Pat Grady & Alfred Lin on the Tactics of Great Venture Investing | Ep. 36

Pat Grady 0:00 We've been recording the number that everybody votes on every investment for more than a decade now. Um, our internal data shows that consensus versus non-consensus does not matter at all.

Speaker 0:12 It's just not a factor.

Pat Grady 0:14 Presence of conviction is what matters.

Speaker 0:16 Huh.

Pat Grady 0:17 And so if everybody is a six, we vote zero to 10, no fives, so six and above is positive, four and below is negative. If everybody's a six, probably shouldn't make the investment. It's consensus, but nobody has conviction. If-

Speaker 0:29 Strong yes, strong no is much better.

Pat Grady 0:31 If three peoples are, are nines and three people are one, we should probably make the investment. [upbeat music]

Speaker 0:38 All right, guys, thank you very much for doing this. This is my first attempt at a three-person podcast. So-

Pat Grady 0:44 And this, this is our-

Alfred Lin 0:45 This is our first- [chuckles]

Pat Grady 0:46 ... showing together, so.

Speaker 0:48 Yeah. So I apologize if this is a disaster. [chuckles] Um, so-

Alfred Lin 0:50 It's not gonna be a disaster. Um, we're gonna ask you questions, too. [chuckles]

Speaker 0:53 That's what I want, and then we can edit everything out. This could be a five-minute pod with whatever's good. [chuckles]

Pat Grady 0:56 Love it.

Speaker 0:57 And that'll be fine. Um-

Pat Grady 0:58 Five minutes might be generous.

Speaker 0:59 No, that's all right. We'll take what we can get.

Alfred Lin 1:00 [chuckles]

Speaker 1:01 I guess to start, like, how are you guys... How are you feeling, and, like, where's your mindset? Are you like- do you feel the way you expected to when you first knew this was happening? Like, you're a couple weeks settled in, like, what's, what's going on psychologically?

Alfred Lin 1:15 I mean, we just came out of a, a meeting where we both said we're more excited than ever before. Um, and so we're, we're excited. And, uh, it's- part of it is because we're- we get to help lead, co-lead S- Sequoia into the next generation with a great team, and the team that we have is probably one of the best that we've ever had in the history of Sequoia.

Speaker 1:37 Does it feel, like, heavy or light? Like, does it feel more like you just got to pick up the most fun video game, or are you like: "Whoa, I have the weight of something very serious on my shoulders?"

Pat Grady 1:46 I think it's a little bit of both. Y- you know, I think for both Alfred and I, the idea of being steward someday was sort of a dream, but not an objective. I mean, it wasn't something that we-

Alfred Lin 1:56 [chuckles]

Pat Grady 1:56 ... sought necessarily, but it's, it's an honor to get to continue the-

Speaker 2:00 Yeah, of course

Pat Grady 2:01 ... legacy that Roelof and Doug and Jim, and everybody else, sort of started for us. Um, so I think it's heavy in the sense that we feel a responsibility to make Sequoia great. I think it's also light in a sense that one of the kinda main things that we wanna try to do for Sequoia is to kinda get it back to what it's been for most of our 53-year-old history, where Alfred and I are doing minimal amounts of administrative work, and mostly in the field making investments alongside a team of people like Andrew Reid and Luciana Alexandru and, you know, David Khan and Constantin Buhler, who are amazing at what they do, and our job is really just to enable them, as opposed to, to really manage people.

Speaker 2:45 If you think about, like, you know, aspirationally, like, how good could it get? Do, do you, like, have in your mind, like-

Pat Grady 2:51 So good

Speaker 2:52 ... things that have to be-

Pat Grady 2:53 [chuckles]

Speaker 2:53 Like, could it get better than... Could it get more dominant than it's been?

Pat Grady 2:56 Well-

Speaker 2:56 Or is the goal just to, like, stay where you are?

Pat Grady 2:58 So, so actually, um, I'm obviously biased-

Speaker 3:01 [chuckles]

Pat Grady 3:01 ... but I think that if you took-

Speaker 3:03 You?

Pat Grady 3:03 I took- I think if you took the partners at Sequoia, and you stack ranked them against all of the other partners in our business, I, I think that our seventh or eighth person is still in the top 10. Like, I, I think we truly have [chuckles] -

Speaker 3:16 Dang!

Pat Grady 3:17 I, I know, I know that's a really obnoxious comment to make.

Speaker 3:19 We'll pull, like, a highlight reel of all the other pe-... I'm just kidding. [chuckles]

Pat Grady 3:20 But I, I think we truly have, like, an unbelievably-

Speaker 3:23 You do

Pat Grady 3:23 ... talented set of partners.

Speaker 3:25 You do.

Pat Grady 3:25 And, um, and I think for that reason, like, you could even take me and Alfred out of the picture, and I think Sequoia would be in amazing shape. And so-

Speaker 3:32 Well, it's an interesting thing, 'cause these are individuals who could be incredibly successful on their own, obviously, and then you put them on the Sequoia platform, they get all the advantages that you have on top of that. And so-

Pat Grady 3:42 And our, our basic job is to get out of their way.

Speaker 3:44 Yeah. Our-

Pat Grady 3:44 Like, our basic job is to let them run.

Alfred Lin 3:46 And enable them.

Pat Grady 3:47 Yeah.

Alfred Lin 3:47 It's- that's why we published Our Sequoia. It, it's about the team-based approach, and it's about the principles that we have laid out, that were laid out before us. Like, we've always thought that it's founders first, then LPs, then Sequoia, then the team, then yourself.

Speaker 4:02 Mm-hmm.

Alfred Lin 4:02 We've always thought that we're only as good as our next investments, and we added a few things, such as, we'll always do the right thing and do it the right way. We're always gonna do that, and if we fail at that, because we're human, we're gonna apologize, fix it, and move on. And that's place because we have such talented people, as Pat was talking about. We just wanna make sure that influence is awarded to people with expertise, not, not necessarily tenure or from hierarchy.

Speaker 4:30 You guys are really explicit about your language here when you talk about, like, s- you know, stewardship, and, like, getting out of people's way. It's very much not CEO language. Like, I don't think you guys think of yourselves as, like, co-CEOs.

Pat Grady 4:43 Perfect.

Speaker 4:43 Right?

Pat Grady 4:43 Let's talk about that.

Speaker 4:44 Yeah. [chuckles]

Pat Grady 4:44 So, so great point. Um, if you are the CEO of an operating business, okay, chances are y- you are aiming for something like consistency, right? You wanna produce the same widget the same way over, and over, and over again, or you wanna provide the same service at... in the same way, at the same level of quality, over, and over, and over again. And so I think if you're the CEO of an operating business, one of your objectives is, like, quality at scale, and quality, to some degree, is defined as the consistency of the experience.

Speaker 5:16 When you say an operating business-

Pat Grady 5:17 Mm

Speaker 5:17 ... do you mean, like, something that makes a widget, or are you talking about, like, a technology startup?

Pat Grady 5:20 I mean, almost any other company. Technology startup, it could be a restaurant, it could be a manufacturing business. I think for most of those businesses, it actually makes sense to have a CEO who is making decisions and pushing them down into the organization because you want to ensure that consistency across whatever product or service you're offering. I think our business is dramatically different because in our bu- we're in the outlier business. Our objective is not consistency, right? Our objective is to find the two or three or four outliers in any given year who are gonna produce the most important companies of tomorrow-

Speaker 5:54 Yep

Pat Grady 5:55 ... get into business with them, and help them realize the maximum version of their dream. And, and the key word here, the operative word, is outlier, okay?

Speaker 6:02 Right.

Pat Grady 6:02 And so in order to partner with outliers, we need to field a team of outliers.... you can't field a team of outliers if you're telling them what to do. You can't field a team of outliers if you're managing them. And so our, our job is to, like, find these outliers who are crazy competitive, spiky in some direction or another, but also have a heart of gold so that they can actually operate in a team-oriented environment, and just, like, set them free and let them go do what they

Pat Grady 6:27 do.

Speaker 6:27 How do you then manage, like, inputs? Because, like, I would think, I would think that you do need consistency of inputs, at least in some sense, or maybe you don't. But like, you know, there's this thing where it's like the outcomes that you're looking for are these, like, crazy spiky founders that you partner with, but the inputs, like the day-to-day work, does that have a consistent rhythm? Does that get managed, or do you not even think of it that way?

Alfred Lin 6:50 I think that... So the, again, like, to Pat's point, inputs for each partner at Sequoia is gonna be different, be- because they're different, and they're outliers in different ways. So you can have someone who's very, very thematic, and their input is going to the whiteboard with founders and thinking about the future and whiteboarding the s- the landscape and figuring out where the white space is and building a company from that, or you can have someone who is going to, like, just be out there meeting as many founders as possible, trying to be opportunistic.

Speaker 7:23 Mm.

Alfred Lin 7:23 Those are gonna be very different inputs.

Speaker 7:25 Totally.

Alfred Lin 7:25 And it, you know, that's, you know, that's Jim, who loves going to the whiteboard and landscaping things, and that's Doug, who loves just dialing people up, intermediaries or founders, the best, the smartest people he, he knows, and he's like, "Okay, what's going on? How- what can I learn from this person?" Those are very, very different inputs, and if you saw a blank calendar on Doug's, um, like, day, you would be worried.

Speaker 7:50 Yeah.

Alfred Lin 7:51 But not for Jim. And if, if Jim's like, calendar is full and full of meetings-

Speaker 7:56 Yeah, this is bad, we gotta get him out.

Alfred Lin 7:57 That's probably a bad day for him.

Speaker 7:59 Mm-hmm.

Alfred Lin 7:59 And so he's like, "Okay, I'm, like, meeting all these companies, but I'm not actually having time to think."

Pat Grady 8:04 So think about, like, one way to frame it is freedom within frameworks. Okay? So we do have frameworks that people can use as guidelines so that they're not... So it's not pure chaos, right?

Speaker 8:17 Yeah, yeah.

