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

1. 0:00 – 1:01

   Intro

   1. PGPat Grady0:00

      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.

   2. SPSpeaker0:12

      It's just not a factor.

   3. PGPat Grady0:14

      Presence of conviction is what matters.

   4. SPSpeaker0:16

      Huh.

   5. PGPat Grady0:17

      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-

   6. SPSpeaker0:29

      Strong yes, strong no is much better.

   7. PGPat Grady0:31

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

   8. SPSpeaker0:38

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

   9. PGPat Grady0:44

      And this, this is our-

   10. ALAlfred Lin0:45

       This is our first- [chuckles]

   11. PGPat Grady0:46

       ... showing together, so.

   12. SPSpeaker0:48

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

   13. ALAlfred Lin0:50

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

   14. SPSpeaker0:53

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

   15. PGPat Grady0:56

       Love it.

   16. SPSpeaker0:57

       And that'll be fine. Um-

   17. PGPat Grady0:58

       Five minutes might be generous.

   18. SPSpeaker0:59

       No, that's all right. We'll take what we can get.

   19. ALAlfred Lin1:00

       [chuckles]

2. 1:01 – 4:30

   Initial mindset as stewards

   1. SPSpeaker1:01

      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?

   2. ALAlfred Lin1:15

      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.

   3. SPSpeaker1:37

      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?"

   4. PGPat Grady1:46

      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-

   5. ALAlfred Lin1:56

      [chuckles]

   6. PGPat Grady1:56

      ... sought necessarily, but it's, it's an honor to get to continue the-

   7. SPSpeaker2:00

      Yeah, of course

   8. PGPat Grady2:01

      ... 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.

   9. SPSpeaker2:45

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

   10. PGPat Grady2:51

       So good

   11. SPSpeaker2:52

       ... things that have to be-

   12. PGPat Grady2:53

       [chuckles]

   13. SPSpeaker2:53

       Like, could it get better than... Could it get more dominant than it's been?

   14. PGPat Grady2:56

       Well-

   15. SPSpeaker2:56

       Or is the goal just to, like, stay where you are?

   16. PGPat Grady2:58

       So, so actually, um, I'm obviously biased-

   17. SPSpeaker3:01

       [chuckles]

   18. PGPat Grady3:01

       ... but I think that if you took-

   19. SPSpeaker3:03

       You?

   20. PGPat Grady3:03

       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] -

   21. SPSpeaker3:16

       Dang!

   22. PGPat Grady3:17

       I, I know, I know that's a really obnoxious comment to make.

   23. SPSpeaker3:19

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

   24. PGPat Grady3:20

       But I, I think we truly have, like, an unbelievably-

   25. SPSpeaker3:23

       You do

   26. PGPat Grady3:23

       ... talented set of partners.

   27. SPSpeaker3:25

       You do.

   28. PGPat Grady3:25

       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-

   29. SPSpeaker3:32

       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-

   30. PGPat Grady3:42

       And our, our basic job is to get out of their way.
3. 4:30 – 6:27

   The business of outliers

   1. SPSpeaker4:30

      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.

   2. PGPat Grady4:43

      Perfect.

   3. SPSpeaker4:43

      Right?

   4. PGPat Grady4:43

      Let's talk about that.

   5. SPSpeaker4:44

      Yeah. [chuckles]

   6. PGPat Grady4:44

      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.

   7. SPSpeaker5:16

      When you say an operating business-

   8. PGPat Grady5:17

      Mm

   9. SPSpeaker5:17

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

   10. PGPat Grady5:20

       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-

   11. SPSpeaker5:54

       Yep

   12. PGPat Grady5:55

       ... 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?

   13. SPSpeaker6:02

       Right.

   14. PGPat Grady6:02

       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

4. 6:27 – 12:11

   Managing the inputs in venture

   1. PGPat Grady6:27

      do.

   2. SPSpeaker6:27

      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?

   3. ALAlfred Lin6:50

      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.

   4. SPSpeaker7:23

      Mm.

   5. ALAlfred Lin7:23

      Those are gonna be very different inputs.

   6. SPSpeaker7:25

      Totally.

   7. ALAlfred Lin7:25

      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.

   8. SPSpeaker7:50

      Yeah.

