build something that can be 10X plus, something that can sell itself." And that was transformative to the business too. And so I think just one good strategic decision after another, they just nailed

  7. 18:11 – 21:07

    Pat’s Founder Evaluation Framework

    1. PG

      it.

    2. HS

      I, I couldn't agree with you more. I think the CRM story is incredible. You mentioned Jim Goetz having the superpower of, like, founder evaluation.

    3. PG

      Yeah, yeah.

    4. HS

      I had spoke to Julian back before and he actually said that you had a superpower of founder evaluation today.

    5. PG

      (laughs)

    6. HS

      But you said you have a framework for it, and maybe it differs between early in growth. Can you talk to me about that framework, and how does it differ?

    7. PG

      My framework is ... There are kinda two things that I care most about when assessing founders. So one is founder market fit, and two is the vector that describes them. And so for founder market fit, people tend to co-mingle two distinct variables in here. There's the problem variable and there's the solution variable. The problem variable is, do you understand what problem you're solving? And a lot of times that means, do you have somebody who comes from this domain? And so one example, we're in business with this company Harvey, which is doing AI for legal services. Winston comes from the world of law, so he understands the problem. The other variable is solution. You may understand the problem. Do you actually know how to build the solution? Well, Winston doesn't know anything about AI. I mean, he does now. Two years ago, he didn't. Fortunately, his co-founder, Gabe, comes from the world of AI research and so Gabe understands how to build the solution. So you put those two things together, you have both the problem and the solution accounted for, that's pretty good founder market fit. The second thing that I mentioned, which was the vector that describes the person, you know, vectors have both direction and magnitude. The magnitude component people tend to refer to as, you know, the spike around a founder. Uh, I don't necessarily need it to be a singular identifiable spike. If it's just a track record of consistent performance, that might count, right? But I need to believe that there's some exceptional magnitude on some dimension that matters. And then for direction, this kind of comes down to the motivation, like why are they doing this? Billing a startup is insanely hard, as you know. (laughs)

    8. HS

      (laughs)

    9. PG

      And, and it's, it's not for the faint of heart. Being a CEO might be even worse, right? (laughs)

    10. HS

      (laughs)

    11. PG

      And so you need to have some serious motivation or you're just not gonna stick with it to the, to the degree that you need to, to build something that matters. And so try and understand that is important too.

    12. HS

      Do you spend much time on the backstory?

    13. PG

      Yeah, yeah.

    14. HS

      That I really care about how they first made money, but actually insecurities in childhood, uh, uh, you know, one of the most clear signs to me of an exceptional entrepreneur is they always start early. They always sold Nokia mobile phones on eBay, a lemonade stand at school, you know, uh, whatever that may be.

    15. PG

      Yeah.

    16. HS

      You never came out of McCa- McKinsey or Bain and made your first entrepreneurial project.

    17. PG

      Absolutely. So like for example, you know, Eric Yuan, as the legend goes, it was his ninth visa application that finally got him into the US, right?

    18. HS

      (laughs)

    19. PG

      Like, he was seeking out a better opportunity for himself and he stuck with it because he really wanted to see it through. There are lots of little tidbits like that in the founders

  8. 21:07 – 22:54

    Reflecting on Founder Selection Mistakes

    1. PG

      we work with.

    2. HS

      I have made many mistakes in terms of founder assessments. (laughs)

    3. PG

      (laughs)

    4. HS

      Many. Uh, when you look back on yours, what did you not see that with the benefit of hindsight you should have seen?

    5. PG

      Founders that we did not get into business with, that we should have gotten into business with.

    6. HS

      Sure.

    7. PG

      Or vice versa.

    8. HS

      Could be either.

    9. PG

      (laughs)

    10. HS

      You can choose.

    11. PG

      There is one thing, um, and there are a couple of founders that I'm thinking about and a mistake that I've made. So Peter Reinhard of Segment would be one of them. And then, um, oh god, I'm blanking.

    12. HS

      What did you, what did you-

    13. PG

      Revolut. Founder CEO of Revolut.

    14. HS

      Well, you sh- well let's start on Peter. What did you not see that you wish you'd seen?

    15. PG

      Um, you gotta tell me the name though, because I've blonk- blanked on his name.

    16. HS

      Nikolai Staronski.

    17. PG

      Yes. There you go. Thank you, Nick. The thing that was common to both of those ... So I met both of those for series As. How I ended up meeting them, I don't remember necessarily, but I met both of them at the series A, and both of them told me the entire story in like five or ten minutes. And it was super clear. And at the end of the five or ten minutes, I couldn't think of any questions to ask, 'cause they had already answered any question that I would have wanted to ask. And then they just kind of looked at me and said, "So do you want to invest or what?" I didn't know what to do. (laughs)

    18. HS

      (laughs)

    19. PG

      And so, (laughs) and so, you know, I went off and tried to do some homework and tried to come up with an answer, and it was almost, it was almost too simple. Because it was so simple, for whatever reason, I didn't have the conviction to lean in and we ended up passing on both of those.

    20. HS

      (sighs)

    21. PG

      And in retrospect, both of those were terrible decisions. And, and so I think maybe the lesson is, sometimes it really is just that simple. Like sometimes the very best founders can articulate things in a complete and compelling way in five or ten minutes, and that's all you need

  9. 22:54 – 26:45

    Does Sequoia Really See Everything?

    1. PG

      to hear.

    2. HS

      When I think about Nick there in particular, with respect to him, I think about actually something Peter Fenton told me, which is like, "The best founders should make you feel a little bit uncomfortable."

    3. PG

      Yeah.

    4. HS

      "They won't make you feel at ease."

    5. PG

      Yeah.

    6. HS

      And I remember asking Nick, "Nick, what's your favorite book?" And he goes, "I don't read book. I do PDF."

    7. PG

      (laughs) All right. What's your favorite PDF?

    8. HS

      And it was Ray Dalio's Principles. (laughs)

    9. PG

      Ah. Yeah, yeah. That makes sense.

    10. HS

      Um, but, but I love that. Um, okay, I get that people have the feeling that s- you mentioned there, "I don't know how I saw them, but I saw them." Pe- (laughs)

    11. PG

      (laughs)

    12. HS

      People have the perception that Sequoia just see everything. Is that true?

    13. PG

      It's not literally true but (laughs) but it's effectively true.