Pat Grady 8:17 And so there's a framework that is, what are the capabilities that you need? And there are five basic steps in the value chain: sourcing, picking, winning, building, and harvesting. And then there's a framework, which is, what are the values that we expect you to have? And different teams have different values inside of Sequoia. Sequoia itself has the two primary values of performance and teamwork, but there are certain values that we expect people to adhere to. Assuming you're developing the capabilities, and assuming that your values are aligned with the values of your team and of our organization, you can operate the business however you want. And, and so, for example, y- you know, Alfred mentioned Jim and Doug. We have a partner in Israel named Dean Mayer. You know, Dean has been very explicit about mapping out the talent nodes in Israel and getting to know the most brilliant former operators, or the most brilliant, you know, academics, researchers, whatever the case might be, and just kind of like mapping those nodes and using that as a leading indicator of where the world is going. Um, or, for example, our partner, Charlie. You know, Charlie is much more high volume. You know, he's out there in the market, meeting a ton of people. Uh, he's going through a bunch of lists. You know, he's doing a bunch of cold outbound to companies, like, much more of a high volume-

Speaker 9:23 Yeah

Pat Grady 9:23 ... you know, build the funnel and then work your way through it sort of approach. And so different people have different approaches that are kind of authentic to who they are, and wh- when you put it all together, if we have the right people, and if we have the right sort of incentives in place, it tends to work out pretty well in the end.

Speaker 9:38 I feel like in like, you know, in, like, a startup or an operating company, a lot of times founders, CEOs think about managing senior people to outputs and junior people to inputs, which I think, you know, maybe that makes sense in a startup context. Do you think about that at all in, like, a venture context, where you're like, you know, the way that you're gonna think about s- you know, somebody who's fresh out of school, been in venture for a couple of years or whatever, that's a different thing than, you know, a senior partner on the team?

Pat Grady 10:02 Yeah.

Alfred Lin 10:03 Yeah. But I think y- you have to realize in venture, the outputs are, like, 10 years into the-

Speaker 10:09 Totally

Alfred Lin 10:09 ... into the future. So you have outputs that look like they're outputs-

Speaker 10:15 Mm-hmm

Alfred Lin 10:15 ... but those can be mirages, too. Like, markups can be mirages.

Speaker 10:19 Yeah.

Alfred Lin 10:20 So we don't really measure that as much as the inputs and what people do. So, like, sourcing, there's inputs, like how many, how many q- quality companies have you met? Or how many quality companies do you, like, want to bring to a Monday? And for, for picking, it's, like, the quality of your memo. Like, what... Did you get to the first-order questions?

Speaker 10:40 Yeah.

Alfred Lin 10:40 Did you answer them? Did you call the right people? It's not about having a long memo, it's about having- getting to the right points. And-

Pat Grady 10:48 Well, and for the... Sorry.

Alfred Lin 10:49 Go ahead.

Pat Grady 10:49 Well, and so, so, so for the growth team, to make it a little bit tangible, [clears throat] um, every June, we review people based on values. So we have four core values for the team: aggressive but humble, strong under scrutiny, high give a shit, zero bullshit, and demanding and supportive. So every June-

Speaker 11:09 Ravi Gupta.

Pat Grady 11:10 Exactly. Exactly, yeah. Demanding supportive came from Ravi.

Speaker 11:12 It's a good blog.

Pat Grady 11:13 And so every June, we all get reviewed on those values, and literally rated with color commentary on, like, to what degree does your behavior adhere to these values, right? Every December, we get reviewed on capabilities: sourcing, picking, winning, harvesting, and building. You know, to what degree does your, you know, capability in those different areas, you know, reflect the level that we want it to be at? And so those are... Values or behaviors are one kind of input, you know, capabilities are another kind of input. Over time, we expect those inputs to translate into outputs, and if they're not translating into outputs, then we get to go back and inspect and say, "Okay, well, what's the broken link in the chain?"

Speaker 11:51 Yeah.

Pat Grady 11:51 "Like, what's going wrong here?"

Speaker 11:52 Can we talk just, like, pretty brass tacks about each of these?

Pat Grady 11:55 Yeah.

Speaker 11:55 'Cause, like, I think from... You know, I, I, I'm starting to think about this, you know, we're obviously tiny, but I'm starting to think about, like, how do you measure and care about each of these, you know, aspects of the job? I would just be curious, 'cause you guys have done this a lot and know how to do it. So, like, can we start with, like-...

Speaker 12:11 how do you decide what it looks like on the, like, seeing stuff? So like, as an example, you know, do you, do you say, "We wanna see every company ever?" Do you say, "We've got... These are our zones that we care about"? [chuckles] Do you-

Pat Grady 12:24 We had this conversation yesterday. [chuckles]

Speaker 12:25 Yeah. So like, I'd be curious, like, what is good- like, forget the individual level for a second, but as Sequoia, I'm like you guys, and I'm, like, reviewing my year, what do I expect to see? You know, if I'm, like, of all the deals in twenty twenty-six, how many do you expect to see?

Alfred Lin 12:39 So because of the Sequoia platform, the partners at Sequoia can see almost any company they wanna see. So if you try to see everything, and you pass on everything, because most companies will not be successful, because that's the world we work in, entrepreneurship, you have a very high accuracy rate. So is that the point? To make, to classify-

Speaker 13:04 Yeah

Alfred Lin 13:04 ... a bunch of-

Speaker 13:04 You were right ninety-nine percent of the time 'cause you passed on the whole world.

Pat Grady 13:07 Yes, exactly.

Alfred Lin 13:07 You passed on the whole world.

Pat Grady 13:08 Exactly.

Alfred Lin 13:08 So that's not really input. That's not a good input.

Speaker 13:11 Yep.

Alfred Lin 13:12 Good sourcing is finding the great companies and figuring out whether they're worth the time to put in more effort, to do the due diligence, to then make a investment recommendation.

Speaker 13:23 So can you only know that historically? Like, in other words, can I only judge how my se-- how my sourcing in twenty twenty-five was, like, by twenty twenty-six? Or can I know-

Pat Grady 13:32 So we-

Speaker 13:32 ... in real time?

Pat Grady 13:33 We look at true positives, false positives, true negatives, false negatives, so we bucket it into the four quadrants. Um, we keep a running list of what we think is what. You know, we update it as new data emerges so that you can get higher confidence in your ex-post assessment of, like, did we make this decision correctly? And so we have, we have that as a running thing that we do, and then we look at it about once a quarter when we go on off-sites.

Speaker 13:57 Yeah.

Pat Grady 13:58 But it's hard, because by the time the decision-- by the time it is obvious what the right decision is, you've long since forgotten why you made the decision that you made.

Speaker 14:06 Yep.

Pat Grady 14:06 So in the moment, we also try to really crystallize, like, why are we making the decision that we're making? Which could be, somebody does a cycle on a company and recommends that we pass, doesn't bring it into a partner meeting, but they actually send out a memo that's just a page and a half, "Hey, here's what we learned, and, like, here is the rationale for passing. This is interesting enough to do a bunch of work. Let's do the last five percent and just codify that-

Speaker 14:27 Mm

Pat Grady 14:28 ... so that when we look back on it six months from now, we remember exactly why we decided to pass."

Alfred Lin 14:33 And then the sort of, the sort of process by which we do that is, is rolling.

Pat Grady 14:39 Yeah.

Alfred Lin 14:39 Like, we get more information-

Pat Grady 14:40 Totally

Alfred Lin 14:40 ... it's like updating your priors.

Pat Grady 14:42 Yeah.

Alfred Lin 14:42 You get some information, you make a decision, you have to-- you get new information, you have to update your priors, and we're constantly doing that. The other part about, you know, how do you know that the company is worth looking at? We've-- you know, each business line has specs, and so for the early team, the spec starts with an outlier team. Uh, are these people truly outliers? Like, you can probably put it, some judgment around that, that is-- that you can make, like, early on, even before you work with them. Now, of course, once you start working with them, you truly find out whether they're an outlier or not.

Speaker 15:17 Totally. So basically, you're, you're, you're kind of observing this. Time goes on, you're updating it. Is there, like, a sense of, um, depth versus breadth on this? 'Cause you're not a huge investment team, so it's like, you know, if you're look-- would you rather look at, you know, three thousand companies deeply, or is it better to actually have covered eight thousand companies, you know-

Pat Grady 15:36 So we-

Speaker 15:37 -a little more shallowly?

Pat Grady 15:38 Yeah, we track, we, we track coverage and, you know, we track all sorts of different metrics. Um, our coverage for the growth business tends to be about seventy percent, and seventy percent is defi-- there's a list of, you know, thirty or forty other investors that we say, "Okay, if they make the investment-

Speaker 15:52 Yep

Pat Grady 15:53 ... you know, they look at things similar enough to what we look at, that if they make the investment, we probably should have at least seen it."

Speaker 15:58 Mm-hmm.

Pat Grady 15:59 Right? And we tend to, we tend to see about seventy percent of the things that other people end up doing. Seventy percent is probably about right. Like, I don't think we wanna be a hundred percent, because that incremental meeting probably gets into CYA territory, as opposed to net multiple money territory. Um, twenty percent is probably too low, you know, then we're probably missing a lot of stuff, and so kind of that seventy percent neighborhood seems about right. We don't track individual metrics, for what it's worth.

Speaker 16:25 Mm.

Pat Grady 16:26 And this is in part because, you know, I, I, nineteen-

Speaker 16:29 Because it incentivizes bad behavior?

Pat Grady 16:30 Exactly. So n-- you know, nineteen years ago, before I was at Sequoia, I was at Summit Partners. Summit Partners, amazing investment organization, and like, I'm learning-

Speaker 16:38 It does seem like a crazy number of great people have come out of there, right?

Pat Grady 16:40 Sum- Summit is... I would recommend for anybody coming out of undergrad who wants to be-

Speaker 16:44 Just join Summit?

Pat Grady 16:44 -in investing, go to Summit Partners.

Speaker 16:45 Yeah.

Pat Grady 16:45 Like, amazing training ground.

Speaker 16:46 Yeah, paid advertisement.

Alfred Lin 16:47 Come to-

Speaker 16:48 But they-

Alfred Lin 16:48 -Sequoia first.

Speaker 16:49 Yeah, exactly.

Pat Grady 16:49 No, no.

Speaker 16:50 Go to Summit, then right back. [chuckles]

Pat Grady 16:50 Go to Summit, crush it, then come to Sequoia. [laughing] Um, but, but Summit, Summit has this, like, really kind of elegant and brilliant system where everything is incented, you know, for output, and so the funnel is very granular and individualized.

Speaker 17:05 Mm.

Pat Grady 17:06 And the problem that you would run into is, if you're a crazy competitive twenty-one-year-old, as I was, and you were not number one in the call metrics, you'd pull out of your back pocket, you know, the three founders who you knew would pick up the phone that you were never gonna invest in-

Speaker 17:19 Right

Pat Grady 17:19 ... and call them to pad the metrics, right? And so there's just, like, weird behavior that ends up occurring.

Speaker 17:24 Right.