   9. ALAlfred Lin7:51

      But not for Jim. And if, if Jim's like, calendar is full and full of meetings-

   10. SPSpeaker7:56

       Yeah, this is bad, we gotta get him out.

   11. ALAlfred Lin7:57

       That's probably a bad day for him.

   12. SPSpeaker7:59

       Mm-hmm.

   13. ALAlfred Lin7:59

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

   14. PGPat Grady8:04

       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?

   15. SPSpeaker8:17

       Yeah, yeah.

   16. PGPat Grady8:17

       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-

   17. SPSpeaker9:23

       Yeah

   18. PGPat Grady9:23

       ... 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.

   19. SPSpeaker9:38

       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?

   20. PGPat Grady10:02

       Yeah.

   21. ALAlfred Lin10:03

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

   22. SPSpeaker10:09

       Totally

   23. ALAlfred Lin10:09

       ... into the future. So you have outputs that look like they're outputs-

   24. SPSpeaker10:15

       Mm-hmm

   25. ALAlfred Lin10:15

       ... but those can be mirages, too. Like, markups can be mirages.

   26. SPSpeaker10:19

       Yeah.

   27. ALAlfred Lin10:20

       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?

   28. SPSpeaker10:40

       Yeah.

   29. ALAlfred Lin10:40

       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-

   30. PGPat Grady10:48

       Well, and for the... Sorry.
5. 12:11 – 17:57

   Sourcing coverage goals

   1. SPSpeaker12:11

      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-

   2. PGPat Grady12:24

      We had this conversation yesterday. [chuckles]

   3. SPSpeaker12:25

      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?

   4. ALAlfred Lin12:39

      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-

   5. SPSpeaker13:04

      Yeah

   6. ALAlfred Lin13:04

      ... a bunch of-

   7. SPSpeaker13:04

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

   8. PGPat Grady13:07

      Yes, exactly.

   9. ALAlfred Lin13:07

      You passed on the whole world.

   10. PGPat Grady13:08

       Exactly.

   11. ALAlfred Lin13:08

       So that's not really input. That's not a good input.

   12. SPSpeaker13:11

       Yep.

   13. ALAlfred Lin13:12

       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.

   14. SPSpeaker13:23

       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-

   15. PGPat Grady13:32

       So we-

   16. SPSpeaker13:32

       ... in real time?

   17. PGPat Grady13:33

       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.

   18. SPSpeaker13:57

       Yeah.

   19. PGPat Grady13:58

       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.

   20. SPSpeaker14:06

       Yep.

   21. PGPat Grady14:06

       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-

   22. SPSpeaker14:27

       Mm

   23. PGPat Grady14:28

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

   24. ALAlfred Lin14:33

       And then the sort of, the sort of process by which we do that is, is rolling.

   25. PGPat Grady14:39

       Yeah.

   26. ALAlfred Lin14:39

       Like, we get more information-

   27. PGPat Grady14:40

       Totally

   28. ALAlfred Lin14:40

       ... it's like updating your priors.

   29. PGPat Grady14:42

       Yeah.

   30. ALAlfred Lin14:42

       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.
6. 17:57 – 22:36

   Seeing the right companies

   1. SPSpeaker17:57

      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.

   2. PGPat Grady18:31

      Yeah.

   3. SPSpeaker18:31

      It's all knowable. Seed, it's not like that.

   4. ALAlfred Lin18:34

      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.

   5. SPSpeaker18:46

      Yeah.

   6. ALAlfred Lin18:47

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

   7. SPSpeaker18:55

      Yeah

   8. ALAlfred Lin18:55

      ... 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.

   9. SPSpeaker19:16

      Mm.

   10. ALAlfred Lin19:16

       So to Pat's point about, like, calling your friend, and you saw-

   11. SPSpeaker19:19

       Yeah

   12. ALAlfred Lin19:19

       ... 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.

   13. SPSpeaker19:28

       Yeah.

   14. ALAlfred Lin19:28

       That doesn't actually get to the point of finding-

   15. SPSpeaker19:31

       A substantive engagement.

   16. ALAlfred Lin19:32

       And substantive engagement.

   17. SPSpeaker19:33

       Yeah.

   18. ALAlfred Lin19:33

       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.

   19. SPSpeaker19:41

       Yeah.

   20. ALAlfred Lin19:41

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

   21. SPSpeaker19:45

       Yeah.

