At the time, they're making vacuum tubes and selling them as computing components mostly to the defense department. A lot of that is because of what Facebook had done funneling all their existing advertisers there. It's amazing how much the industry is still the same. Oops! It feels like the purpose of a corporation is to maximize shareholder value and I’ve just have taken that at face value. If you had just put money into the NASDAQ to try and do some technology investing from 1975 onwards. David: No. David: It's right at this moment in time that a—quite a maverick as one might say—individual, comes on the scene and basically single-handedly, writes the playbook of what modern venture capital and alongside it, what a modern startup would look like and that man's name is Don Valentine. So much easier said than done. I'm asking this as a technology historian. The main office of this VC is situated in Menlo Park. Ben: Awesome, we don’t yet, but we’re super supportive of that. It’s interesting. Ben: Yup. People are having to go back to the east coast to Fairchild to finance their companies. David: Yeah. Capital Group, they had been seeing what was starting to happen up in the new proto Silicon Valley. Pierre absolutely fits that to a T. Then, in the late 80s, two very important people joins Sequoia from interesting backgrounds. All right, should we move on to value creation and value capture? The amount of investment made or the size of the stake acquired by Sequoia Capital China has not been revealed, though AMI is expected to register a consolidated turnover of more than €50m … You can help them with more people that are highly qualified. Click that and you’ll get an invitation to set up and join the slack. David: Quite prescient. So this is 1972, Don leaves. Visit SVB.com/next to learn more. David: Yeah, I mean it's kind of amazing that Don’s history from Yonkers New York, everything basically—it's like the Steve Jobs quote of like, “You can't connect the dots looking forward,” but looking back everything done prepares you for what you're doing now. They don’t understand. Of course, they do. It feels like chip companies are not unique in this characteristic of both modern giants coming from the same source. At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. They're doing a couple of million dollars in sales, but still really small. I would save a lot of this for part two of our Sequoia journey here too, but that's what Mike was so great at as a journalist. NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Ben: Yeah. but they can not fix the market. David: And I'm David Rosenthal and I am a general partner at Wave Capital, an early stage venture fund focused on marketplaces based in San Francisco. That ethos ends up informing everything he does and everything [...] capitalist will see. You want to exploit markets early, because if you’re trying to create a market that doesn't exist yet, you’re going to spend so much money in marketing dollars trying to educate the market. Sure. That’s a good idea. Listeners, the way to think about part one and part two of the Sequoia story, part one that we're going to focus on here, this is really Don’s story. Do I like to do that with terrific people? One of the big winners of this week’s IPO market is Sequoia Capital, which is known for investing in technology companies like Cisco Systems, ... Sequoia followed a similar strategy … I love this place.”. Then we are at the mercy of that.” It's this interesting if we actually drift in this direction that they brought up, it's much more a return to sort of the business as a pillar of the community from the early 1900s. Well, I saw a couple conflicting sources, but I believe it was somewhere between $3 million-$5 million quite, quite small. David: Start a VC newsletter. Inflation adjusted, that's in the $500,000-$1 billion range and the way to think about how much they raised. He said, “I had a sense that my system of selection would work far more than it wouldn't, but I didn't have the resources personally to play Texas Hold'em and put up more chips. Literally had not finished elementary school, but in good Catholic fashion, they do value education and especially Catholic and religious education. As you might guess from how Fairchild was financed, the “venture capital industry” or the proto-venture capital industry that existed in California at this time was pretty much nothing like we know it today. The very next year, the company ends up getting acquired by Warner communication for $28 million and Sequoia makes a quick 4X return which is great IRR, but does fall short of the 20X that Don is hoping to underwrite to. Sequoia Capital 's most notable exits include Reddit, Zoom, and Apple. At the time there were no routers, local networking was just becoming a thing but networking networks was impossible, so Sandy and Len developed the first router. I'm never going back to the east coast. I think probably also inspired by this lesson. I think it's well done very differently. For two, none of them actually came from technology, or a startup, or company background. This was a radical thing to do at the time. Alongside all these investments that they’re making, the funds steadily grow in size from that first fund of $3 million-$5 million. “Stability and