Pat Grady 17:24 And so we've never had individualized metrics, because we don't want people to... We don't want them to think about hitting the metric. We want them to think about the ultimate goal, which is partnering with the most important founders of tomorrow.

Speaker 17:36 Yeah, which includes seeing many companies.

Pat Grady 17:38 And the, and the judgment that you have to use-

Speaker 17:41 [chuckles]

Pat Grady 17:41 ... the judgment that you have to use, the first, the first leading indicator of good investment judgment for a new investor is how they invest their time.

Speaker 17:49 Yeah.

Pat Grady 17:49 Like, if you can figure out how to invest your time to get to that end goal of partnering with the best founders-

Speaker 17:54 Yeah

Pat Grady 17:54 ... chances are you're gonna end up being a pretty good investor.

Speaker 17:56 Well, actually, maybe so,

Speaker 17:57 w- o- one more question on seeing, and then we can kind of move sort of down the chain. But, um,... on some level, this seventy percent number, whatever it is, while it's an input to returns, it's itself kind of an output of, like, activities. Like, I can't just wake up and say, "Okay, I'm gonna see companies today." Like, that's not the thing I do. So what are you, like, encouraging people to do to be good at seeing the right companies at the right time? And maybe like, on the early-stage business in particular, I feel like this is harder. Like, at growth, in some ways, it's like, you know, most- by the time it's a B or a C, like, you know, you kind of could put the whole universe on a spreadsheet.

Pat Grady 18:31 Yeah.

Speaker 18:31 It's all knowable. Seed, it's not like that.

Alfred Lin 18:34 But I, I think the, you know, every business is difficult for a different reason. For growth, yes, someone else is invested, so you get to pick off what-- [chuckles] pick those off. In early, it's hard because the waterfront is wide, to your point.

Speaker 18:46 Yeah.

Alfred Lin 18:47 Like, for us to cover-- for seed, we probably cover fifty to sixty percent of what is done by a competitor that we-

Speaker 18:55 Yeah

Alfred Lin 18:55 ... believe we should be tracking. And in venture, we probably do see sixty to seventy percent because we have the information from seed funds that tha-- a, a seed fund invested in them. So to see that many companies, though, the question then is not, "Okay, you saw them?" It's like, there's a notion that Luciana came up, which is false coverage.

Speaker 19:16 Mm.

Alfred Lin 19:16 So to Pat's point about, like, calling your friend, and you saw-

Speaker 19:19 Yeah

Alfred Lin 19:19 ... but y- you had to call. We can, like, just go and see a bunch of companies because we went to Demo Day for a variety of places and saw a lot of companies.

Speaker 19:28 Yeah.

Alfred Lin 19:28 That doesn't actually get to the point of finding-

Speaker 19:31 A substantive engagement.

Alfred Lin 19:32 And substantive engagement.

Speaker 19:33 Yeah.

Alfred Lin 19:33 So, like, okay, to Pat's point about, like, investing your time, you saw the Demo Day presentations. They were one minute each, very efficient use of time.

Speaker 19:41 Yeah.

Alfred Lin 19:41 Okay, what are the five companies out of that Demo Day that you're gonna spend time with?

Speaker 19:45 Yeah.

Alfred Lin 19:46 And so you can-- the decision quality there is actually fairly important.

Speaker 19:49 Mm.

Alfred Lin 19:50 And so you... That is measurable. So there's a relative list of, of companies that you once and looked.

Speaker 19:55 Yeah.

Alfred Lin 19:56 And so out of that thirty to a hundred companies, what were the top five that you thought were worth pursuing? Did you go pursue them?

Speaker 20:03 Yeah.

Alfred Lin 20:04 And so those inputs are actually very, very measurable for quality.

Speaker 20:08 Mm.

Alfred Lin 20:09 And we may be wrong, but we- then we update our priors on, like, okay, why did we miss something that was... that you didn't take a meeting with? And so then, you know, the, the thing about each of these businesses... And, like I tell the early team, we have basically three shots because we wanna see companies before company formation, if possible.

Speaker 20:30 Yeah.

Alfred Lin 20:31 So for that, it's like, okay, are you in the right networks? Are you in, you know, OpenAI or Anthropic, or these people who are about to leave these companies-

Speaker 20:40 Yeah

Alfred Lin 20:40 ... and are you able to sort of get in touch with them before they leave? Okay, maybe you don't get that shot, or you passed for the wrong reason. You can then, once they've left and they've gotten momentum, invest at the seed, only because you poured some heart and soul into meeting those people in the first place. If you didn't make the seed investment, we can make a Series A-

Speaker 21:02 Yeah

Alfred Lin 21:02 ... investment. And so that, those are all trackable, and it is a funnel that you can track, and quality sort of ends up rising to the top.

Speaker 21:11 Totally.

Pat Grady 21:12 Part of what's different about the growth business, also, you mentioned you can put the whole universe on a spreadsheet. You also know a lot about the companies on that spreadsheet. And so in 2007, when I joined Sequoia, the primary way that you learned about a company was you cold called them, and you talked to the founder. Now, the amount of information that our CRM system-

Speaker 21:32 Yeah

Pat Grady 21:32 ... produces when you just put the name of a company into it, is more than the amount of information that we had when we were making a final investment decision fifteen years ago.

Speaker 21:40 Right. It's crazy.

Pat Grady 21:41 So there's an enormous amount of information that you can get. And so one of the failure modes for young investors is to think of their job as: My job is to meet founders. No, your job is to generate net multiple money returns. [chuckles] Meeting founders is one of the things that you can do to do that. But-

Speaker 21:57 But reading about their company online is another way.

Pat Grady 21:59 Go spend fifteen minutes in our... Like, our homegrown CRM system, with all the data science signals and everything, is fabulous at this point. Go spend some time in that system. Beat it up a little bit. You know, don't just meet, you know, whatever company somebody told you are inflecting. Like, go figure out what we know about them before you decide whether it's worth spending thirty minutes of your time.

Speaker 22:20 And what you know about them that has nothing to do with a meeting some other partner had. It's truly just information from the internet.

Pat Grady 22:25 It's information from the internet, but it's also information from a bunch of other sources, some of which are paid, some of which are proprietary. Like, there's data that we create to feed into the system-

Speaker 22:34 I see

Pat Grady 22:34 ... so that we have the most holistic possible view

Pat Grady 22:36 of these companies.

Speaker 22:36 You wanna tell us about the proprietary data sources that you have going?

Pat Grady 22:39 I'll, I'll give you an example.

Speaker 22:40 Yeah.

Pat Grady 22:40 Um, imagine, imagine you found some great VP of engineering, and you did a favor for that VP of engineering, and now that VP of engineering says, "I love Jack. Jack's the best. I'd do anything for Jack."

Speaker 22:50 Happens all the time-

Pat Grady 22:51 Right?

Speaker 22:51 ... honestly. [laughing] Yeah.

Pat Grady 22:52 Well, it, it wouldn't be crazy if you went back to that VP of engineering, and you're like: Hey, VP of engineering-

Speaker 22:56 You owe me

Pat Grady 22:57 ... any chance you could tell me, like, who your five smartest and most respected-

Speaker 23:01 Okay

Pat Grady 23:01 ... VP of engineering folks are?

Speaker 23:02 I never do that, and I think that might be... But, like, I truly never do that, and I just, like, can't make myself, and I think I should.

Pat Grady 23:08 But imagine if you did that. [chuckles]

Speaker 23:09 Yeah.

Pat Grady 23:09 And imagine if you started doing that more than ten years ago.

Speaker 23:12 Yeah.

Pat Grady 23:12 And imagine if you tracked all the responses for more than a decade.

Speaker 23:15 Yeah.

Pat Grady 23:15 And imagine if that all lived inside of a CRM system-

Speaker 23:18 Yeah

Pat Grady 23:19 ... that has a talent map of Silicon Valley.

Speaker 23:21 Yeah.

Pat Grady 23:22 Not just the founders who are about to pop out of a lab-

Speaker 23:24 Yeah

Pat Grady 23:25 ... but also, like, engineer number thirty-seven in some growth-stage company. So imagine that you could go-

Speaker 23:29 And so what are you asking? You're saying, like: Who are your five smartest people you know, or something like that?

Pat Grady 23:32 It's PageRank for people.

Speaker 23:33 Yeah.

Pat Grady 23:34 It's the same basic thing.

Speaker 23:34 And you have the whole, the whole firm's doing this. And then-

Alfred Lin 23:37 We have the whole talent team doing this. We have, uh, all the investors doing this.

Speaker 23:40 Yeah.

Alfred Lin 23:40 It, it's-

Pat Grady 23:41 And we've been doing it... We, we had a, we had a former partner named Brett Record, who came up with this idea more than ten years ago, so we've been doing it for a long time.

Speaker 23:47 Yeah. And it's not that r- I mean, it's, it's not like something that you could just be like, "Oh, that's a good idea. I'll just do it," 'cause it also requires actually helping people.

Pat Grady 23:55 And that's it.

Alfred Lin 23:55 Yes, that's-

Pat Grady 23:55 You can't be transactional about it.

Speaker 23:57 Yeah.

Pat Grady 23:57 You have to, like-

Speaker 23:57 Yeah

Pat Grady 23:58 ... you have to make sure that people, you know, that they're actually kind of feel good about helping us do this.

Speaker 24:03 Yes.

Alfred Lin 24:03 In fact, if you make it transactional, they'll just give whatever response-

Speaker 24:08 Mm

Alfred Lin 24:08 ... to, like, get you off the phone.

Speaker 24:09 Yeah, yeah.

Alfred Lin 24:09 So we, we very much pride ourselves on making sure that we give-... before we get in.

Pat Grady 24:15 And so, so for example, if I hear about some growth stage company that's inflecting, I can go into our system and very quickly get a sense for, like, what percentile is this engineering team? Because I, I can't think of a lot of great companies that, you know, became billion-dollar plus revenue businesses without having a great engineering team at some point.

Speaker 24:35 Yeah.

Pat Grady 24:35 And so that's a pretty helpful signal.

Speaker 24:37 Yeah. Actually,

Speaker 24:39 this is a little bit of a side tangent. I wanna stick with this sort of, like, the intricacy of venture, but just as, like, a quick Eddy, do you find that there are examples where you can invest in something where the engineering team is not great, and you go in, and you're like: "We can help make it great," and there's so many other things to, like, that this can become great, or do you think if it's not great from the beginning, it never turns great?

Alfred Lin 25:00 It's very, very hard to change the DNA of a company. So it- generally, it starts being great at some aspects, and then you can sort of augment things.

Speaker 25:10 Mm-hmm.