   22. ALAlfred Lin19:46

       And so you can-- the decision quality there is actually fairly important.

   23. SPSpeaker19:49

       Mm.

   24. ALAlfred Lin19:50

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

   25. SPSpeaker19:55

       Yeah.

   26. ALAlfred Lin19:56

       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?

   27. SPSpeaker20:03

       Yeah.

   28. ALAlfred Lin20:04

       And so those inputs are actually very, very measurable for quality.

   29. SPSpeaker20:08

       Mm.

   30. ALAlfred Lin20:09

       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.
7. 22:36 – 24:39

   Proprietary map of talent

   1. PGPat Grady22:36

      of these companies.

   2. SPSpeaker22:36

      You wanna tell us about the proprietary data sources that you have going?

   3. PGPat Grady22:39

      I'll, I'll give you an example.

   4. SPSpeaker22:40

      Yeah.

   5. PGPat Grady22:40

      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."

   6. SPSpeaker22:50

      Happens all the time-

   7. PGPat Grady22:51

      Right?

   8. SPSpeaker22:51

      ... honestly. [laughing] Yeah.

   9. PGPat Grady22:52

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

   10. SPSpeaker22:56

       You owe me

   11. PGPat Grady22:57

       ... any chance you could tell me, like, who your five smartest and most respected-

   12. SPSpeaker23:01

       Okay

   13. PGPat Grady23:01

       ... VP of engineering folks are?

   14. SPSpeaker23:02

       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.

   15. PGPat Grady23:08

       But imagine if you did that. [chuckles]

   16. SPSpeaker23:09

       Yeah.

   17. PGPat Grady23:09

       And imagine if you started doing that more than ten years ago.

   18. SPSpeaker23:12

       Yeah.

   19. PGPat Grady23:12

       And imagine if you tracked all the responses for more than a decade.

   20. SPSpeaker23:15

       Yeah.

   21. PGPat Grady23:15

       And imagine if that all lived inside of a CRM system-

   22. SPSpeaker23:18

       Yeah

   23. PGPat Grady23:19

       ... that has a talent map of Silicon Valley.

   24. SPSpeaker23:21

       Yeah.

   25. PGPat Grady23:22

       Not just the founders who are about to pop out of a lab-

   26. SPSpeaker23:24

       Yeah

   27. PGPat Grady23:25

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

   28. SPSpeaker23:29

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

   29. PGPat Grady23:32

       It's PageRank for people.

   30. SPSpeaker23:33

       Yeah.
8. 24:39 – 29:06

   The impact of great engineers

   1. SPSpeaker24:39

      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?

   2. ALAlfred Lin25:00

      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.

   3. SPSpeaker25:10

      Mm-hmm.

   4. ALAlfred Lin25:10

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

   5. SPSpeaker25:16

      Yeah

   6. ALAlfred Lin25:17

      ... 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.

   7. SPSpeaker25:36

      Mm.

   8. ALAlfred Lin25:36

      And eventually, you have to recruit the next generation of people, the next generation of leaders.

   9. SPSpeaker25:39

      Yeah.

   10. ALAlfred Lin25:40

       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.

   11. PGPat Grady25:47

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

   12. SPSpeaker25:52

       Yep.

   13. PGPat Grady25:52

       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-

   14. SPSpeaker26:02

       Still?

   15. PGPat Grady26:03

       ... was written by one person.

   16. SPSpeaker26:04

       Wow!

   17. PGPat Grady26:04

       Fred Luddy.

   18. ALAlfred Lin26:05

       [chuckles]

   19. SPSpeaker26:05

       Wow.

   20. PGPat Grady26:06

       So did they have a great engineering team? No. [chuckles]

   21. ALAlfred Lin26:08

       They had one great engineer.

   22. PGPat Grady26:10

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

   23. SPSpeaker26:13

       Wow.

   24. PGPat Grady26:13

       Okay? So that's one example.

   25. SPSpeaker26:15

       That's crazy.

   26. PGPat Grady26:16

       Um-

   27. SPSpeaker26:16

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

   28. PGPat Grady26:18

       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.

   29. SPSpeaker26:28

       Yeah.

   30. PGPat Grady26:28

       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-
9. 29:06 – 36:26

   Picking winners with conviction

   1. ALAlfred Lin29:06

      Mm.