returns is how Sequoia is positioned.” For the type of LPs that they're trying to attract which are patient, very, very long-term capital, you actually need both of these things. He stays as an active investing partner at Sequoia for almost 30 years. Technology refers to automation and machine learning. How big was that fund? Sure. Ben: And to just beat this metaphor to death, Genghis Khan also has weaknesses, and therefore must have a team that surrounds and compliments. It's interesting to think about what makes the cut. Postal Address. It’s so interesting. What's interesting is Sequoia ended up investing right before that deal happened. He first gets a job at Sylvania Electric, which was actually based in Pennsylvania. Ben: Right, it's this ecosystem mindset. These folks are targeting across their investments a 10% IRR, which is great and better than the average market returns, but it's nothing like what Don thinks he can generate, and what the venture capital industry promises. It's not like a governing body of any sort, but it's up 200 of the Fortune 1000 CEOs that get together and make proclamations. Charlie is obviously brilliant and this move of outsourcing production of chips is revolutionary to the industry. David: Yeah, it’s a relatively recent phenomenon. Don has this great quote. It was going and convincing them, “Hey, there's not really a historical data on this, but you should take a flyer, not only on me, but on this entire concept.”. How effective were they at actually capturing that value that they created? It’s never too early to come talk with us! That individual is Alfred Lin, of course, friend of the show and former guest. Thinking back to our conversation with Trip and what attracted Trip and EA to Don was this knowledge that you were getting what you saw with Don and he was going to force you to build a big company one way or the other. Tiny yet mighty! You can learn more about SVB here: In order to count for our list, acquisitions must be at least a majority stake in the target company (otherwise it’s just an investment). That’s a solid Softbank size around today. Love it. This list is updated on a periodic basis. Ben: Wow. David: A few mistakes. David: This is really critical. Venture capital falls under the broad asset class today of alternative investments, which always seems a little funny given how much—especially today with all late-stage money coming into startups—how much money is invested there. Sequoia manages multiple investment funds including funds specific to India & Southeast Asia, Israel, and China. Taking that out of the returns, I still believe you’re performing much, much better than that and there’s a great quote, there was a Forbes profile that they did on Sequoia in 2014 and there’s a great quote in there from the CIO at Notre Dame which is a great LP. When it comes to G.O.A.T. It's just so great, so 1957 in all the best ways. Ben: Think about the tenacity. The Salomon Brothers, folks, probably looked at this more like gambling. Okay, my carveout is as listeners may know, for some reason that even I don't understand, I use Amazon music instead of Apple music or Spotify. I think Sequoia used to have one of these quotes on their website in their ethos section. He says, “Twenty words or less or I'll kill you.” It's great, but that's how he approaches things. The other lesson that they take from Apple is what Don and Sequoia call an aircraft carrier approach that they start taking to these big markets. It's, “We decided to partner with that company.”, They have a statement on their website called their ethos which says, “We’re serious about our work and carefully choose the words to describe it. At the core of our strategy is a belief that if we pay attractive prices to own businesses that are higher-quality and faster-growing than the average S&P 500 company, then over the long term our portfolios should earn a higher return than the S&P 500 Index with less fundamental risk. Ben: And even that, that was single digit. Ben: To be clear, investor in this sense was generally a public market investor or perhaps some other alternative investment, but not investing in startups. Companies like Sequoia Investment mostly invest in early-stage companies. https://t.co/SknTtBntTy, Tools for High-Performing Sales Organizations, Executive Briefings: Connecting corporates with leading entrepreneurs. Wherever there's turmoil, there's indecision, and wherever there's indecision there's opportunity. Similarly, for a long time, Sequoia India treaded the alluring-yet-slippery consumer internet terrain with caution—some of the firm’s capital guzzling, but highly rewarding investments … We're going to talk much more about Atari later in the season here on Acquired. That's true, but I think there's a faulty logic conclusion you can draw from that which is that we should have an index fund on this. It’s completely up to you. He's not letting this one go. Are there things that we can do to customize the chips that we're making to make them more applicable to these other applications in other markets?”