    14. HS

      (laughs)

    15. PG

      So, so if I were, if I were going to decompose our value chain, and let's say there's sourcing, picking, winning, building, harvesting. So...

    16. HS

      Harvesting is selling.

    17. PG

      Harvesting is actually generating returns.

    18. HS

      Yeah.

    19. PG

      Um, so sourcing, are we getting in front of interesting stuff? Picking, are we doing a good job of selecting? Winning, are we able to invest in the companies we want to invest in? Building, are we actually helping founders build market leading companies? And then harvesting, are we eventually turning that into returns for our limited partners? If I were to go across the value chain, I'd say on sourcing we are eight or nine out of ten. I mean, I think we're, we're not perfect, particularly at the very earliest stages, it's really hard to have complete coverage because founders can come out of anywhere, but I think for the most part, we're in front of good stuff and we're in front of it early enough to have a real point of view. So I think on sourcing, we're probably an eight or nine out of ten. On picking, different people may disagree.... I think we're maybe a six out of 10. I actually think we're ... Because there's so much uncertainty in this business, it is incredibly hard to make these decisions. I think we're probably as good at it as anybody, but it's just really hard.

    20. HS

      Which firm do you think is a better picker if you had to choose one?

    21. PG

      Not necessarily willing to say that he's better, uh, but somebody who I really admire is Mamoon at Kleiner. I think Mamoon has an exceptional track record of investing in companies that are not at all obvious at the time, and I think about the series being Figma, which is a round that we looked at and passed on. I think about the whatever round it was in Slack, when it had just become Slack.

    22. HS

      Rippling.

    23. PG

      Uh, yeah, Rippling's a good point. So I, so I think Mamoon, if you look at his track record, it seems like he's a pretty exceptional picker.

    24. HS

      I, I, I, I totally agree with you. Okay, so we have that, picking-

    25. PG

      So we have picking and then-

    26. HS

      ... what, what could you do to be better then? If you're six.

    27. PG

      Oh, we spend, we spend every off-site on this topic.

    28. HS

      Okay. What are, what is the outcome?

    29. PG

      Um, I think the answer is to be true to the nature of this as an apprenticeship business. So, the answer on getting better at picking is not to erect a bunch of scaffolding around people to try to help them make better decisions, because this is not a manufacturing plant, right? We're in the outlier business. You can't design a system that's gonna systematically identify outliers because each outlier is gonna be different. They're gonna be one of one if they're a true outlier. So whatever system you design and back test, it's gonna miss the next one because the next one's gonna break the mold. And so the way you solve for that is, again, be true to this as an apprenticeship business, have experienced investors in the field doing the work alongside the people who are earlier in their career so that they can see how it works, and they can see from a variety of people. You know, one of the benefits I had when I joined Sequoia, I wasn't assigned to a particular partner. I got to work with everybody, so I got to make investments alongside Doug Leone and Jim Goetz and Roelof Botha and Michael Moritz and all these other people who really knew what they were doing. And through all those repetitions, I got to kind of figure out, how does Jim think about investment? How does Doug think about investment? How do I want to think about an investment? And I think that's

  10. 26:45 – 29:39

    Who’s the Best Sourcer & Picker at Sequoia

    1. PG

      the best thing you can do.

    2. HS

      You have to understand, as a venture nerd, this conversation just makes me so happy. (laughs) Uh, uh, who's the best sourcer in Sequoia?

    3. PG

      Oh, the best sourcer. Everybody has very different methods, so it's hard to say. The first name that comes to mind is David Khan. David joined us about a year ago. He is an absolute force of nature. Um, I get into the office pretty early. He's always in there on a Zoom when I get in. Um, he's always in there when I leave. Dave- David is just a total force of nature. I think his ... Some people are high volume, some people are high quality. He's both, so he's right up there. I think Sonia's done a really good job of making a name for herself in the world of AI-

    4. HS

      Mm-hmm.

    5. PG

      ... and creating magnets in the form of, uh, in the form of blogs, in the form of a, a podcast that we're releasing soon. I think Sonia's done a really good job putting herself in that position. Yeah.

    6. HS

      Who's the, who's the best picker?

    7. PG

      A lot of people are really good pickers. I'll, I'll keep it on the growth team 'cause that's, that's where I'm better versed. Um, I probably have to say Andrew Reid. If you look at Andrew's portfolio, very few false positives, very few false negatives. Most of the stuff in there is very good, and a lot of it wasn't obvious at the time.

    8. HS

      Mm-hmm.

    9. PG

      So the series C in Figma when Figma had, I think, 4.6 million of ARR, that was not at all obvious, but Andrew had spent three years studying the design market and had a real point of view.

    10. HS

      I remember when he did that and it was, uh, I think it was close to $400 million price.

    11. PG

      Yeah.

    12. HS

      And everyone was like, "Nuts."

    13. PG

      Yeah.

    14. HS

      "100x ARR." And it was like, seriously-

    15. PG

      Yeah, yeah.

    16. HS

      ... this, this is just crazy.

    17. PG

      Yeah, and Andrew, Andrew's also got range though. I mean, you mentioned Vanta. He led our series A in Vanta. There's a big company over here in Europe called Bolt. He led our investment in Bolt, you know, which is the ride, uh, the ride sharing business. He led our investment in Robin Hood. I mean, he's got pretty good range.

    18. HS

      Winning.

    19. PG

      Yeah.

    20. HS

      Does Qu- always win? What percentage of the time do you lose?

    21. PG

      We do track this. I think it's 100% in the last 12 months. Actually, I take it back. There was one situation where an existing portfolio company was raising a series B and they chose somebody else, and to be fair, we didn't make an offer. But had we made an offer, we probably would not have won, so I would count that one against us.

    22. HS

      Would you give yourself a 10 out of 10 for winning then?

    23. PG

      We don't give 10 out of 10s, but I'd probably give us a nine out of 10 for winning. I think some people want to believe that because we have this nice brand, we can just waltz in and founders will hand us shares in their company, and that is far from true. Like, it is an absolute knife fight every time, and we try to have a team and a culture where even if your business card meant nothing and nobody had ever heard of the name Sequoia, you could still be put in a position to win, because you've built the sort of relationship with the founder that just makes them want to be in business with you independent of, you know, what firm

  11. 29:39 – 36:09

    Pat’s Favorite Winning Story

    1. PG

      you're from.