Alfred Lin 25:10 So but in, in, in early-stage investing, like, the, the problem is, like, if they can't build a product-

Speaker 25:16 Yeah

Alfred Lin 25:17 ... and it doesn't work, that's- you're not gonna get off the ground. Now, I think there are quality engineers at different levels, and so you can get off the ground because Nate built all of Airbnb, uh, Airbnb's systems and is a one-person show for a period of time.

Speaker 25:36 Mm.

Alfred Lin 25:36 And eventually, you have to recruit the next generation of people, the next generation of leaders.

Speaker 25:39 Yeah.

Alfred Lin 25:40 Those people may actually be good for a period of time, and they will no longer be good, and you have to recruit the next leader and the next leader.

Pat Grady 25:47 Well, I'll give you a couple examples. So, you know, we got into business with ServiceNow in 2009.

Speaker 25:52 Yep.

Pat Grady 25:52 ServiceNow was founded in 2005, okay? In 2009, all of the code was written by one person, [chuckles] Fred Luddy. When ServiceNow went public, most of the code-

Speaker 26:02 Still?

Pat Grady 26:03 ... was written by one person.

Speaker 26:04 Wow!

Pat Grady 26:04 Fred Luddy.

Alfred Lin 26:05 [chuckles]

Speaker 26:05 Wow.

Pat Grady 26:06 So did they have a great engineering team? No. [chuckles]

Alfred Lin 26:08 They had one great engineer.

Pat Grady 26:10 They had one guy who was, like, not a 10X engineer. He's, like, a 1,000X engineer.

Speaker 26:13 Wow.

Pat Grady 26:13 Okay? So that's one example.

Speaker 26:15 That's crazy.

Pat Grady 26:16 Um-

Speaker 26:16 I've never heard a story quite like that, I don't think, actually.

Pat Grady 26:18 Uh, no- well, in Palo Alto Networks in a different way. Like, Palo Alto Networks ended up with an amazing engineering organization, but for a very long time, Nir Zuk, the founder, was kinda like the guy who would just fix everything.

Speaker 26:28 Yeah.

Pat Grady 26:28 Right? And so I think, I think there are a bunch of these examples where there's one person who's actually a crazy disproportionate share-

Speaker 26:34 Just doing a ridiculous amount

Pat Grady 26:35 ... of the productivity.

Speaker 26:35 Yeah.

Pat Grady 26:35 Another example would be HubSpot. So we got into business with HubSpot in 2011, and, um, at the time, amazing story, awful product.

Speaker 26:45 Mm-hmm.

Pat Grady 26:45 And Brian and Dharmesh would say the same thing, so I'm not speaking out of turn. Um, [clears throat] they'd say mediocre product, but it wasn't great. And-

Speaker 26:52 This is before the CRM?

Pat Grady 26:54 This is before the CRM.

Speaker 26:55 Yeah.

Pat Grady 26:55 So at that point, it was only a marketing product.

Speaker 26:57 Just marketing, yeah.

Pat Grady 26:57 And they found this company called Performable, run by these two guys, David Cancel and Elias Torres.

Speaker 27:02 Mm-hmm.

Pat Grady 27:03 And they acquired it.

Speaker 27:04 Yep.

Pat Grady 27:04 And most of the time, that doesn't really work. In this case, they acquired these two founders with 15 or 20 engineers and product managers and whatever. They ended up rebuilding the entire HubSpot platform within a couple of years, and then the HubSpot went from being good story, mediocre product, to good story, great product.

Speaker 27:21 That was when they built the CRM?

Pat Grady 27:23 Uh, Christopher O'Donnell, who came in with that acquisition, was the one who built the CRM.

Speaker 27:28 Yeah.

Pat Grady 27:28 There were obviously a bunch of people involved, but he was kind of points on it.

Speaker 27:30 Yep.

Pat Grady 27:31 And then Whitney Sorensen, who also came in with that acquisition, is still CTO of HubSpot today, and Andrew Bilecki, who is the founder-

Speaker 27:39 Mm

Pat Grady 27:39 ... of Klayvio, had also been part of that team.

Speaker 27:41 I guess there are probably some types of companies where you figure the product has to be good, but the engineering doesn't have to be unbelievable, and we can make it better, and then there are some types of companies where, like, the founding, you know, engineer has to be just a genius.

Pat Grady 27:54 Yes.

Alfred Lin 27:55 Yes.

Pat Grady 27:55 So that's, like, part of the magic of HubSpot was-

Speaker 27:58 Like, Airbnb and OpenAI can start differently.

Pat Grady 28:00 Yes.

Alfred Lin 28:00 Yes.

Pat Grady 28:01 Yes.

Alfred Lin 28:01 That's exactly our point.

Speaker 28:02 Yeah.

Pat Grady 28:02 HubSpot managed to get really good engineers to care about marketing software, which most really good engineers do not. And I think an- another example would be, like, OpenEvidence. OpenEvidence is a, you know, vertically integrated foundation model for medicine.

Speaker 28:16 Mm-hmm.

Pat Grady 28:17 Right? Like, all of their own training, all the way up to the application that is in doctors' hands. You can't do that with mediocre engineers. Like, that is the absolute all-star team that was able to build that product because they're... You know, they end up competing with OpenAI and the other broad foundation models. You can't do that if you don't start with amazing engineering.

Speaker 28:35 Yep.

Alfred Lin 28:36 The more technical the product, the more technical the founders have to be, the more technical the engineering team has to be.

Speaker 28:41 Yeah.

Alfred Lin 28:41 The less technical the product, the, then you can, you can rely on one person- [chuckles]

Speaker 28:46 Yeah

Alfred Lin 28:47 ... literally.

Speaker 28:47 Yeah.

Alfred Lin 28:48 And, you know, Airbnb started out that way. DoorDash started out that way, where the founders were just exceptional. They built everything, and over time, they complement that with, with people.

Speaker 28:58 Mm.

Alfred Lin 28:58 Citadel Securities, you, you really want-

Pat Grady 29:00 Yeah

Alfred Lin 29:00 ... you know, if they're executing on micro, nanosecond execution-

Pat Grady 29:04 Yeah, definitely

Alfred Lin 29:04 ... you need a really good engineering team.

Speaker 29:05 Yeah.

Alfred Lin 29:06 Mm.

Speaker 29:07 Okay, can we talk about, like, um, picking in some amount of detail? Like, [chuckles] I think-

Alfred Lin 29:12 [chuckles]

Speaker 29:13 ... um, there's so many... Like, p- I, I think it's, like, a very hard-to-discuss part of the job, but it's obviously very important. Um, I would argue for s- you all, I imagine in some ways, it's, like, the most important maybe because, you know, you're seeing and winning is gonna be very, very good. Obviously, you need to keep those very good, but then there's, like, this picking thing, which, like, there's just, like, you know, every year you gotta pick well again. Um, and so I imagine you spend a ton of time thinking about it, and it can't just be vibes. It can't just be-

Alfred Lin 29:43 [chuckles]

Speaker 29:43 ... this market's big.

Pat Grady 29:45 Vibes don't hurt.

Speaker 29:46 Vibes don't hurt, but like, so, like, can you talk about, like, in some depth, like, what goes into good picking and maybe just to, like, pick a stage in the middle, like a Series A or a Series B or something like that? Um, 'cause, like, you know, growth is its own thing, seeds its own thing, but like, you know, may- maybe we can start in, like, how do you talk about what goes into good picking in the Series A, Series B range?

Alfred Lin 30:10 [inhales] It- so w- I can do this in two different ways. One of which is, like, w-... back to like making money on money, high multiple returns?

Speaker 30:18 That's not that important, is it? [chuckles]

Alfred Lin 30:20 No, but that- that's what we're aiming for.

Speaker 30:21 Yeah.

Alfred Lin 30:22 So in a fund, we, you know, a, a venture fund.

Speaker 30:25 Yeah.

Alfred Lin 30:26 And probably a growth fund too, but this we have about forty-five to fifty-five shots of which we need six, uh, to, to like basically be a ten X or more.

Speaker 30:39 Yeah.

Alfred Lin 30:40 Of which of those three- three of them of out of the six, we need them to be a hundred million dollar gain or a billion dollar gain. That's what makes for a good fund.

Speaker 30:49 Yeah.

Alfred Lin 30:50 And we look historically at all of Sequoia's funds and you know, there's a high write-off rate. So when you say like picking, are we actually that good at it? Now, our best fund is Venture Twelve, which includes Airbnb, um, Unity and uh, and Dropbox. All three of them were billion dollar gains, but there were also ten companies that were hundred million dollar gains.

Speaker 31:19 That's crazy.

Alfred Lin 31:21 So that is a good fund. The write-off rate there was like fifty percent. So when you, when you think about picking-

Speaker 31:30 [clears throat]

Alfred Lin 31:30 ... you have to be, e- half right.

Speaker 31:33 But your point is that good picking isn't not losing money. Good picking is-

Pat Grady 31:39 Yeah, take risk

Speaker 31:39 ... a high enough inclusion rate of asymmetry.

Alfred Lin 31:42 So-

Speaker 31:42 Yeah

Alfred Lin 31:42 ... the point here is we're in the business of risk-taking, and you have to be able to take risks on things that will run.

Speaker 31:49 Yes.

Alfred Lin 31:49 So and, and then the other thing that we've learned about picking is, you can't just have things run that you put a small amount of dollars out-

Speaker 31:57 Yep

Alfred Lin 31:58 ... and have low ownership. Like, just put a million dollars into this-

Speaker 32:03 Yeah. It's not gonna matter

Alfred Lin 32:04 ... investment in a, in a venture fund of four hundred, five hundred, six hundred million dollars-

Speaker 32:08 It's just not enough

Alfred Lin 32:09 ... It's just not enough.

Speaker 32:09 Yeah.

Alfred Lin 32:09 You own- if you don't own enough, it's just not enough.

Speaker 32:11 Mm-hmm.

Alfred Lin 32:12 You have to actually have conviction.

Speaker 32:13 Mm-hmm.

Alfred Lin 32:14 And so when you have conviction and you focus on the right companies, you're gonna, you're gonna be wrong half the time.

Speaker 32:21 When you look-

Alfred Lin 32:21 You just-

Speaker 32:22 When you look at your basket of across many funds, of the things that truly ran, like the billion dollar gains, let's say, or the five hundred million dollar gains, let's say, did those at the time feel like a lot of people wanted them? And like, can you draw any correlation between how hot and consensus those rounds were?

Pat Grady 32:39 Not really.