   2. SPSpeaker29:07

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

   3. ALAlfred Lin29:12

      [chuckles]

   4. SPSpeaker29:13

      ... 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-

   5. ALAlfred Lin29:43

      [chuckles]

   6. SPSpeaker29:43

      ... this market's big.

   7. PGPat Grady29:45

      Vibes don't hurt.

   8. SPSpeaker29:46

      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?

   9. ALAlfred Lin30:10

      [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?

   10. SPSpeaker30:18

       That's not that important, is it? [chuckles]

   11. ALAlfred Lin30:20

       No, but that- that's what we're aiming for.

   12. SPSpeaker30:21

       Yeah.

   13. ALAlfred Lin30:22

       So in a fund, we, you know, a, a venture fund.

   14. SPSpeaker30:25

       Yeah.

   15. ALAlfred Lin30:26

       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.

   16. SPSpeaker30:39

       Yeah.

   17. ALAlfred Lin30:40

       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.

   18. SPSpeaker30:49

       Yeah.

   19. ALAlfred Lin30:50

       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.

   20. SPSpeaker31:19

       That's crazy.

   21. ALAlfred Lin31:21

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

   22. SPSpeaker31:30

       [clears throat]

   23. ALAlfred Lin31:30

       ... you have to be, e- half right.

   24. SPSpeaker31:33

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

   25. PGPat Grady31:39

       Yeah, take risk

   26. SPSpeaker31:39

       ... a high enough inclusion rate of asymmetry.

   27. ALAlfred Lin31:42

       So-

   28. SPSpeaker31:42

       Yeah

   29. ALAlfred Lin31:42

       ... 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.

   30. SPSpeaker31:49

       Yes.
10. 36:26 – 43:16

    Coaching asymmetry into picking

    1. SPSpeaker36:26

       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-

    2. PGPat Grady36:47

       This is-

    3. SPSpeaker36:47

       ... I'm gonna help you be a better picker. [chuckles]

    4. PGPat Grady36:48

       Yeah, this is not hypothetical. [laughing]

    5. SPSpeaker36:49

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

    6. PGPat Grady36:53

       There are at least three different names in my mind right now.

    7. SPSpeaker36:55

       I know. [laughing]

    8. PGPat Grady36:55

       This is not hypothetical at all. So, um-

    9. SPSpeaker36:57

       Now I say X to you. Yeah.

    10. PGPat Grady36:59

        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."

    11. SPSpeaker37:35

        Yep.

    12. PGPat Grady37:36

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

    13. SPSpeaker37:41

        Yep

    14. PGPat Grady37:41

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

    15. SPSpeaker37:49

        You should still-

    16. PGPat Grady37:49

        ... you should do something that's a little bit different than what we do."

    17. SPSpeaker37:51

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

    18. PGPat Grady37:57

        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-

    19. SPSpeaker38:16

        Yeah

    20. PGPat Grady38:16

        ... we're going to invest in that company. Let's go invest in that company now."

    21. SPSpeaker38:20

        Hm.

    22. PGPat Grady38:21

        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.

    23. SPSpeaker38:36

        Mm-hmm.

    24. PGPat Grady38:37

        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-

    25. SPSpeaker38:45

        And you show, you basically teach by showing.

    26. PGPat Grady38:48

        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.

    27. SPSpeaker38:59

        Yeah.

    28. PGPat Grady39:00

        'Cause once you've done it a few times, you actually get comfortable with taking the risk.

    29. SPSpeaker39:03

        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?

    30. PGPat Grady39:14

        That's, that's-
11. 43:16 – 46:45

    Mentoring younger investors

    1. SPSpeaker43:16

       How do you guys, as senior partners, stewards, whatever, but like, you know-

    2. PGPat Grady43:20

       Partners.

    3. SPSpeaker43:20

       Partners.

    4. PGPat Grady43:20

       Partners.

    5. SPSpeaker43:21

       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?

    6. PGPat Grady43:34

       Love it. [chuckles]

    7. SPSpeaker43:35

       You're like, "Let them... Let them-

    8. PGPat Grady43:36

       Be, be-

    9. SPSpeaker43:37

       -learn, learn the lesson, and maybe they'll-"

    10. PGPat Grady43:38

        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?"

    11. SPSpeaker43:54

        Yeah.

