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CHAPTERS
Chapter summaries
Welcome, Zappos humor, and recent Amazon acquisition
The speaker opens with jokes about the audience and Zappos, using it as a lighthearted entry into Sequoia’s experience with the company. He describes Amazon’s recent purchase of Zappos and recounts internal debate about selling at the reported price.
- •Introduces Don Valentine and comments on the size of the crowd
- •Jokes about Zappos as a “ladies’ shoes” business and shoe pricing
- •Says Amazon bought Zappos about four months earlier and Sequoia wasn’t trying to sell
- •Mentions Sequoia debated whether to sell for “a billion three,” then quickly agreed once currency was clarified
A slide of founders, Stanford’s role, and celebrating “monuments”
He references a slide of notable founders and companies, noting that few attended Stanford Business School. He calls out Jerry Yang and Jensen Huang for funding buildings, framing the day as a celebration of outcomes from entrepreneurship.
- •Notes most people on the slide didn’t attend Stanford Business School
- •Highlights Jerry Yang and Jensen Huang for funding Stanford buildings
- •Says the founders/companies on the slide were selected “randomly”
- •Remarks on “selective memory” in highlighting successes over failures
Sequoia’s core thesis: choose markets, not people
He explains how Sequoia evaluates opportunities differently than many venture firms: market size and dynamics come first. The goal is to build big companies, and he argues that is unlikely without attacking big markets.
- •Describes interview question for Sequoia recruits: why Sequoia is successful
- •Contrasts Sequoia’s focus with VCs who emphasize “best and brightest” managers
- •Says Sequoia focuses on market size, market dynamics, and competition
- •Frames Sequoia’s objective as building big companies through big markets
Apple as a platform: investing in the full system around the PC
Using Apple as an example, he describes investing across an ecosystem rather than a single product. He talks through early constraints like audio tape storage and the need for memory and disk-drive infrastructure to make the personal computer useful.
- •Says Sequoia chooses markets and then invests in multiple products within the system
- •Recalls early Apple storage using audio tape and why it was impractical
- •Discusses financing memory companies, floppy disks, and disk drive businesses
- •Emphasizes that without the memory system, the PC is “nothing”
Xerox PARC, GUIs, and system-level investing (including Electronic Arts)
He describes how ideas and components from Xerox PARC influenced Apple and became investable building blocks. He also shares how Sequoia helped start Electronic Arts from within Sequoia’s office, reinforcing the platform-and-applications approach.
- •Says Xerox PARC shared key ideas like the mouse and GUI concepts
- •Claims Apple’s graphics interface benefited from PARC’s generosity
- •Describes Sequoia making over 15 investments around the Apple category
- •Recounts starting Electronic Arts in Sequoia’s office and later asking them to move out
Product generations, marketing importance, and big-company blind spots
He argues that companies can lose dominance when they miss a product generation, citing Sony’s mobile music leadership being displaced by Apple. He then critiques large-company boards, using Xerox as an example of strategic drift away from core strengths.
- •Says marketing is underestimated and product-generation shifts can be decisive
- •Contrasts Sony’s Walkman-era dominance with Apple’s later music devices
- •Introduces a critical view of big-company boards as resistant to change
- •Describes Xerox moving away from its strengths and leaving key capability behind
How Sequoia sets up startups: small teams, outsourcing, and early market exploitation
He explains Sequoia’s operating philosophy for early companies: keep teams small, outsource non-core functions, and prioritize technology plus marketing. He emphasizes Sequoia prefers exploiting existing markets early rather than spending to create new ones.
- •Says Sequoia backs founders who may lack formal business credentials
- •Describes teaching founders outsourcing and focus on doing only a few things well
- •Identifies core early functions as technology/engineering and marketing
- •Says Sequoia avoids “creating markets” because it’s too expensive and prefers early exploitation
Talent circulation in Silicon Valley and “repositories of technology”
He describes Silicon Valley as a training ground where successful companies create management talent for the broader community. He lists several organizations he sees as key sources of technology and people that seeded many companies.