Speaker 32:40 Or because like when you're describing like, you know, this, this sort of like asymmetry, where you're seeing something that's not obvious or something has a shape, like or... And then you have these rounds where nine venture firms all agree, this looks good. Like, is there- do those correlate?

Alfred Lin 32:55 I can give you lots of examples where they don't-

Speaker 32:58 There's both?

Alfred Lin 32:58 There's both. Right. So one, one of the sort of in DoorDash's situation, the serie- the seed round was really, really hard for DoorDash.

Speaker 33:08 Mm-hmm.

Alfred Lin 33:08 Almost everybody passed, including us, and that's kind of my fault for not having enough conviction. When the Series A came together, I think everybody knew that it was working.

Speaker 33:18 Mm-hmm.

Alfred Lin 33:18 So there were-- they probably got like f- six term sheets-

Speaker 33:21 Mm

Alfred Lin 33:21 ... in the same week that we offered the term sheet.

Speaker 33:23 So in that case, winnability was super important.

Alfred Lin 33:25 Winnability was super important.

Speaker 33:27 Mm-hmm.

Alfred Lin 33:27 And, you know, I'd passed, so we were coming a little bit from behind, even though we just, we try to stay, um, with- try staying, um, with the company and learning about the company and trying to add value. In the Series B, it was red hot. It went from a fifty million dollar valuation to a six hundred million dollar valuation.

Speaker 33:47 Mm-hmm.

Alfred Lin 33:48 And winnability was really, really important. But, you know, the Series C, which nobody wanted to do, was basically at the same valuation, slightly less, um, given... And that turned out to be one of the best ve- uh, not venture investments, growth investments. And Series D was, you know, very difficult.

Speaker 34:09 Mm-hmm.

Alfred Lin 34:10 E, F, G, though those were super consensus. They all made money.

Speaker 34:14 Yeah.

Alfred Lin 34:14 But the best, the best rounds were the Series A and the Series C, and those were not consensus at all.

Speaker 34:20 Mm-hmm.

Pat Grady 34:22 If I go further back, uh, we led four rounds in a row with Okta-

Speaker 34:27 Mm-hmm

Pat Grady 34:27 ... the Series C, D, E, and F, because nobody else wanted to invest.

Speaker 34:30 Yeah.

Pat Grady 34:30 Um, when we got into business with HubSpot, we were the only term sheet. Um, I remember with Zoom, Zoom, Zoom was like a reasonably hot company because there were a lot of people using the product, but it wasn't a consensus investment, and they weren't raising money. And I remember a couple weeks after we made the investment, um, I was at dinner with some other investors, and one of them was making fun of us for having, [chuckles] for having made the investment. You know, "Oh, my gosh, you paid a billion dollars for Zoom? How, how crazy," right? Um, Snowflake, you know, we passed on Snowflake and then six months later, begged them to give us another chance, because in that six-month period, it felt like things had inflected, and that, that was also not a consensus investment.

Speaker 35:11 Mm-hmm.

Pat Grady 35:11 And so I think our, our, our internal data, at least for our own decision-making, we've been tracking- we've been recording the number that everybody votes on every investment for more than a decade now. Um, our internal data shows that consensus versus nonconsis- consensus does not matter at all.

Speaker 35:30 It's just not a factor.

Pat Grady 35:32 Presence of conviction is what matters.

Speaker 35:34 Huh.

Pat Grady 35:35 And so if everybody is a six... We vote zero to ten, no fives, so six and above is positive, four and below is negative. If everybody's a six, probably shouldn't make the investment. It's consensus, but nobody has conviction. If-

Speaker 35:47 Strong yes, strong no, is much better.

Pat Grady 35:48 If three peoples are, are nines and three people are one, we should probably make the investment.

Speaker 35:53 Mm-hmm.

Pat Grady 35:53 Because the presence of the nines is a much more powerful signal than the presence of the ones.

Alfred Lin 35:57 But if you wanna describe that mathematically, we're in the risk-taking business-

Pat Grady 36:01 Yeah

Alfred Lin 36:01 ... we need, we need that volatility-

Pat Grady 36:04 Yeah

Alfred Lin 36:04 ... because the truth is not somewhere in the middle where everybody agrees.

Speaker 36:07 Yes. Yeah.

Alfred Lin 36:08 Yeah, we're, we're trying to build the future. The future does not look like the past. And so if everything looks consensus, it's usually because it's- we have something that is measurable to the past-

Speaker 36:18 Yeah

Alfred Lin 36:18 ... comparable to the past. It's all like-... it's everybody's thinking about it, and when it's consensus, it all gets priced to consensus, too. [chuckles]

Speaker 36:26 Let's say you have an investor who is good, you're happy with them, but you notice over a period of six, seven years that, like, their f- their, their portfolio includes a lot of good stuff, but it doesn't have that outlier tail. What would your coaching be? Like, what would you- what advice would you give that person to get more asymmetry into their pic- Like, if you're like-

Pat Grady 36:47 This is-

Speaker 36:47 ... I'm gonna help you be a better picker. [chuckles]

Pat Grady 36:48 Yeah, this is not hypothetical. [laughing]

Speaker 36:49 The way I'm gonna help you be a better picker is by helping you get more of the asymmetry.

Pat Grady 36:53 There are at least three different names in my mind right now.

Speaker 36:55 I know. [laughing]

Pat Grady 36:55 This is not hypothetical at all. So, um-

Speaker 36:57 Now I say X to you. Yeah.

Pat Grady 36:59 No, so we're- you know, Jim Goetz had this expression, front stabbing, which is you wanna tell people whatever concerns you have or whatever bad news to their front, instead of, like, saying it behind their back. So we have this conversation all the time with people who, you know, seem to be too risk-averse or don't, you know, have enough of that kind of upside potential in their portfolio. And so when that situation happens, we start having the conversation, you know, "Hey, you seem to be more in the base hits kind of business. We're more in the grand slams kind of business. You know, let's, let's work on taking some more risks, you know? Like, let's work on this together."

Speaker 37:35 Yep.

Pat Grady 37:36 "And if years go by and their risk appetite remains kind of modest risk appetite, which is very different-

Speaker 37:41 Yep

Pat Grady 37:41 ... than what we tend to seek, um, at some point, the conversation becomes, "Hey, you're actually very good at what you do-

Speaker 37:49 You should still-

Pat Grady 37:49 ... you should do something that's a little bit different than what we do."

Speaker 37:51 Okay, but so how do you... You say that, the, like, "We should- let's get you more risk appetite," how?

Pat Grady 37:57 I'll give you... So concrete example, there's somebody on our team now who we've been working with over the last few years, and it, it literally starts with this thing that you are talking about right now. We're going to invest in that company. "Oh, no, no, no, no, but, uh, we still need to figure out this, and we still need to figure out this, and I have these five more call..." "Oh, no, no, no-

Speaker 38:16 Yeah

Pat Grady 38:16 ... we're going to invest in that company. Let's go invest in that company now."

Speaker 38:20 Hm.

Pat Grady 38:21 And so you start with a little bit of a two by four, because you can see, you know, i- in this example, I'm not gonna name names, but in this example, like, this person is so good at what they do, and they come across so many interesting opportunities, and they come up with a reason to pass on all of them.

Speaker 38:36 Mm-hmm.

Pat Grady 38:37 And so at some point, you just have to say, "Look, this is the good one, okay? Let's go do this one together." And you do that a few times-

Speaker 38:45 And you show, you basically teach by showing.

Pat Grady 38:48 And you go from- it goes from, like, you know, Alfred, or me, or whoever is the last thirty percent to, to now we're the last twenty percent, to now we're the last ten percent, to now we're the last five percent, to now this person's doing it on their own.

Speaker 38:59 Yeah.

Pat Grady 39:00 'Cause once you've done it a few times, you actually get comfortable with taking the risk.

Speaker 39:03 In those, in this situation, is the person, like, are they... Like, they kind of know it's good, and you're just encouraging them to trust their instinct? Like, is it about, like, cutting off the process a little bit earlier? Is that the learning?

Pat Grady 39:14 That's, that's-

Alfred Lin 39:14 It's giving them a little bit of courage. What Pat's referring to is, like, everybody here at Sequoia came with a lot of, quote, unquote, "success." They went to good schools, they had great careers beforehand, and they were the A students or the A-plus students. And in this business, it's not about not making mistakes. As I shared with you, our best performing fund had a fifty percent write-off rate. You're gonna make a mistake half the time.

Speaker 39:41 Yep.

Alfred Lin 39:42 And so you just have to, like, readjust and think about it from that perspective.

Speaker 39:48 Yeah.

Pat Grady 39:50 I was, I was gonna say the exact same thing. It goes back to the people we hire. The people we hire are these competitive-

Speaker 39:56 Yep

Pat Grady 39:56 ... overachievers.

Speaker 39:58 Diligent.

Pat Grady 39:58 Most of them got straight A's their whole lives.

Speaker 40:00 Yep.

Pat Grady 40:00 And so one of the interview questions that is most uncomfortable for them, but most important for us, is: What's your biggest mistake? Like, what's the biggest failure you've had in your entire life? And usually get some, you know, BS one, and you kind of have to keep pushing until you get to a real one. But a lot of these- a lot of the people that join our team haven't had much failure-

Speaker 40:18 Mm-hmm

Pat Grady 40:18 ... and so we kind of have to help them get comfortable with it-

Speaker 40:21 Yep

Pat Grady 40:21 ... because otherwise, we're not gonna get the outlier wins.

Speaker 40:24 That's-

Alfred Lin 40:24 To, to do this business well, you really do need courage.

Speaker 40:27 Yeah.

Pat Grady 40:27 Yeah.

Speaker 40:28 You do.

Alfred Lin 40:28 You do need to be able to... Hey, y- you know, in, in both extremes, if you're gonna pay a ridiculous amount for a company that you saw and passed a month ago, or two months ago, or a year ago-

Speaker 40:39 Yep

Alfred Lin 40:39 ... like Pat did with Snowflake-

Speaker 40:41 Mm-hmm

Alfred Lin 40:41 ... you have to have real courage. He could have invested a year ago in Snowflake when he decided-

Speaker 40:46 Yeah

Alfred Lin 40:46 ... to pass, and he's like, he has to swallow his pride-

Speaker 40:49 Yeah

Alfred Lin 40:49 ... and actually say, "Okay, I made a mistake. I'm gonna pay up for this round, even though [chuckles] it sounds-

Speaker 40:55 Yeah

Alfred Lin 40:55 ... ridiculous, I'm going to do it."

Speaker 40:56 Totally.