    2. HS

      What's your favorite winning story, Pat? You've been at Sequoia now for 17 years?

    3. PG

      In sales parlance, people talk about the difference between making something happen and order taking, right? And the venture business in the last several years has turned into a business of order taking, and it's a business of order taking in the sense that a lot of companies are raising money, rounds are happening frequently, and when the round comes along, you raise your hand and say, "Okay, well, we'd like some, please." That is very different than the way that it often worked 10+ years ago where companies may not have been raising another round. They might have been generating cash. They might have had no need for money, right? And it was a business of figuring out if there was some reason that they would be better off if they had you as a shareholder, articulating that to them in a compelling way, and getting the opportunity to be shareholders. And one that I think of is in 2009 when, um, Fred Luddy was building ServiceNow down in San Diego, and nobody had really heard of it, and it was just a SaaS company that happened to be working, and, um...It was generating cash, and so there was no need to raise any money. There was no round planned.

    4. HS

      What sort of cash was it doing? Just ballparking.

    5. PG

      This is actually funny because we didn't have a full set of financials from them, so we didn't know literally until the last slide in the presentation in the partner meeting on the day that we were going to make the decision when Fred was presenting. The very last slide (laughs) showed that they were generating 20 million of free cash flow, and that was on 25 million of ARR because they were getting paid in advance for two and three-year contracts.

    6. HS

      Wow.

    7. PG

      So they were unbelievably cash generative, right? Obviously, didn't need to raise any money. The reason that they decided to get into business with us, Doug and I went down to visit Fred in San Diego, and we were sitting with him, and Doug has this amazing discovery process where he kind of teases out everything that might not be going so well with the company, which is not the stuff they want to tell you about and so-

    8. HS

      How does he do that?

    9. PG

      He asks a gazillion questions. I can't tell you exactly how his brain works, but somewhere in there, he is constructing a model of the human being and of the company. And so the questions don't go in a logical flow where you can kind of trace them from A to B to C to D. They kind of go all over the place, but by the time he's done, he has this very clear picture of who is this person and what is this company. And anyway, with ServiceNow, he teased out that they were having issues kind of with the backend of the business, and so this is 2009. People weren't building companies on AWS. You were doing managed hosting or you were using some sort of data center co-location, but you were basically responsible for your own technical operations as opposed to effectively outsourcing it to the public cloud. And because the product for ServiceNow was getting pulled into these huge enterprise deployments, it was sort of outpacing the ability of the backend of the business to keep up, and that was showing up in terms of latency and in terms of downtime, and that was kind of the main pain in the business. It was one of these pains caused by success. But we were sitting there and Doug took out his phone, looked up a phone number, and while Fred is telling him this, he says, "You need to call Marty Abbott." And Marty Abbott was a guy who used to run technical ops for eBay. He's also somebody who helped us when YouTube started taking off. You know, 2005, we got in business with YouTube and all of a sudden the thing starts running. They had the same issue where they had to keep their servers up. So anyway, Fred calls Marty Abbott, Marty Abbott comes in, helps him out, solves the problem, and, um, and we had a couple more of those. And eventually Fred was like, "Okay, I guess it'd be nice to have you guys around." And so he created an opportunity for us to invest, even though there was no need for money in the company.

    10. HS

      How much ownership did you get then?

    11. PG

      We invested 52 million for 20%.

    12. HS

      (gasps) (laughs)

    13. PG

      (laughs) And for anybody keeping track, that is 260 post on 25 million of ARR, generating 20 billion in cash.

    14. HS

      Do you not try and market caps? No?

    15. PG

      I honestly don't look at public stocks, even the ones that I'm-

    16. HS

      That you own?

    17. PG

      ... responsible for.

    18. HS

      (laughs)

    19. PG

      We still own a bunch of Snowflake. We own a bunch of Amplitude.Um, we actually own a bunch of Datadog. I really don't check day to day.

    20. HS

      To what extent is it such a secret weapon having Doug come into Founders? I remember talking to Christian Hecker at Trade Republic, uh, about his meeting with Doug in COVID on a terrace in Germany in the cold, and he just said, like, "It was another level."

    21. PG

      (laughs)

    22. HS

      And I guess I just think, uh, I think about if you've got Marc Andreessen and Ben Horowitz doing the hard fucking sell, and then you have Doug Leone doing the hard fucking sell. No, I mean, I, I'm obviously green, right?

    23. PG

      (laughs)

    24. HS

      Doug's gonna win all day.

    25. PG

      (laughs)

    26. HS

      But when Doug starts pulling away, how does one think about losing a weapon?

    27. PG

      I don't think people have gotten to see what made, made Doug so effective 10 or 15 years ago because the thing that made him so effective 10 or 15 years ago was he was the tip of the spear. He wasn't the guy who got parachuted in later to play the role of senior big dog, right, and impress upon the founders how important they are because, hey, the big dog is here, right? That's more what he's been asked to do recently. 10 or 15 years ago, he was the tip of the spear. He was in the first meeting. He was leading the charge. He was asking the questions. He was doing the work. And in that capacity, he was the best there's ever been 'cause he would fully, fully, fully commit to being present, understand that person to a degree that nobody else has ever understood them, understood their business to a degree that nobody else could possibly achieve in 45 minutes. And by the time that conversation was over, there was no question that they wanted to be in business with him. Doesn't matter who else comes into the room. Could be anybody. But like, nobody could beat Doug at that point.

    28. HS

      I remember meeting him for the first time. I met him at a hotel for breakfast at the Connaught in London.

    29. PG

      Yeah, yeah.

    30. HS

      And he ordered the most incredibly specific breakfast-

  12. 36:09 – 41:03

    Impact of Investors on Enterprise Value

    1. PG

      we were on the road.

    2. HS

      When we go along the life cycle of like fund investing, the next is like actually helping companies be great.

    3. PG

      Yeah.

    4. HS

      Sequoia has big, big teams now. And then I have the alternative, which is your Founders Funds of the world that say, "The best founders, they make great companies." And so my question is, to what extent does the investor really move the needle in enterprise value creation, do you think?

    5. PG

      Well, first off, on big teams, you know, when I joined 17 years ago, we had 14 investors. Today we have 27. And so that's less than a 2X over-

    6. HS

      Sure.