    12. PGPat Grady43:55

        But if you genuinely come from a place of curiosity, this is what makes us all better.

    13. SPSpeaker43:59

        Mm.

    14. PGPat Grady43:59

        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.

    15. SPSpeaker44:13

        Mm.

    16. PGPat Grady44:14

        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-

    17. SPSpeaker44:32

        [chuckles]

    18. PGPat Grady44:32

        ... "Hey, maybe we don't want to do that anymore."

    19. SPSpeaker44:33

        Yeah.

    20. PGPat Grady44:33

        Right? But we're gonna start with curiosity.

    21. SPSpeaker44:35

        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?

    22. ALAlfred Lin44:52

        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?"

    23. SPSpeaker45:27

        Mm.

    24. ALAlfred Lin45:28

        And so I'd encourage everybody, just like that-

    25. SPSpeaker45:30

        Founder market fit is sort of your lens on things?

    26. ALAlfred Lin45:32

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

    27. SPSpeaker45:38

        Mm.

    28. ALAlfred Lin45:38

        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-

    29. SPSpeaker45:48

        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?

    30. ALAlfred Lin45:53

        Was this person made for this company and the problems of this market?
12. 46:45 – 53:20

    Frameworks on picking

    1. SPSpeaker46:45

       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?"

    2. ALAlfred Lin46:55

       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-

    3. SPSpeaker47:08

       Yeah, I know what this company will become.

    4. ALAlfred Lin47:09

       I, I-

    5. SPSpeaker47:09

       Yeah

    6. ALAlfred Lin47:09

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

    7. SPSpeaker47:14

       Yeah.

    8. ALAlfred Lin47:14

       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.

    9. SPSpeaker47:26

       Mm-hmm.

    10. ALAlfred Lin47:27

        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.

    11. SPSpeaker47:34

        Yeah.

    12. ALAlfred Lin47:34

        You actually have to let the founder run.

    13. SPSpeaker47:37

        Yeah.

    14. ALAlfred Lin47:37

        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.

    15. SPSpeaker48:18

        Totally.

    16. ALAlfred Lin48:18

        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.

    17. SPSpeaker48:24

        Mm-hmm.

    18. ALAlfred Lin48:24

        And so... And then Jensen's still doing it. It's been, like-

    19. SPSpeaker48:28

        30

    20. ALAlfred Lin48:28

        ... 30 years.

    21. SPSpeaker48:28

        Yeah.

    22. ALAlfred Lin48:29

        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.

    23. SPSpeaker48:38

        Yeah.

    24. ALAlfred Lin48:39

        And-... and then you yourself may be on that board for a decade or two.

    25. SPSpeaker48:45

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

    26. PGPat Grady48:51

        Well, can I zoom out and kind of give, like, an overall framework on-

    27. SPSpeaker48:54

        Wherever you want

    28. PGPat Grady48:54

        -picking?

    29. SPSpeaker48:55

        Yeah.

    30. PGPat Grady48:55

        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.
13. 53:20 – 58:32

    What it takes to win

    1. SPSpeaker53:20

       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-

    2. PGPat Grady53:33

       Strike this long-term business partnership.

    3. SPSpeaker53:35

       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-

    4. PGPat Grady53:44

       Actually, no.

    5. SPSpeaker53:45

       No?

    6. PGPat Grady53:45

       So- [laughing] And we might... And again, like, everybody has their own style.

    7. SPSpeaker53:50

       Yeah.

    8. PGPat Grady53:50

       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-

    9. SPSpeaker54:27

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

    10. PGPat Grady54:33

        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.

    11. SPSpeaker54:40

        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.

    12. PGPat Grady54:55

        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.

    13. SPSpeaker55:08

        Yeah.

    14. PGPat Grady55:08

        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.

    15. SPSpeaker55:42

        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.

    16. PGPat Grady55:50

        I know. [chuckles]

    17. SPSpeaker55:51

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

    18. PGPat Grady55:56

        Oh, thanks!

    19. SPSpeaker55:56

        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."

    20. PGPat Grady56:15

        [laughing]

    21. SPSpeaker56:16

        So I, I, I guess it can't be faked-

    22. PGPat Grady56:18

        Yeah

    23. SPSpeaker56:18

        ... 'cause you have to do the work along the way to do that.