Alfred Lin 40:56 Or the other extreme, where you're like, "Nobody likes this company-

Speaker 41:00 Yeah

Alfred Lin 41:00 ... anywhere in the world, except you."

Speaker 41:01 Yes.

Alfred Lin 41:02 But it's a really good company.

Speaker 41:03 And by the way, this, this courage thing is like, um, it's the type of thing that always strikes me as very, uh, tidy and nice-sounding in a historical story. You know, you, you tell a story of, "We did this DoorDash round, this Snowflake round, everybody thought we were stupid, and then look what happened." But in the moment, when you do something where everybody thinks you're stupid, it's like, I'd have to be like, "Hey, guys, let me tell you about this deal I did." And you guys walk away, and you're like, "Jack's actually stupid." Like [laughing] you know, it's like-

Pat Grady 41:29 [laughing]

Speaker 41:30 ... but, like, in the moment, it doesn't feel good when everybody around, like, your partners disagree with you, your, you know, peers-

Alfred Lin 41:36 Yeah

Speaker 41:36 ... at other firms are like, "You're not, like, stupid in the cute, like, this turned into Snowflake way. Like, we actually just think you're bad at the job," and, like, you have to stay with that.

Pat Grady 41:43 Yeah, yeah.

Speaker 41:43 I think that's really hard for people.

Alfred Lin 41:45 I think it is-

Pat Grady 41:45 It is

Alfred Lin 41:45 ... I think you're right, that it's really hard, but it's also, like, w- the two fears, fear of missing out and fear of looking stupid, are the two fears that prevent people from making the right decisions, and you gotta kind of have to block out those fears.

Pat Grady 41:57 We do, on this note, we do a lot of, um, introspection, post-mortems, post-parades on decisions-

Speaker 42:06 Mm-hmm

Pat Grady 42:06 ... that we got right or wrong. Just kind of looking at the outlier decisions one way or the other and saying, "Okay, like, we've got this one really wrong. Why? We got this one really right. Why?" What's interesting about the ones that we get really wrong, every single one of them, if you play the, the five whys game, like, why, why, why, why, why?

Speaker 42:23 Mm-hmm.

Pat Grady 42:23 Every single one of them comes down to some psychological bias or emotional trap.

Speaker 42:28 Totally.

Pat Grady 42:29 None of them come down to an error in calculation.... all of them come down to these background effects that were clouding your judgment.

Speaker 42:35 Yeah.

Pat Grady 42:35 And y- you know, we've cataloged them. You know, we have a list of forty of these things-

Speaker 42:40 Mm

Pat Grady 42:40 ... so that we can kind of like use the common vernacular and, and be able to-

Speaker 42:44 Yeah

Pat Grady 42:45 ... be able to kind of get in front of them, so that we can have a conversation before we make that mistake.

Speaker 42:49 Totally.

Pat Grady 42:49 Like, "Hey, hey, do you have separation of church and state here?" What's separation of church and state? Well, letting the thrill of the chase bleed over into your clinical decision-making.

Speaker 42:58 Yeah.

Pat Grady 42:58 Right? The thrill of the chase is a very passionate, emotional thing, where you're falling in love with the founder. But then you have to come back and put your emotions aside, and clinically assess all the merits and risks, and make a good decision. And so it's pretty natural to co-mingle those two things, but that can lead you down the wrong path.

Speaker 43:16 How do you guys, as senior partners, stewards, whatever, but like, you know-

Pat Grady 43:20 Partners.

Speaker 43:20 Partners.

Pat Grady 43:20 Partners.

Speaker 43:21 Equal partners. How do you- how do you, with younger partners who are newer, how do you react when you see them doing something where they're doing something that is courageous, but you think is genuinely a bad idea?

Pat Grady 43:34 Love it. [chuckles]

Speaker 43:35 You're like, "Let them... Let them-

Pat Grady 43:36 Be, be-

Speaker 43:37 -learn, learn the lesson, and maybe they'll-"

Pat Grady 43:38 No. Be curious, not judgmental. The conversation, uh, the conversation that we have with our partners all the time is, "I observed you doing this thing. I am curious why." When you start a conversation that way, they, they immediately are like, "Uh-oh, did I do something wrong?"

Speaker 43:54 Yeah.

Pat Grady 43:55 But if you genuinely come from a place of curiosity, this is what makes us all better.

Speaker 43:59 Mm.

Pat Grady 43:59 Like, when, when somebody joins our team, we don't want David Khan to become another Alfred or another Pat. We want David Khan to become the best possible David Khan he can become. And so if David goes off and does something that's not obvious to me or Alfred, I'm gonna be pretty curious.

Speaker 44:13 Mm.

Pat Grady 44:14 We know this guy's incredibly talented. What does he see that we don't see? Like, what method has he come up with that's not in our toolkit today? And so we, we would much rather let people just run, make some mistakes. Now, if they're doing something that we don't understand, they do it four times in a row, and they're oh for four, okay, now we're gonna say-

Speaker 44:32 [chuckles]

Pat Grady 44:32 ... "Hey, maybe we don't want to do that anymore."

Speaker 44:33 Yeah.

Pat Grady 44:33 Right? But we're gonna start with curiosity.

Speaker 44:35 Yeah. What else, besides courage, would you sort of... That, like, that was very resonant. Besides courage, is there anything else that you would imbue as lessons to help people be better at picking, as defined by including this asymmetric upside?

Alfred Lin 44:52 I think the, the other w- that the other thing that comes with courage is to play your game. Like, figure out what you're s- like, uniquely good at. Like, for me, when I got into this, into this business, I knew noth- well, I knew a little bit about investing, but not really. Okay, I made some seed investments here or there. Yeah, sure. But this business is about making sure you partner with the best companies of tomorrow. How do you break that down? Like, do you- are you market-led? Are you founder-led? I just thought, thought of it as like, "Well, that's interesting. How about founder market fit?"

Speaker 45:27 Mm.

Alfred Lin 45:28 And so I'd encourage everybody, just like that-

Speaker 45:30 Founder market fit is sort of your lens on things?

Alfred Lin 45:32 It's my lens on things. Like, you can't really... For Uber, Travis is, like, a perfect fit for Uber.

Speaker 45:38 Mm.

Alfred Lin 45:38 For Airbnb, Brian's a perfect fit for Airbnb. For DoorDash, Tony is, like, a perfect fit. You can't, you- they can't go actually run someone else's business, and so-

Speaker 45:48 So when you go into meeting a company, the top thing you're trying to figure out is, was this person made for this company?

Alfred Lin 45:53 Was this person made for this company and the problems of this market?

Speaker 45:56 How do you do it?

Alfred Lin 45:57 Well, just, like, by asking them questions and riffing with them, and they all come prepared with a pitch, and I try to, like, say, "Okay, beyond this pitch, what do you know about this industry? What, why, why is this industry indust- interesting to you? Okay, you started with a problem that w- you're solving for yourself. What other problems do you want to solve along the way? If that's the only problem you want to solve, that's not a lot, lot- that, that would be some runway, but that's not gonna be... That's not gonna get you to act two-

Speaker 46:24 Yeah

Alfred Lin 46:24 ... and act three and act four." And the companies that are, you know, just mega legendary companies, they have multiple acts. And that one can lead you a long, long way. It can be a decade or fif- or two decades, but most companies that, uh, are around for a long period of time and are considered legendary, they're around for a few, few decades.

Speaker 46:45 When you meet the company, have you already, like, visualized, "This is kind of what shape I think this company is, and I'm therefore trying to figure out if the founder sort of, like, fits that shape?"

Alfred Lin 46:55 No, because that, that would imply that I know something... That would be bad, because in that situation, we often talk about this as, like, for the former operators at Sequoia, you're likely to do that because you're- you see a problem, you think about a solution-

Speaker 47:08 Yeah, I know what this company will become.

Alfred Lin 47:09 I, I-

Speaker 47:09 Yeah

Alfred Lin 47:09 ... know what it should co- become, and then you're trying to force fit your vision onto the founder.

Speaker 47:14 Yeah.

Alfred Lin 47:14 And that's usually a mistake, because if the founder- if your, if it's your vision and you're force fitting that, and the c- the founder isn't aligned with that vision, that's a mistake.

Speaker 47:26 Mm-hmm.

Alfred Lin 47:27 And the other mistake is, like, oh, you know so much about this industry, it doesn't matter of the quality of the founder. It's like, well, you don't actually run this company.

Speaker 47:34 Yeah.

Alfred Lin 47:34 You actually have to let the founder run.

Speaker 47:37 Yeah.

Alfred Lin 47:37 And so m- I always approach these conversations with, as we t- kept talking about, curiosity. You have... In this business, you j- you just have to be very, very curious, and you have to ask questions five levels deep of why, five levels deep of what, five levels deep, deep of how. And w- through that process, you riff with the founder, and hopefully the vision gets more clear to you and to the founder at the same time. And look, this is a 10-year journey at the minimum, okay? I think in, in some of these situations with seed companies, because of how seed fu- seed funds are becoming larger and larger, it's at least the five-year journey, even if it doesn't work.

Speaker 48:18 Totally.

Alfred Lin 48:18 And if it works, you know, I'm still on the board of Airbnb, and that's a, that's been a- it's almost two decades now.

Speaker 48:24 Mm-hmm.

Alfred Lin 48:24 And so... And then Jensen's still doing it. It's been, like-

Speaker 48:28 30

Alfred Lin 48:28 ... 30 years.

Speaker 48:28 Yeah.

Alfred Lin 48:29 So if you want to shoot for a legendary status company, you want to find a founder and a team that want to go for it for many decades.

Speaker 48:38 Yeah.

Alfred Lin 48:39 And-... and then you yourself may be on that board for a decade or two.

Speaker 48:45 Yeah. Do you have an equivalent lens to this founder-market fit sort of idea?

Pat Grady 48:51 Well, can I zoom out and kind of give, like, an overall framework on-

Speaker 48:54 Wherever you want

Pat Grady 48:54 -picking?

Speaker 48:55 Yeah.