    7. PG

      ... you know, 17 years. So our team is, I think-... fairly small, relative to our market presence. The thing that has changed a bunch is, when I joined we had two people, uh, that I would call kind of front office operators. Um, so not compliance, finance, all that good stuff. But two people, one in marketing and one in talent, um, who were there to amplify the efforts of investors and serve the portfolio. That number two has grown to almost 60 today. And so that's where we've really invested, and the reason we've done that is largely a reflection of the market. So one of the nice things about technology, it's kind of this democratizing force, right? Like, any founder, a founder could come from anywhere in the world and focus on any vertical. And so the, the venture capital market is subject to something that people used to, used to use in relation to the big data world 10 years ago when that was a thing, which is the three V's: volume, variety, and velocity. There is a higher volume of founders coming from more places, coming at us faster than ever before. And we have to react to that as a business. One way to react is to staff up the investment team, right?

    8. HS

      Mm-hmm.

    9. PG

      We could have 100 investors. We chose not to do that because what we want to do is concentrate the experience, concentrate the knowledge in the smallest possible number of people so that when one of those people happens to stumble across the next Fred Luddy, the next Todd McKinnon, the next Brian Halligan, they're gonna give that founder the sort of outlier experience they deserve. So we wanted to keep the team as small as possible. The thing that we can scale is the platform, so those front office operators that I mentioned. Um, and that platform, it amplifies our efforts as investors. It also is an opportunity to build advantages that can compound over time, and the most obvious instantiation of this is the, is the technology platform and the data science system that we built, which has signals that get better and better over time.

    10. HS

      How much of your investing role is impacted by the data signals that you get?

    11. PG

      A lot.

    12. HS

      I had Chandra, I had Chandra on the show, who I think was part of that team.

    13. PG

      Yeah, yeah. Chandra, yeah.

    14. HS

      Yeah.

    15. PG

      Yeah, yeah.

    16. HS

      People don't really talk about Sequoia's data platform.

    17. PG

      Well, it's not, it's not exposed externally.

    18. HS

      Yeah.

    19. PG

      It's just something that exists inside the building. Occasionally we'll use it to help out founders, but for the most part it is an internal tool that makes us more efficient. So one of the, um, we don't want to get to the point where the technology platform is, like, pumping out buy signals, right? We don't want it to make the final investment decision. We do want it to get to the point where it can tell us whether or not we should meet a company, and it got to that point a year or two ago.

    20. HS

      To what extent do you think that's reliable? When you think about it can predict which companies we should meet, are the biggest outcomes not purely anomalous? When you look at Daniel Ek at Spotify, I mean, ri- I'm, I'm sure he'll says that. He said it publicly. At the series A, he was going around asking series A ambassadors not only for the round, but also if they knew a good CEO that would like to replace him.

    21. PG

      Yeah, yeah. (laughs) Yeah.

    22. HS

      Like, they're so anomalous in every way.

    23. PG

      It's a lot better for growth than it is for early.

    24. HS

      Mm-hmm.

    25. PG

      It's a lot harder to get those signals out early, which is why we have the Arc program, right? We're now getting thousands of applications every time we have a new batch for Arc, which we're now doing a couple times a year. Right?

    26. HS

      Do you think Arc's been successful?

    27. PG

      I think Arc has been a wild success. I mean, the original... There are only two things that matter. Number one, do founders like it? Number two, does it make money for our limited partners? On point number one, do founders like it, overwhelming success. The NPS of the last batch was quite literally 100. Um, and so the NPS on this thing has been very good. We're getting a lot of referrals. If we go through and say, "Okay, well, are they the right kind of founders who are applying to this?" There are a lot of great founders. We've run into a lot of companies later at the series A or the series B that we're hunting, and then we go back and look, and it turns out they applied to Arc two, three years ago. And so we're actually attracting really good founders, and they're getting a lot of value out of the program, so that's huge. The one-liner that, that they've said, which is my favorite way to encapsulate it, is other incubators or other accelerator programs teach us how to raise our series A. Sequoia teaches us how to build a business. That's the words of our founders, not the words out of our mouths. But I think that's a pretty nice brand or reputation to have in the market. So that's kind of point number one, founders like it. Point number two, is it going to make any money for LPs? The truth matter is time will tell. There are some really good companies that are starting to come out of Arc, and so I'm optimistic that it will also make money for LPs.

  13. 41:03 – 44:14

    Maintaining Focus Amid Diverse Investment Strategies

    1. PG

    2. HS

      When I spoke to Danny Rimer a couple of weeks ago, he said the reason the index has been successful, I'm kind of bastardizing it, but you know, that's kind of my job, uh ...

    3. PG

      (laughs)

    4. HS

      (laughs) ... uh, is that they've been very, very good at keeping the main thing, the main thing. And I guess the question that I have for you is when you look at, like, the ecosystem fund, when you look at Arc, when you look at Scout Funds, when you look at the operated talent platform, there's a question of how do we think about keeping the main thing, the main thing? Is, is that flying in the face of it?

    5. PG

      It is absolutely the right question to be asking.

    6. HS

      (laughs)

    7. PG

      And, uh, I'm a big fan of fewer better things. I think it is good to experiment, because if you don't experiment, you're not gonna be on the bleeding edge.

    8. HS

      Mm-hmm.

    9. PG

      And you're not gonna be the ones defining the future. You're gonna be getting dragged into the future by somebody else who's defined it for you. So I think it is good to experiment, and I think that we've experimented aggressively, and I'm a big fan of that. I also think it's really important that the default for any given experiment is that it gets killed. The burden of proof is on the experiment, right? (laughs)

    10. HS

      (laughs)

    11. PG

      Unless it is a wild success, shut it down. Most companies say, "Well, unless it's an abject failure, we'll just keep going." No. Unless it's a wild success, shut it down. That doesn't mean it's gonna be a home run right out of the gates. None of the experiments that we've done were home runs right out of the gates. But you could find something in there that allowed you to, you know, craft your thesis for why it was on the track to being a wild success, and I think that's important. So anyway, to directly answer the question-

    12. HS

      What did you let run for too long that you should have shut down?

    13. PG

      In 2005, when we got into India and China, we did so with the thesis that the world was getting smaller. When we parted ways in 2023, it was because that thesis, in some ways, had been invalidated.And so, I think maybe we could have done that a few years sooner.

    14. HS

      You don't think the world is getting smaller again?