. A friend said that about him. AMD also came out of Fairchild, which I didn't know until doing research for this story. Ben: The Business Roundtable on The Daily: David: Amazon Music on 25 years of “Ready to Die”: Thanks to Silicon Valley Bank for sponsoring Acquired Season 5. Sequoia has learned these lessons over so many decades and seeing it time and time again. The positioning of Sequoia is now two things. He’s not super interested in just working for Capital Group forever. Ben: That’s awesome. David: Yeah. Two, you get to decide what I do. David: I couldn't get the exact data. Part 1 tells Don’s story, starting from humble beginnings born to uneducated parents in Yonkers, NY, through shaping the fabric of Silicon Valley itself first as head of Sales & Marketing at both Fairchild and National Semiconductor, and then for generations to come via his pioneering concept of “company building” at Sequoia Capital. We’re looking at one of significant size and had the highest IRR of all time, then we could go, “That’s an A+,” but it feels reasonable for me to say that the first 15 years of Sequoia's existence were an A, relative to other venture firms. The most common rounds for this fund are in the range of 50 - 100 millions dollars. But then, to this company-building aspect, if you truly aligned around that, you're optimizing for those outcomes, which means you aren't just sitting on the side and letting things play out. What's really interesting and we’ll dive into when we ultimately do an episode on Kleiner, their philosophy was quite different and was a lot more interested in the entrepreneurs and the backgrounds of the entrepreneurs then necessarily where Don and Sequoia were. All underlying assumptions are based on public financial disclosures unless stated otherwise. All right listeners, thank you so much. Ben: Very different, yes, but equal partnership. Mike, the two Steves had brought on as the first president and it turns out Mike used to work for Don back in Fairchild and National. But Don gets this idea, he's like, “We could really accelerate our market and our partners that were working with. You guys make all the decisions about what’s going to happen from now on.”, Even today, that's so rare. For some reason, I believe that this is going to be a society-defining company in the next coming decades and I'd like to be a part of that with you.”. David: I know. Well, it was a convertible instrument. According to Don, he, “Had a terrible attitude about the military.” He didn't like and doesn't like regimentation and this is going to become very clear. Ben: David, I love the incredibly eclectic collection of carve outs that you have. But before we go on, I want to dive into what that means in practice and why does it make sense for entrepreneurs to bank with Silicon Valley Bank. Apple is off to the races and they really, as we've chronicled many times and we’ll continue to chronicle the future, invent the personal computer and usher that wave of technology in. You will get a sense for what an amazing character this guy is. Ben: Yeah. There are definitely common elements between both of these great firms. Don, of course, goes on and starts Sequoia Capital and we're going to tell the story here. On sourcing, he has a network of super talented technical people and scientists with the right experience to start technology companies. David: Remember the Salomon brothers meeting that we talked about that Doug had? Ben: Yup, mine is an episode of the Daily, the podcast by the New York Times from a few weeks ago called What American CEOs are worried about. Since 2010, about 75% of Sequoia-backed seed-stage companies have gone on to raise Series A financing (about 2–3x our peer group average). What was the financing environment for “startups” in California at this point in time... Ben: Knowing how markets work, I think we can assume that there wasn't much of it given the terms of that other investment that you’ve just mentioned. There are a number of highlight things that we did before we committed engineering.” You could think about that and think about like, “Gosh, that sounds a lot writing an investment memo for a venture capital firm.”. I think this is the key. That's the LP aspect. Ben: It’s bonds, it’s treasury bills, a little bit of stock. David: Yeah. Today, we are talking about the absolutely legendary Sequoia Capital and because it would be inappropriate to try to cover Sequoia’s immaculate history in just one episode, this is only part one. I knew how markets worked and how to help them position their company in the market. One sector consists of exploration companies that undertake the discovery and evaluation of new ore bodies and the other consists of larger mining companies that are … He is now, after Formation 8 and Eclipse, he is still an active general partner making and leading investments today. Amazon did this cool thing where they have a bunch of tracks from the album and then in between each track they have like a commentary from journalists and people that were there, producers, Puffy, everybody part of making Biggie’s first album. He has this really great quote that I think encapsulates this. Every time that Don is working on building a new customization and application, a new market that Fairchild wants to enter, he has to go to the board of the company and get their approval for what they're doing. The Little kingdom, I think it was called? Sequoia Investment Strategies: An Independent Financial Services Firm The investment climate has