Pat Grady 48:55 Okay, perfect. And my, my lens fits within the framework, but there's kind of the, the, like, what, the why, and the how, okay? So what are we trying to find? We're trying to find the most important companies of tomorrow. And one way that you can think about that is the market determines how big the company can get, and the founder determines how big the company will get. And so the market and the founder are by far the most important variables. And the thing we care about on the market is not how big it is today, it's how big is it gonna be in ten or twenty years. So it's more of a why now question than a what exists today question. So the what, we're looking for the most important companies of tomorrow. Why? We're in the outlier business, you know, we gotta take risks. If we can actually get into business with the most important companies of tomorrow, that's where all the outsized returns are gonna come from. You know, we, we don't, we don't serve our mission for our limited partners if we're just getting doubles and triples all the time. Like, w- we actually have to find the most important companies of tomorrow. It's also way more fun. Like, have you ever tried company building with a company that is not working? [chuckles] Versus have you ever tried company building with a company that is working? Company building with a company that is working is the easiest thing in the world, [chuckles] right? And so it's way more fun. Um, and then the how, there's a lot that goes into the picking that we do, right? So part of it is a shared language, and Alfred mentioned earlier that we have, we have a spec. We have a spec for seed investing, venture investing, growth investing, expansion investing. The spec is just a shared language, and the shared language for growth specifically is emerging market leader, unique and compelling value prop, sustainable competitive advantage. And if you map those onto a set of financials, the emerging market leader piece basically says, "This will be the most important company in a market that is important tomorrow," which implies high revenue scale. The unique and compelling value prop piece, unique suggests that you're gonna have good gross margins because you're not having to compete on price. Compelling suggests that you're gonna have good operating margins because you don't have to spend a lot of money on sales and marketing to get people to adopt your product. And then sustainable competitive advantage says that the free cash flow produced by those nice margins on that nice revenue scale is gonna be around for a while. Those are the characteristics we're looking for in a business. Back to what I said earlier about the founder and the market being the most important thing, by the time a company reaches the growth stage, if the founder is as good as you think they are, chances are these characteristics have materialized. So the thing we care about most, even at the growth stage, is actually the founder. But the sanity check [chuckles] on is this founder as good as we think they are, is whether or not these characteristics have started to show up in the business.

Speaker 51:33 Yeah.

Pat Grady 51:34 And then in terms of mechanizing that, you know, we have a funnel, like anybody does, and we realized a long time ago that the most important decision is actually not the final decision that happens on a Monday. The most important decision is the mid-funnel decision that determines what gets to a Monday.

Speaker 51:51 Mm.

Pat Grady 51:51 By the time it gets to a Monday, we're pretty good at making the decision. Our biggest misses are the things that don't even make it till Monday.

Speaker 51:58 Is you looked, but you didn't spend real time on something that deserved it.

Pat Grady 52:01 Exactly right. And so having better hygiene around those mid-funnel decisions... You know, we used to just go back to back, meeting to meeting to meeting to meeting to meeting. Now, you can't have a meeting if you don't save time afterwards for a debrief-

Speaker 52:13 Mm

Pat Grady 52:13 ... so that we can have a concrete conversation about, what did everybody think about this meeting? What are the pros and cons? You know, what's the thesis? Where do we go from here? And similarly, back to our, you know, CRM system that we have, every single meeting you take, you put a rating in the system. You know, you're rating it on, like, quality of the opportunity, zero to ten, no fives. And so we, we just have this kind of... By the way, none of that is perfect. None of that guarantees that we're gonna make good decisions. It's just trying to get a little bit better every day, so that over time, you know, hopefully, we end up with more wins than losses.

Alfred Lin 52:46 We believe in consistent compounding.

Pat Grady 52:47 Yeah.

Alfred Lin 52:48 So just, like, doing this over and over and over again, adjust, adjust, adjust, adjust.

Pat Grady 52:53 Yeah.

Alfred Lin 52:53 Because the, the debrief thing, we didn't have probably, like, five, five years ago.

Pat Grady 52:57 Yeah.

Speaker 52:58 Yeah, it's a really good idea.

Alfred Lin 52:58 So it's an... Yeah, I mean, it makes sense.

Speaker 53:01 It does.

Alfred Lin 53:01 I mean, it was like: Wait a minute, why didn't we have this before?

Speaker 53:03 So you just run between meetings to the end of the day, you can't even remember what happened.

Pat Grady 53:06 Yeah!

Speaker 53:06 Yeah.

Alfred Lin 53:07 Yeah.

Pat Grady 53:07 Yeah.

Alfred Lin 53:07 And then if you don't write down exactly what you thought, maybe you wanna still sleep on it.

Speaker 53:12 Yeah.

Alfred Lin 53:12 But at, at that moment, what were your impressions like? We wanna be able to marry thinking fast and thinking slow.

Speaker 53:18 Mm.

Speaker 53:20 We can spend the least amount of time on this, but I'm, I'm just curious about winning. Um, let's... Like, when you want, when you want to partner with an entrepreneur, and you've decided, "We would like to do this deal," I know-

Pat Grady 53:33 Strike this long-term business partnership.

Speaker 53:35 Yeah, exactly. That's the nice way to say it. What do you, um... You know, like, what do you do? Like, I realize, like, you know, a lot of what you're trying to do is show them that you're a good partner, but like-

Pat Grady 53:44 Actually, no.

Speaker 53:45 No?

Pat Grady 53:45 So- [laughing] And we might... And again, like, everybody has their own style.

Speaker 53:50 Yeah.

Pat Grady 53:50 So Alfred and I may have different responses to this, but, uh, my basic mental model in this has always been, if you genuinely love a founder and the company that they are building, they'll be able to feel it. And so w- what I found is that if you actually do your homework to really understand this person and to really understand this company, and then you just tell them why you wanna be in business with them, like, the authenticity and the passion and the, you know, the depth of the thinking, like, all that stuff should just come out. And so-

Speaker 54:27 To ask that pointed question on that, does that work for you because this is Sequoia, or is that a good strategy in general?

Pat Grady 54:33 That worked for me when I was twenty-four years old, and nobody had any idea who I was, and honestly, half the companies I was talking with didn't know who Sequoia was.

Speaker 54:40 So what does it look like to show that much, like, love for what they're doing? 'Cause, you know, you can just say it.... but I'm sure you're not just saying it. I'm sure that it was expressed through some work you were doing on their company, or reflecting some thought you'd put into something.

Pat Grady 54:55 Well, it's kind of like when, you know, when people say that your brand is the sum of the experiences that people have with you. Y- y- you can't just, like, be lazy and sloppy throughout the process, and then pop out of a cake and tell somebody you love them.

Speaker 55:08 Yeah.

Pat Grady 55:08 Right? That's not consistent with what they've experienced of you thus far. And so every moment, as you're engaging with the founder, forms their ultimate impression of you, and if you are consistently engaged, and thoughtful, and responsive, and just kind of behaving the way that you would expect or want somebody to behave throughout that process, by the time you get to the end, having now done your homework, if, if, if you are also now saying, like, "Hey, here's why I'm really excited about this opportunity", usually that resonates pretty well. Usually, that's consistent with their experience of you so far.

Speaker 55:42 I don't know if you remember this, but, um... And this is like a, this is like a positive thing, but you, um, you passed on one of the early Lattice rounds.

Pat Grady 55:50 I know. [chuckles]

Speaker 55:51 And it was the most gracious, high-quality pass that I got in my life.

Pat Grady 55:56 Oh, thanks!

Speaker 55:56 And I got hundreds of passes, and I still remember that you called me and explained exact details of, like, what you were thinking, and what the risks were, and limitations, and whatever. And it was just, like, clear that you had thought about it more than anybody else. And I was like, "That's, like, that is, like, the gold standard pass."

Pat Grady 56:15 [laughing]

Speaker 56:16 So I, I, I guess it can't be faked-

Pat Grady 56:18 Yeah

Speaker 56:18 ... 'cause you have to do the work along the way to do that.

Pat Grady 56:20 Yeah.

Speaker 56:20 Yeah.

Pat Grady 56:21 Yeah.

Speaker 56:21 Passing, I guess, well, is really important for you all, because, like, you know, if you're, you know, if you're me, it's like if I miss the A, I've done up and like, I'm not gonna do it. You always want to be in business with a great company, and so I'm guessing on this, you know, picking thing, the way that you pass has to be, like, excellent in general.

Pat Grady 56:41 Yeah.

Speaker 56:41 Like, you need to pass in ways that keep the relationship healthy.

Alfred Lin 56:45 Yeah, I think it... The, the way we talk about it is, it's maybe not now. It's not that we're passing, we're not-- we're just not investing at this point in time. And look, I, I experienced this w- when I was on your side. Even though w- um, we made money for Sequoia at LinkExchange, uh, when we were running Zappos, um, Sequoia passed on Zappos, like, two or three times before they invested. But it was always very gracious, there was always a good reason. This was Mike Moritz doing it. And then we, we learned from previous partners on how to pass.

Speaker 57:18 Mm-hmm.

Alfred Lin 57:18 And, you know, one way is to show a lot of love, one way is to show a lot of work, and, and being diligent, and telling you why, as a founder, like, "Maybe you should work on these things. This is what we found in your diligence. And hopefully we make your company better, even when we're passing." And that shows, uh, to, to Pat's point, real love, and real love for the problem, real love for your business, and real love for you.

Speaker 57:43 Yeah.

Pat Grady 57:43 Well-

Speaker 57:43 It also shows love for your own craft-

Alfred Lin 57:45 Yeah

Speaker 57:45 ... which I think founders respect, too. Like, I always respect it when I'm like, "These people are working really hard, and they care about what they're doing," and all of that. Like, that matters a lot.

Alfred Lin 57:52 Mm-hmm. Yeah, and I, and so it's, just to add on the winning side, it really helps that we're on the Sequoia platform, but we have, like, really strong competitors. We don't take it for granted-

Speaker 58:02 Yeah

Alfred Lin 58:02 ... that we're going to win.

Speaker 58:03 Totally.

Alfred Lin 58:04 I think we, we-- if you start with that, that's a good, that's a good position to start.

Speaker 58:09 Yeah.

Alfred Lin 58:09 And we, we do it from a level of humility.

Speaker 58:12 Yeah.

Alfred Lin 58:12 The founder is gonna run the company.

Speaker 58:14 Yeah.

Alfred Lin 58:14 We're there to help. We're supposed to be the shock absorbers, we're supposed to be the, the sparring partners. We're not cheerleaders. We tell the founders that. What we wanna strive for is, at the end of the day, because we love the c- the company, we love the business, we love the founders, that we're always the first call.

Speaker 58:32 Once you've won, and now you're working with the company, um, how do you start the relationship? Like, obviously, it's like the beginning of this long thing, but, like, what do you... You know, y- you start working with a founder, you're in business with them now, like, what do you, what do you say? How do you start things?