    15. PG

      I think what we're seeing is technology ecosystems that are more geographically isolated than we might have expected, and there's a lot of interconnectivity, but it's not just a single global technology market.

    16. HS

      I completely agree with that.

    17. PG

      Yeah. To be clear, like, I think our partners in those regions did a fabulous job of building their respective businesses and it was an honor and a privilege to be in business with them for as long as we were. But I think the, you know, reaching the conclusion that these are going to be isolated technology markets, we probably could have reached that conclusion sooner than we did. We just wanted to make sure that for a decision of that magnitude, we were getting it right versus being reactive.

    18. HS

      You know, I spoke to Andrew and Julien about this in particular. We've mentioned the team, the platform build. But on the investing team build, you're apparently one of the best hirers of investing talent there is in the business, they said. (laughs)

    19. PG

      (laughs)

    20. HS

      But they actually would do, wouldn't they? (laughs)

    21. PG

      I mean-

    22. HS

      Uh-

    23. PG

      You're talking about people I hired, so... (laughs)

    24. HS

      So slightly biased. (laughs)

    25. PG

      (laughs)

    26. HS

      It's quite right. What a shift up.

    27. PG

      Andrew, Pat's so good at finding 23-year-old analysts from Goldman Sachs.

    28. HS

      (laughs)

    29. PG

      He's really good at that.

    30. HS

      But, but, uh, you know, Andrew told me about you hiring him and Matt Huang and you, apparently, they hire, they started-

  14. 44:14 – 48:14

    Learnings in Hiring Investment Talent

    1. PG

      process.

    2. HS

      On the same day.

    3. PG

      Yeah.

    4. HS

      Yeah. And like both of them obviously have turned into, uh, very, very sh-

    5. PG

      (clears throat)

    6. HS

      ... brilliant investors. When you reflect back on your hiring process for hiring investors for the team, what have you learned? What do you do well?

    7. PG

      Andrew Reid and Matt Huang both started on our team in February of 2014. And so the process that led to them was conducted over the back half of 2013 and it was about the most rigorous hiring process we've ever had. Um, like top of funnel was 9,000 and what came out the bottom of the funnel was Andrew Reid and Matt Huang which is pretty spectacular couple of outputs. So I think one lesson in hiring is, it is a process like any other and y- yes, there's some art to it in terms of trying to really understand people, but there's also a lot of kind of science process management aspects to it. You know, just set it up to be a very efficient process so that you can... If you maximize top of funnel, that is one of the best ways to make sure that you're going to be happy with whatever comes out the other end of the funnel, right? So I think that's probably one big point. The second big point, which is around the kind of art piece of it, is... And this goes back to what we were saying earlier about how I've been trying to get better at sort of understanding people. Most of the time when you go into a hiring process, you have this list of things that you want and you know that you're supposed to keep it short, but you end up with 17 things on the list because everybody has their pet rocks that they want to include, and you go into the hiring process and you come up with a candidate and you're about to make a final decision on the candidate and then somebody says, "But wait, but wait, ugh, they don't have a CS degree." And you go check your list and it turns out that none of the 17 things says CS degree, but somebody thinks that's really important, you know, and they didn't get to put together the list and so now they're going to block the candidate. So on the art side of it, you need to figure out what are the few things that are absolutely essential and make sure that the person absolutely nails those things and everything else is a nice to have.

    8. HS

      Does it change for each role?

    9. PG

      It depends on whether you are looking for more of a DNA hire or more of an experience hire.

    10. HS

      So Andrew Reid is a DNA hire and then-

    11. PG

      Mm.

    12. HS

      ... David Cohn is an experience hire?

    13. PG

      Both DNA hires.

    14. HS

      Hmm.

    15. PG

      Andrew, uh, David had more experience than Andrew, but they're both DNA hires. Primarily DNA hires. It's not either or, it's what's sort of primary, right? So for example, Karl Eschenbach or Brian Halligan for that matter, they were more experienced hires, but the reason they work is because of their DNA. Both Karl and Brian have resumes that are kind of one and one, right? Like Karl ran VMware from 40 million to 7 billion of revenue, now he runs Workday. Brian built a company from zero to 2 billion of revenue, you know, all the way from PLG up to the enterprise, act one, act two, act three. A lot of good strategic decisions. Those guys are amazing based only on their experience. The thing that separates them from other people who have similarly amazing experience is their DNA. They're just very special human beings. The way that they interact with founders, that is the thing that makes them so effective, which I don't think people necessarily appreciate.

    16. HS

      How do they interact with founders differently?

    17. PG

      Do you know Brian Long at Attentive?

    18. HS

      Yeah, I th-

    19. PG

      So I remember Brian, Brian's the founder of, uh, of Attentive, which is a marketing software company. And I remember one time he was saying, "Hey, I think there are kind of two types of executives out there who'd like to get involved with, you know, venture capital backed companies. There are the kind who view it as their job to tell the founder what to do, and there are the kind who view it as their job to be in service to the founder." The thing that makes both Brian and Karl so great is that they view their job as being in service to the founder. And what that means is they don't show up and just pontificate about all the things they did right when they were operators. They show up and they listen and they ask questions and they're very direct with their feedback, but they're direct in a loving sort of way. It's the unbelievable lack of ego, the humility, the curiosity, the genuine care, and the genuine desire to help the founder. That is the thing that makes them so special and

  15. 48:14 – 52:50

    Insights on Timing Sales & Holding Investments

    1. PG

      makes them so effective.

    2. HS

      I want to say I think them both. Also, Halligan is fun.

    3. PG

      Halligan's amazing.

    4. HS

      He's really fun.

    5. PG

      He's amazing.

    6. HS

      Yeah, really love doing that show. The final element was the harvesting. Um, what have been the biggest lessons in terms of generating value from sales? Because you have the question of when do I sell? Do I hold? What have been some of the biggest lessons there?

    7. PG

      It's really hard.

    8. HS

      (laughs)

    9. PG

      Um, there are companies that we sold way too soon. And when I say we, the founders, you know, ultimately we are in support of the founders, but YouTube is a canonical example. PayPal is a canonical example. You know, so there are companies that have been sold way too soon. There are also companies that we hold on to, held on to for too long.There's one in our portfolio now that I'm not gonna name that we had an offer from somebody to buy the company for almost $5 billion. We own just north of 20%. That would have been a huge home run. Now the company looks like it is, uh, kind of not headed in a very good direction.