never been more exciting or more challenging than it is today. Ben: Absolutely. I mean look at Instagram. I believe based on some quotes from Don, some of our research, and other data we have, Sequoia was probably averaging a 50%-60% IRR on their funds during this period. Well, I think of course they're going to relate it and like all investing, it is early stage investing. One of them was the IT administrator for GSB and one I think was elsewhere on the campus and networking was just becoming a thing and they were married. You need a team that's going to be focused and able to quickly get the right solution into the market. The downside to that that we haven’t painted yet is if you’re a founder that believes that you need to be the CEO of that thing forever and you’re in a market that deserves a team to really go and value maximize the way to tackle that opportunity, the terms of these investments, especially at this time were that often, firms would own 33%-51% of the company. For one, it was so small that the individuals who are doing it, all of them, in California, they would meet once a month at the Mark Hopkins Hotel in San Francisco at a regular table and they would sit around and talk about the various companies that they were working on. Audience, hopefully you guys have enjoyed it too. And for all our trademark Acquired editorial and discussion tune in to the full episode above! gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. David: Certainly, knowing Sequoia today, no. David, we’ve started a podcast and have a love for media, but I have this reverence for really good journalists who not only are able to really tell a great story but to get the truth out there. It is about both the market and the team. A company called Printronix that makes printers, a company called Priam that makes disk drives, a company called Dyson that makes magnetic disks for the disk drives. Whoever would want to do that?” Don, in typical Don fashion, he says, “Well, screw it. Don wants people to be, he says, “I want as much confrontation and different thinking as possible,” and he wants people that are going to be confident and comfortable enough to put their thoughts out there and debate as part of the group. I try for this section to kind of catalog and crystallize what are the elements of, if you have to distill the Sequoia playbook from this history and from Don’s experience? In 1983, just two years later, LSI goes public in the largest IPO on the NASDAQ in history at that point, raising $153 million in the IPO which Don made $153 million. It’s one of these precious few rules. Ben: Looking at a whole bunch of funds bundled together is too difficult to assign a single letter grade to. The way to do it is go to our website acquired.fm and then on the homepage, there's a little button on the left-hand side of the homepage right below the main image. Take the Acquired Season 6 Survey (and enter to win AirPods Pro) >>, Booking.com (with Jetsetter & Room 77 CEO Drew Patterson), Sequoia Capital Part II (with Doug Leone), Adapting Episode 2: Sequoia’s Black Swan Memo (with Roelof Botha), Push Pop Press (Facebook Instant Articles) with Todd Bishop, https://en.wikipedia.org/wiki/Traitorous_eight, https://www.youtube.com/watch?v=nKN-abRJMEw&t=2555s, http://digitalassets.lib.berkeley.edu/roho/ucb/text/valentine_donald.pdf, https://www.nytimes.com/2019/08/21/podcasts/the-daily/business-roundtable-corporate-responsibility.html, https://www.sfgate.com/technology/article/Silicon-Valley-Shockley-racist-semiconductor-lab-13164228.php, https://signallake.com/innovation/Valentine101409.pdf, https://www.amazon.com/dp/0875849385/ref=cm_sw_r_cp_tai_ZB8IDb7NNAFAH, https://www.amazon.com/Troublemakers-Silicon-Valleys-Coming-Age-ebook/dp/B06ZZ1YDTX/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=&sr=, https://www.scaruffi.com/svhistory/arun3.html, http://www.ianhathaway.org/blog/2019/7/31/vc-an-american-history, https://www.axios.com/sequoia-capital-shakes-up-leadership-1513300220-7d255e34-f4bf-4178-af62-ec68023726e3.html, https://www.slideshare.net/lebret/a-history-of-venture-capital-lebret-vers-11, https://www.hbs.edu/faculty/Pages/item.aspx?num=47240, https://www.inc.com/magazine/19850501/7289_pagen_5.html, https://www.amazon.com/VC-American-History-Tom-Nicholas-ebook/dp/B07QV2YM3X/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=&sr=, estimated that Google Maps generated $2.95b. David: They make flyknits but they don't make that free flyknits–the Nike free flyknits. They are the first investors in Tandon. Just look at Airbnb, look at Google, look at Apple. David: We didn’t ask Trip that directly in the EA episode but I think he probably would have said yes, right? No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. He is a true legend in the industry. Besides, in 2019 the fund was active. Ben: I really want you to change your Twitter bio to experienced gardener. All told I believe Sequoia ends up making about 15 investments in this aircraft carrier strategy around Apple and it drives much of their returns in these early funds. In 1968 s never too early to come talk with us and scientific organizations! In startups Intel IPO that had backed Intel with equity can rhyme like Biggie and just the and. 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