- •Says successful companies create “management in training” for the ecosystem
- •Mentions SRI, Xerox, IBM, and a place called The Wagon Wheel as key repositories
- •Frames these sources as component contributors to bigger systems and applications
- •Reinforces the idea of solving big problems through system thinking
Cisco’s origin story: broadcast storms, routers, and proactive recruiting
He explains the early networking problem Cisco tackled and how the router addressed it. He uses the story to illustrate Sequoia’s approach to finding teams: Sequoia searches for the right technical talent rather than waiting for pitches.
- •Describes PCs spreading to remote offices and causing network packet collisions (“broadcast storms”)
- •Explains the router’s role in directing packets to the correct destination
- •Says early work happened out of a private home until police intervened
- •States Sequoia proactively knocks on doors and maintains a search function for talent
Question discipline and the power of storytelling in fundraising
He sets a strict rule for audience questions and pivots into why concise communication matters. He shares an anecdote about entrepreneurs being unable to tell a clear story, and explains Sequoia’s method of using structured questioning to understand markets and risks.
- •Imposes a 20-word maximum for questions to prevent speeches
- •Says many entrepreneurs can’t tell a coherent story, yet money follows stories
- •Tells the business-card ‘plan’ anecdote, including the microcode-sized writing twist
- •Says Sequoia refines question sequences to elicit timelines, competition, and capital needs without feeling threatening
Where Sequoia partners come from: Alfred Lin as an example of versatile operators
He answers how Sequoia’s people are sourced and highlights Alfred Lin’s background across multiple Sequoia-backed companies. The story underscores valuing what someone has done, adaptability across domains, and knowing what you don’t know.
- •Says Sequoia cares less about education and more about prior company experience
- •Introduces Alfred Lin and describes his roles across two Sequoia-financed companies
- •Details Zappos’ online-only model, inventory placement for fast delivery, and scale at sale
- •Highlights versatility and self-awareness as important traits in leaders Sequoia works with
Operating lean: cash flow focus, milestone financing, and why Sequoia likes recessions
He describes Sequoia’s preference for outsourcing and delaying certain hires, emphasizing cash flow as the core financial metric. He explains milestone-based investing, willingness to shut down companies when expectations change, and why recessions can be favorable for early-stage investing.
- •Says the last management hire is often a financial officer because startups have little money
- •Emphasizes outsourcing and using shared CFO-type resources across companies
- •States cash flow is the only finance metric that matters in their world
- •Describes milestone-based rounds and shutting companies down when returns aren’t realistic
- •Says Sequoia likes recessions because they’re typically in development and banks don’t lend to them anyway
“Knowing the future”: semiconductors, microprocessors, and staying in Northern California
He argues his semiconductor background provided a predictive advantage about which technology waves would matter. He connects that to early investments in microprocessor-driven businesses and explains why Sequoia historically concentrated in Northern California.
- •Claims a “special advantage” from semiconductor experience: understanding the future direction of applications
- •Mentions working for Bob Noyce and understanding microprocessor-driven products
- •Cites early investments like Atari and Apple as aligned with microprocessors
- •Says Sequoia avoided investing far from Northern California due to opportunity density
- •Jokes about the world being flat past Denver and “technological oblivion”
Audience Q&A: worst-investment lessons, recession memo fallout, Cisco leadership conflict, and market views
He takes several audience questions: what Sequoia learned from failures, the unintended consequences of a private recession presentation becoming public, and a story about internal conflict at Cisco involving an early executive. He closes by discussing markets Sequoia avoided (nano) and continued interest in mobile applications.
- •Says failures rarely came from technology not working, but from market dynamics and mistimed demand
- •Explains Sequoia’s funding sources (tax-exempt LPs), pacing of investing, and decision to shut down underperformers
- •Describes how a private “RIP” recession presentation became public and created unexpected reactions
- •Tells a Cisco story about “customer advocacy,” management conflict, and choosing to remove a key person to avoid broader team loss
- •Answers market question: expresses skepticism about nano due to unclear applications; expresses ongoing interest in mobile and a system/application approach