    10. HS

      Oh, I know this company.

    11. PG

      And so-

    12. HS

      Yeah.

    13. PG

      You might.

    14. HS

      Yeah.

    15. PG

      But there are companies you can sell too soon, and there are companies you can hold onto for too long. Similarly, in the public markets, you know, we were talking about ServiceNow, if we'd held ServiceNow through to today, it'd be a, I don't know, $30 billion gain, right? (laughs) Um, but we didn't. We distributed it a year or so after the IPO because it was the first billion-dollar gain-

    16. HS

      All of it?

    17. PG

      Over time, not all at once, but it was within the first couple of years because it was the first billion-dollar gain that we had ever had in the growth business. The growth business for Sequoia was kind of this fledgling, you know, second-class citizen.

    18. HS

      Did you need to do that? You're Sequoia. You don't need to prove yourself.

    19. PG

      We didn't need to, and nobody was putting pressure on us to do it. But we looked at it and said, "Okay, this is pretty good." You know, "Let's go ahead and call it a win." I think today, we'd be a lot more patient. We'd probably hang onto it for a lot longer. It's not always the right decision. We held onto a lot of stuff in 2021 that's worth less today than it was then.

    20. HS

      My question is, though, like when you think about that, what is the takeaway? Is the takeaway to be prudent and take 33% off the table in increments over a, a nine-year period, three years at a time? Is there a takeaway from that? Or is it just as hard?

    21. PG

      I... Yeah, I think there are a couple takeaways, and there's sort of a high-level choice to be made, and the choice to be made is how much energy do you want to put into the harvesting? And...

    22. HS

      How much energy is needed is the question.

    23. PG

      Well, that's, that's it, and so there are some firms that say, "Look, we are venture capital investors, not public market investors. We are not going to try to outsmart the public markets and figure out exactly when to distribute our positions. We're just gonna do it programmatically." And I think that's a totally viable answer. Maybe say, "Okay, we're gonna distribute a little bit as soon as the lockup comes off, a little bit more six months later, a little bit more six months after that." Whatever your algorithm is, I think that's a totally okay way to do it. The way that we have chosen to do it is to try to be really good at it, which doesn't necessarily mean outsmarting the public markets. It does mean having a point of view so that when a company goes public, it's not just programmatic. You know, there's real work that happens to try to figure out where the company has a chance to go from here and the result of that, when it works, is companies like Square, where at IPO it was a, I don't know, maybe a couple hundred million dollar gain, and by the time we distributed five years later, it was a multibillion-dollar gain. Or companies like Mongo, which have compounded close to 40% in the public markets that we held onto for many years after the IPO. Or Palo Alto Networks, where we went into that IPO with the exact same ownership position as one of our co-investors. We ended up generating more than a billion dollars more than them because we were more patient. And so sometimes it really pays off.

    24. HS

      God, Nikesh is a beast.

    25. PG

      Nikesh is a total beast.

    26. HS

      Yeah, (laughs) absolutely. I did a show with him recently, and it was at the end of a 36-hour fast, and so I was just incredibly moody-

    27. PG

      You were fasting or he was fasting?

    28. HS

      No, I was fasting.

    29. PG

      Okay. (laughs)

    30. HS

      And I was just incredibly moody.

  16. 52:50 – 54:55

    Pat’s Strengths & Weaknesses

    1. PG

    2. HS

      When you review the life cycle that we've just gone through, where are you weakest?

    3. PG

      Personally or as a partnership?

    4. HS

      First you and then as a partnership.

    5. PG

      (laughs) Um, you know, it's funny. Ironically, I'm probably weakest now where I was strongest 10 or 15 years ago, which is on the sourcing piece.

    6. HS

      Hm.

    7. PG

      Um, that was the only way that I could distinguish myself at Sequoia in the early days was to just try to go find interesting stuff, try to find companies worthy of Doug Leone's attention. Um-

    8. HS

      Is venture a young person's game?

    9. PG

      It really depends. I think if you go across the value chain, sourcing in some ways might be a young person's business. I think picking really benefits. So the problem with picking, here's the tricky thing. The more experience you have, that experience compounds, the knowledge compounds, your, your picking algorithm gets better, right? So you would say, "Okay, the more experience you have, the better off you're gonna be at picking." The problem is we're in a details business. If you're just trying to separate good from bad, you don't necessarily need to be into details. If you're trying to separate good from great and great from exceptional, truly exceptional, like the one out of every couple thousand companies that's really gonna matter, you gotta be in the details because the 10 or 15 that all look about the same from a distance are gonna look very different when you get up close. And so picking, you need to have the attitude and the work ethic and the tenacity of somebody who's earlier in their career and trying to prove themselves coupled with the experience and the knowledge of somebody who's actually been around and seen a little bit of that, which is why I think a lot of times, the sort of mid-career investors can be the, can be the best because they have both the right attitude and the right experience. And that's what we... One of the things that we try to do, that we try to distinguish ourselves on is to not have the more experienced people check out and get into administrative management roles.

    10. HS

      (laughs)

    11. PG

      Like we should be in the field making investments, meeting companies, doing the work, really trying to understand the details. And if we can do that, then hopefully we end up at a better place

  17. 54:55 – 59:02

    The Advantage of Sequoia on Your Cap Table

    1. PG

      on the picking.

    2. HS

      When you think about the benefits of having Sequoia as a line on your cap table as well, I think one of the biggest lies we tell startups is startups die of indigestion, not of starvation. I think anyone who actually has any reality in the real world knows that most companies actually run out of money in the real world, not in a foie-grating venture world, um, which does happen too, but the proportion is wildly to those that run out of money.

    3. PG

      Yeah.

    4. HS

      Uh-... and speed is everything, and finding product market fit is everything, when you have Sequoia on your cap table, and I'm sorry for making assumptions here, your ability to raise a next round from someone, it may not be a tier one, but from someone, is very, very high. And therefore, you get a far extended amount of time to find said product market fit-

    5. PG

      Yeah.

    6. HS

      ... and that ideal customer and that revenue. Do you... which means you have an inherently lower mortality rate. Do you agree?

    7. PG

      Yeah. I absolutely agree. There's, um... One of the things that our competitors try to use to sell against us is what they call signaling risk.

    8. HS

      Mm.