Alfred Lin 58:46 I think different partners will do it differently, but maybe from a, uh, the same level of humility, humility that we have, which is, "We don't know anything about the business, let me, like, learn as much as I can," and we start there. And there have been times when I go to the first few board meetings, and I don't say very much. I'm just observing, I'm listening, I'm reading the materials, I'm asking follow-up questions. Um, you can't help unless you understand. And as a board member, your job is not to, like, operate, your job is... We're not management, we're board members, and we're there for you to be a sounding board. But our- the thing that we can help with is pattern recognition of things that have worked in the past and have not worked in the past, and asking the question: "Hey, I've seen this not work nine out of 10 times. Explain to me why you're gonna be the one company that is different." We don't, we don't ask it like, "Oh, 90% of the time, this is not gonna work, so don't do it." Just, we just- we try to be very, very open-minded.

Pat Grady 59:49 I think in your first year, if you, if the founder actually trusts you by the time you're a year in, you're good. Like, that, that's a good place to be. Because I think, I think it's hard to actually get somebody's trust, and, and so with that as the objective for year number one, you know, the two components of trust are competence and intention. I think the competence piece people mistake as, "Let me show them how valuable I am." That's nice, but it's actually probably better to make sure that you have all of the relevant context on the company.

Speaker 1:00:29 It's better to be like, "Let me show you how much I understand."

Pat Grady 1:00:31 And so, uh, I, I go through employee onboarding, so that I have the same experience that a new employee to the company has, and kind of understand things the way that they would understand it on their first day at the company.... usually we do one-on-ones with all the sort of key VPs or direct reports as part of diligence, but if we haven't done that as part of diligence, we do that, you know, as part of onboarding.

Speaker 1:00:52 Mm-hmm.

Pat Grady 1:00:53 Um, usually we get access to the last couple years of board decks as part of diligence. If we haven't done that as diligence, we do that as part of onboarding. If there's any sort of employee, like, culture manual or whatever, we get access to that. And so we, we try to get as much context as we can after the investment has been made, to make sure that when we go into those first handful of board meetings, we're, we're not just saying random things off the cuff. Like, to the extent we have an opinion to share, it's at least grounded in the reality of the business as it exists today. So that's, that's on the competence side. On the intention side, um, I think because every founder has the horror stories of the venture capitalists that, you know, did them wrong, you know, I think because our competitors like to say nasty things about us from time to time, like, I, I think we really have to show that our intentions are pure. And one of the ways that I describe it to founders is: "Look, I have, I have two objective functions, okay? I have the objective function that I owe to our limited partners, which is to maximize the share price of your company, because our objective function is very explicitly net multiple money returns, right? Um, but then my second objective function is my personal one, which is, like, the reason I do this, is because I really enjoy watching founders become amazing CEOs, [chuckles] right? And, like, build these world-changing companies. And so my personal objective function is to help you become the absolute best possible version of yourself." And you can't just say that and then do whatever you want. Like, you have to say that and then behave accordingly, [chuckles] right? Um, but I think starting off by saying that and just kind of explaining that to them, at least kind of lodges that, you know, idea in their head, like: "Okay, maybe this person really is here to help me get better." And then if you behave accordingly, by the end of the first year, hopefully you're in a position where the founder thinks that you have both the competence and the intention to kind of, like, be in the trenches with them, and then from there, you can actually start to make an impact. But, uh, to me, the first year is all about, like, actually become trusted by the founders.

Speaker 1:02:59 When you think about the board seats where you f- are the proudest of, that you'll, like, look back at the end of your, you know, career and say, "That's where I shined," like, what is that... W- what do those look like? You know, and like, are you, um, are you, like, part-- Are you like an extended part of the executive team? Are you a consigliere? Is it diff- differs situation to situation? Like-

Pat Grady 1:03:20 There is a-

Speaker 1:03:20 ... what are the ones you're proudest of?

Pat Grady 1:03:22 There is a, uh, a company that I was involved with that went public, and, you know, when you go public, you go to the Nasdaq or the Nyse or whatever, and, you know, they, uh, ring the bell, and they take a bunch of photos. And, um, and this is a trivial thing, but this meant a lot to me. Um, there was a photo that was board and management team. There was a photo that was management team. There was a photo that was board. There was a photo that was founders. And then there was a photo that was founders and me. [chuckles] And they didn't do it with the other board members. And I felt so special. [chuckles] You know, like, I felt like that was a... You know, like they were treating me as an extension of the founding team, which I wasn't. I was just an investor.

Speaker 1:04:07 No, it's a great sign of respect.

Pat Grady 1:04:07 But it, like, meant the world to me.

Speaker 1:04:09 Yeah.

Pat Grady 1:04:09 So.

Alfred Lin 1:04:11 It's always the, it's always the founding- the founders and how much you engage with them that sort of matters. And it's not a... You know, for me, it's a-- it's never-- it's about helping them get it right, and helping them reach their full potential, and helping their companies reach their full potential. And in those situations, I'm pretty proud that we g- got to the right sort of outcome and conclusion. I think that a lot of boards that, you know, you've been involved with a lot of boards, where there are people who w- always have to be right. They have to be the-- they have to prove how smart they are. Those don't tend to be the great board meetings-

Speaker 1:04:47 Yeah

Alfred Lin 1:04:47 ... or the board discussions.

Speaker 1:04:48 No. No, those are particularly tough when that board member is, like, you know, a real accomplished personality, and, like, everybody... You know, I, I think those can be very difficult. Uh, you know, sometimes those are situations are, um... There's a lot of value, you know, obviously, from those people. It's just, it's, it's, um, it changes things.

Pat Grady 1:05:06 Yeah.

Alfred Lin 1:05:06 But I think that being right, you cannot-- I- in business, things change so much, and in technology, they change even faster. So you, you know, your paradigm of what makes you right can change, and if you're not curious, if you don't update your priors, that previous notion could be wrong.

Speaker 1:05:23 Mm.

Alfred Lin 1:05:24 And it- we've seen that time and time again. Like, for most of our careers, software is the way to make a lot of money. And, it was on-prem software, it was, um, it was SaaS software, and then something changed. Like, hardware became this interesting place to invest. Defense tech became an interesting w- place to, to invest.

Speaker 1:05:45 Mm.

Alfred Lin 1:05:45 There's just gonna be more and more things in the world, and the world is gonna expand, and you have to be open to new ideas. And whatever worked for a software company may not work for a hardware company, and vice versa. So if you've been a successful, like, chip company going into a software company, you do have to sort of check some of your paradigms and just be cautious that maybe those things may not work the same way in a software company, and vice versa, from a software company to, to a hardware company.

Speaker 1:06:12 All right, my last question. You guys are going into first holidays. You know, I'm sure you're gonna have some downtime. You're gonna think about twenty twenty-six. What are you... What, what are you thinking about? Like, what's up-- what are your bullets on your little note to yourself of, like, this is, this is what we gotta, you know, do in twenty twenty-six in our new, new roles?

Alfred Lin 1:06:29 [chuckles] Well, you know, we're gonna have an off-site in January twenty twenty-six, and we'll put those down then.

Speaker 1:06:37 Yeah.

Alfred Lin 1:06:38 ... But it's not, you know, we've delegated that to Luciana and Andrew are-

Speaker 1:06:43 Yeah. [clears throat]

Alfred Lin 1:06:43 And they're gonna run that offsite.

Speaker 1:06:44 Yeah.

Alfred Lin 1:06:44 So that's gonna be fun for them to run that.

Speaker 1:06:46 That's-

Pat Grady 1:06:46 Yeah. That's our new role is-- our new roles are ninety-five percent our old roles. Like, first and foremost, our job is to help the daring build legendary companies from idea to IPO and beyond. You know, in twenty twenty-five, Alfred and I spent the vast majority of our time investing, working with founders. In twenty twenty-six, Alfred and I are gonna spend the vast majority of our time investing, working with founders. And so I, I think part of the reason this is a good time for generational transition is because our business is in really good shape. The teams are in really good shape, the funds are in really good shape, the strategy is in really good shape, the operating teams, sort of the platform that we have, is in really good shape. And I think twenty twenty-six, like, the punchline is, it's gonna be more of the same. Like, our, our partners are doing an amazing job winning in the market with the very best founders and becoming great business partners to them, and we wanna do more of the same.

Alfred Lin 1:07:38 It's business as usual.

Speaker 1:07:39 See, it's funny, 'cause I would just be... And this is why I would be terrible at your job. [laughing] I would be so tempted to be like, "You know, what's next? Like, what, what do we add? What's the new thing?" And it seems like, um, there's a commitment to just improve this, you know, and perfect the core of what you have.

Pat Grady 1:07:59 Well, and like Alfred mentioned it earlier, you know, we try to get a little bit better across multiple dimensions every single day. We will always try to get a little bit better across multiple dimensions every single day. From time to time, we'll take a big swing, and a big swing could be adding something big to our business. A big swing could be removing something big from our business, right? Um, and so we're, we're always hypothesis testing, and evaluating, and experimenting, and, and trying to figure out how to get better. But as we sit here today, the business is in great shape, and we're in the, I don't know, third inning of the tectonic shift that's gonna define our lifetimes. And so-

Speaker 1:08:35 Yeah

Pat Grady 1:08:35 ... we don't see a lot of need for big structural changes. We just need to go execute.

Alfred Lin 1:08:39 You know, just building on that, I mean, one of the things that investors share in this business, in the venture business, is that we have a novelty gene. We like, we like the n- the next new thing, but what you have to build is something that is stable over time.

Speaker 1:08:55 Mm-hmm.

Alfred Lin 1:08:55 Like, so the things that we're building on are things that we've, like, built on again and again, year in and year out, improving those things. And so, yeah, every now and then, we'll take a big swing, but the core business is a good business, and so-

Speaker 1:09:08 It is a good business

Alfred Lin 1:09:09 ... why not keep that core business, and to your point, like, perfecting that craft-

Speaker 1:09:14 Yeah

Alfred Lin 1:09:14 ... getting better every single day, and just build that core business.

Pat Grady 1:09:17 And the stability at the partnership level is what allows for volatility at the partner level.

Speaker 1:09:21 Yes.

Pat Grady 1:09:22 So when we talk about all these crazy outliers that we get to be in business with-

Speaker 1:09:25 The high-trust, small partnership lets people do high, you know, volatility decisions.

Pat Grady 1:09:29 Exactly.

Speaker 1:09:30 Yeah.

Pat Grady 1:09:30 Exactly.

Speaker 1:09:31 Yeah. All right, guys, this was amazingly fun. Thanks for doing it.

Alfred Lin 1:09:34 Thank you.

Pat Grady 1:09:35 Thank you, Jack.

Speaker 1:09:35 Thank you, Jack. [upbeat music]