    24. PGPat Grady56:20

        Yeah.

    25. SPSpeaker56:20

        Yeah.

    26. PGPat Grady56:21

        Yeah.

    27. SPSpeaker56:21

        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.

    28. PGPat Grady56:41

        Yeah.

    29. SPSpeaker56:41

        Like, you need to pass in ways that keep the relationship healthy.

    30. ALAlfred Lin56:45

        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.
14. 58:32 – 1:02:59

    How to onboard with a founder

    1. SPSpeaker58:32

       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?

    2. ALAlfred Lin58:46

       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.

    3. PGPat Grady59:49

       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.

    4. SPSpeaker1:00:29

       It's better to be like, "Let me show you how much I understand."

    5. PGPat Grady1:00:31

       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.

    6. SPSpeaker1:00:52

       Mm-hmm.

    7. PGPat Grady1:00:53

       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.

15. 1:02:59 – 1:06:12

    Proudest board seats

    1. SPSpeaker1:02:59

       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-

    2. PGPat Grady1:03:20

       There is a-

    3. SPSpeaker1:03:20

       ... what are the ones you're proudest of?

    4. PGPat Grady1:03:22

       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.

    5. SPSpeaker1:04:07

       No, it's a great sign of respect.

    6. PGPat Grady1:04:07

       But it, like, meant the world to me.

    7. SPSpeaker1:04:09

       Yeah.

    8. PGPat Grady1:04:09

       So.

    9. ALAlfred Lin1:04:11

       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-

    10. SPSpeaker1:04:47

        Yeah

    11. ALAlfred Lin1:04:47

        ... or the board discussions.

    12. SPSpeaker1:04:48

        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.

    13. PGPat Grady1:05:06

        Yeah.

    14. ALAlfred Lin1:05:06

        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.

    15. SPSpeaker1:05:23

        Mm.

    16. ALAlfred Lin1:05:24

        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.

    17. SPSpeaker1:05:45

        Mm.

    18. ALAlfred Lin1:05:45

        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.

16. 1:06:12 – 1:09:38

    2026 in the new roles

    1. SPSpeaker1:06:12

       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?

    2. ALAlfred Lin1:06:29

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

    3. SPSpeaker1:06:37

       Yeah.

    4. ALAlfred Lin1:06:38

       ... But it's not, you know, we've delegated that to Luciana and Andrew are-

    5. SPSpeaker1:06:43

       Yeah. [clears throat]

    6. ALAlfred Lin1:06:43

       And they're gonna run that offsite.

    7. SPSpeaker1:06:44

       Yeah.

    8. ALAlfred Lin1:06:44

       So that's gonna be fun for them to run that.

    9. SPSpeaker1:06:46

       That's-

    10. PGPat Grady1:06:46

        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.

    11. ALAlfred Lin1:07:38

        It's business as usual.

    12. SPSpeaker1:07:39

        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.

    13. PGPat Grady1:07:59

        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-

    14. SPSpeaker1:08:35

        Yeah

    15. PGPat Grady1:08:35

        ... we don't see a lot of need for big structural changes. We just need to go execute.

    16. ALAlfred Lin1:08:39

        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.

    17. SPSpeaker1:08:55

        Mm-hmm.

    18. ALAlfred Lin1:08:55

        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-

    19. SPSpeaker1:09:08

        It is a good business

    20. ALAlfred Lin1:09:09

        ... why not keep that core business, and to your point, like, perfecting that craft-

    21. SPSpeaker1:09:14

        Yeah

    22. ALAlfred Lin1:09:14

        ... getting better every single day, and just build that core business.

    23. PGPat Grady1:09:17

        And the stability at the partnership level is what allows for volatility at the partner level.

    24. SPSpeaker1:09:21

        Yes.

    25. PGPat Grady1:09:22

        So when we talk about all these crazy outliers that we get to be in business with-

    26. SPSpeaker1:09:25

        The high-trust, small partnership lets people do high, you know, volatility decisions.

    27. PGPat Grady1:09:29

        Exactly.

    28. SPSpeaker1:09:30

        Yeah.

    29. PGPat Grady1:09:30

        Exactly.

    30. SPSpeaker1:09:31

        Yeah. All right, guys, this was amazingly fun. Thanks for doing it.

Episode duration: 1:09:38