    9. PG

      "Oh, no, no, you shouldn't take Sequoia at this round, because then if they don't need the next round, you're toast."

    10. HS

      I just used your dodgy choice of shirt (laughs) but... (laughs)

    11. PG

      (laughs) Appreciate you. Um...

    12. HS

      You're like, "I prefer you on Zoom." (laughs)

    13. PG

      (laughs) But if you, but if you look at the, if you look at the data, it's actually not s- signaling risk, it's signaling advantage. And it's signaling advantage in the sense that the average valuation, average valuation, for the round that you raise after your Sequoia round, so if you raise a seed from Sequoia, it'd be your series A, if you raise a series A from Sequoia, it'd be your series B.

    14. HS

      Mm.

    15. PG

      The average valuation for that next round is 4X greater than the average valuation for that round without Sequoia in your cap table. And so, if you have Sequoia on your cap table, chances are, your life just got a lot easier for the sake of future fundraising, and the dilution that you're going to get from future fundraising just went down a bunch, because it is the easiest algorithm in the world as a venture investor somewhere else to say, "Okay, I'm gonna hunt the Sequoia seed investments, I'm gonna hunt the Sequoia series As, I'm gonna hunt the Sequoia series Bs." And so if you have us in your cap table, chances are your life just got a lot easier.

    16. HS

      Does Sequoia have pricing power?

    17. PG

      I think similarly in our business, if you're way up the funnel at the moment of company inception, the difference between starting a S- company with Sequoia and starting a company without Sequoia can be pretty big.

    18. HS

      Huge. Huge.

    19. PG

      And so most founders at the very early stages are, are willing to, you know, if you think of us as a premium product, you pay something different for a premium product than you pay for a normal product, and, and they pay for our premium product in the form of their equity, right? And so I think, I think seed series As, we, we have pretty decent pricing power, so to speak, there. And then the later stage that the company gets, you know, the, the more the company itself has already been established, and having Sequoia in the cap table is not going to be a company-making moment. It might be nice, you know, hopefully it can help them more over time, but we're not likely to get any sort of huge discount at the later stages.

    20. HS

      When you have fund sizes at the sizes you have now and the capital you have, with recent fundraisers, uh, and we've talked about this before, but like, a billion dollars isn't enough. You need to see a pathway to $10 billion. But sometimes that can impede your decision to invest in what could be a great company, and you have to kind of turn over the next card to see that next flip.

    21. PG

      Yeah.

    22. HS

      How do you think about that? And that inhibiting your ability, your decision to invest in a great company.

    23. PG

      The, you know, we were talking about this earlier, the tiebreaker always comes down to the founder.

    24. HS

      Yeah.

    25. PG

      If I'm not sure about the market, but the founder just seems like dynamite, I'll probably lean in on that, um, because to your point, you mentioned this earlier, the best founders are gonna surprise you by finding more TAM. So, we don't necessarily have to see... W- we don't have to see a clear line of sight to 10 billion or 100 billion or some grandiose figure. We do need to see a clear line of sight to good returns with an exceptional founder who could maybe find some upside

  18. 59:02 – 1:00:57

    The Hardest Aspect of Pat’s Job Today

    1. PG

      from there.

    2. HS

      What do you think the hardest thing of your job is today?

    3. PG

      See, inside the building and outside the building.

    4. HS

      Yeah.

    5. PG

      Um, inside the building, I feel like... You may not be familiar with this analogy, but do you watch basketball?

    6. HS

      No, no, I don't think so.

    7. PG

      Okay. Okay, great. So, (laughs) so the Bay Area team is the Warriors-

    8. HS

      Mm-hmm.

    9. PG

      ... and several years ago, the Warriors had two players who were both just A+ superstars, Steph Curry and Kevin Durant.

    10. HS

      Mm-hmm.

    11. PG

      And they managed to keep them together for several years, um, and win championships and all that good stuff. But eventually, Kevin Durant, you know, left to go somewhere else. And so one of the things that I think about inside the building is, I feel like we don't just have two superstars, we have a dozen superstars. Like, when I look at our team, any one of our partners could be a total star somewhere else. And so the thing that I always think about is, how do we, how do we keep so many superstars together in one place and get everybody to work as a team and try to keep, you know, egos in balance and all that good stuff? And I think we're lucky to come from-

    12. HS

      I would say Sequoia's like an iPhone. (laughs)

    13. PG

      (laughs)

    14. HS

      Which is like, once you have an iPhone, it's like, "I'm not gonna go to an Android, am I?" (laughs)

    15. PG

      (laughs)

    16. HS

      Right? Do you know what I mean? It's like, and there's-

    17. PG

      There we go.

    18. HS

      ... there's nothing else.

    19. PG

      But, and-

    20. HS

      And, and so it's kind of, that's why I'm almost like, you know, "Don't peak too soon." I think I said this to Jude and Alice, like, just so you know, once you get there, it's like you just have to accept that, like-

    21. PG

      (laughs)

    22. HS

      ... there's no, like, up. Like-

    23. PG

      Yeah. (laughs)

    24. HS

      ... you're there (laughs) do you know what I mean?

    25. PG

      Yeah. Well, and that's, I, I genuinely believe that being a partner at Sequoia is the best job in the world, and we try to make sure that that's true for the very best people so that we can have a team of people who are sort of individually exceptional.

  19. 1:00:57 – 1:03:11

    Foreseeing Sequoia's Challenges in the Next Decade

    1. PG

    2. HS

      Uh, we do postmortems on why a company isn't m- successful ahead of time, try and predict what could be harmful.

    3. PG

      Yeah.

    4. HS

      If you had to do a postmortem on Sequoia 10 years out, of what is the reason why it may be challenged, what would it be?

    5. PG

      I, I do this exercise every year. Um, and we do it as a team, m- not every year, but every few years at offsites. Um, it's always the same reason. We have every advantage in the world. I'll tell you one thing that I've heard Doug say.... um, to his kids or about his kids, which is, "I can give my children anything in the world except for the one thing that made me who I am, which is my sense of desperation." And I think similarly, being part of Sequoia, we have every advantage in the world except for the one thing that made us who we are, which is a sense of desperation. And so the pre-mortem for Sequoia has nothing to do with the financial markets or technology platform shifts or competitive dynamics out in the market. And it has everything to do with staying hungry, staying humble, and pretending like, to use the Amazon terminology, you know, behaving as if it is day one every single day. And that the default is if we don't go out there and earn it, tomorrow we are irrelevant. I think that is true, and I think as long as everybody inside the building believes that is true and everybody inside the building behaves accordingly, we'll probably be okay. But I think every pre-mortem begins with arrogance, complacency, you know, taking it for granted that we get to be Sequoia tomorrow because we were Sequoia yesterday.

    6. HS

      Well, I wanna go a little bit off schedule now. (laughs)

    7. PG

      (laughs) Yes, 'cause everything's been so scripted.

    8. HS

      Yeah, yeah. Uh, but I, uh, I, I do wanna do a quick fire round. And that was a wonderful, like, uh-

    9. PG

      (laughs)

    10. HS

      ... God, the artistry of that interview, which is like, it went, irrelevance kind of circles back, that-

    11. PG

      I don't think you asked any of these questions.

    12. HS

      I did. They're really ridiculous. You just didn't know.

    13. PG

      (laughs)

    14. HS

      It's such an encap- you know, enchanting interview style. Um... (laughs)

    15. PG

      You really are the best in the business.

    16. HS

      Foundation models? (laughs)

    17. PG

      (laughs)

    18. HS

      Yeah, well... (laughs) That one's for afterwards.

    19. PG

      (laughs)

  20. 1:03:11 – 1:12:12

    Quick-Fire Round

    1. PG

    2. HS

      Um, on the quick fire round, tell me, what do you believe that most around you disbelieve, Pat?

    3. PG

      One area where I'm probably most often different than others is around this concept of fewer, better things. Most of the time when a company that we're involved with wants to go do a bunch of new things, it seems to me that the better use of resources is to make the thing you already do better. The thing that you already do, unless it is absolutely heads and shoulders above any of the alternatives out there in the market, you're probably gonna get more juice outta making that thing better than you are outta doing more stuff. So that's probably a place where I generally disagree with people.

    4. HS

      When you review investment decisions internally at Sequoia, in terms of like the voting process and the process to get it done, are the unanimous ones generally the best outcomes or are the contrarian ones the best outcomes?

    5. PG

      So we have, we have actual data on this going back to 2014 where we s- we started recording the votes numerically on every single investment, so we have about 10 years worth. Which believe it or not is not conclusive because there are so few outliers that have emerged even in the last 10 years. Best we can tell, whether something is consensus or contentious actually doesn't matter.

    6. HS

      Hm.

    7. PG

      The thing that matters is presence of conviction. So there could be investments where everybody's a six and the voting is zero to 10, no fives. So six is above the line. Six is lukewarm enthusiasm. There could be an investment where everybody's a six, and then compare that to an investment where one person's a nine, two people are eights, and then some people hate it. There are some twos and threes.

    8. HS

      Do you let people be a six?

    9. PG

      Yeah. Numbers that are further away from five are more clear in terms of your point of view, but a lot of times people are commingling bravado with conviction. If you vote a nine just because you feel like you need to vote a nine to, you know, show your conviction, that's probably not a good reason to do it. If you vote a nine 'cause you're actually a nine and you're probably not a nine more than once in a blue moon, that's great.

    10. HS

      Do you worry about political voting? I'd always do a six if I wasn't sure.

    11. PG

      (laughs) Well... (laughs)

    12. HS

      'Cause I'm a yes, but I'm a weak yes.

    13. PG

      (laughs)

    14. HS

      If it turns into, you know, a mongo, I said yes. And if it's a dog, I'm, it was a weak yes.

    15. PG

      (laughs)

    16. HS

      Oh, I like this one. This was from Alfred, "Which venture investor do you most respect and learn from outside of Sequoia?"

    17. PG

      Sarah Gouach.

    18. HS

      (laughs) Oh, come on. (laughs)

    19. PG

      It's an easy one.

    20. HS

      How did you get Sarah as your wife? (laughs)

    21. PG

      (laughs) Now, that, that, that is...

    22. HS

      (laughs)

    23. PG

      That is a good question.

    24. HS

      Uh, tell me, what's the most memorable first founder meeting you've had?

    25. PG

      Two of them come to mind. One, one was Eric Yuan just because he was in this terrible office. Um, but he was so full of joy and energy and enthusiasm because of this product that he was building. And it just reinforced focusing on the things that actually matter. So that was one that was pretty memorable. The other one was in the summer of 2007. So I joined Sequoia in March of 2007. In the summer of 2007, Jim Goetz and I come over here to London to look at an investment that we were contemplating at the time. And I convinced him to take a day trip with me to Sweden. So we flew into Copenhagen, then we drove across the bridge to Malmo or whatever's over there, and there's this thing called the Lund or Lund Technology Park that had a whole bunch of startups in it. Goetz was very skeptical about this trip to Southern Sweden, and that was reinforced when we got lost on the way to this technology park. We took the wrong exit off the freeway and were just lost in the middle of farmland, stuck behind a tractor. Like literally there's a tractor in front of us taking up the whole road. And Jim and I are sitting there behind the tractor and he turns to me and he's like, "There's a technology company around here?"

    26. HS

      (laughs)

    27. PG

      Um, and then anyway, uh, the, the g- the, it was this company called ClickTec run by this guy named Måns Hultman. And it actually turned out to be a great business. It ended up going public. It was worth several billion dollars. Um, but when we were lost in a farm field in Southern Sweden, I was sweating bullets.

    28. HS

      What's your biggest lesson from Jim?

    29. PG

      I think Jim's two superpowers, one is his ability to see the future, and two is his ability to figure out people and what motivates them and how to put people together into teams and how to motivate those teams.But the lesson that I probably learned from him, I learned a bunch of lessons from him. The one that probably sticks out the most is on that first part, which is seeing the future, because I remember back in 2007 when I first joined Sequoia, and we were using... We'd just started using salesforce.com. Prior to that, I was using an on-prem Siebel system at Summit Partners and salesforce.com circa 2007 was garbage-

    30. HS

      (laughs)

Episode duration: 1:12:12

Install uListen for AI-powered chat & search across the full episode — Get Full Transcript

Transcript of episode e79QcKYsHSY

Get more out of YouTube videos.

High quality summaries for YouTube videos. Accurate transcripts to search & find moments. Powered by ChatGPT & Claude AI.

Add to Chrome