Venture Capital Firms: A short passage through Sequoia
Last class, we had Carl Eschenbach from Sequoia Capital as a guest speaker.
Although, we got to hear from one of the members of Sequoia, I would like to explore a bit of the history and the way they work, which was a subject not really discussed during the speech.
Starting from the beginning: How does a Venture Capital firm work?
This topic might be obvious to most readers. However, I must take into consideration the possibility of layman’s in this subject.
Venture Capital, in brief words, is a financing that investors provide to new business that they believe has a growth potential.
There are two components in a VC firm: There are the people that command whether or not an investment will be made and, also, work with the startup to achieve growth and goals. Second, there are the people that give the money to complete the investments.
A brief look into Sequoia Capital:
Don Valentine founded sequoia in 1972, in Menlo Park, California.
Valentine was an executive in the field of integrated circuits; however, he decided to explore his knowledge in the risk capital market. So he founded Sequoia, to identify and finance companies with growth potential.
Around 1990, Valentine gave his administrative seat to Doug Leone and Michael Moritz. Leone, an Italian Immigrant, came to New York in the year of 1968 with 11 years old. In the year of 1979, he graduated in mechanical engineering from Cornell University. Moritz graduated by Oxford University in History, and in 2012 he left Sequoia due to health problems.
They didn’t had much in common, hence, both fit Sequoia “shape”: creative spirits, underdogs, resolute, determined, and so on. And to be part of this team you should have all this qualities. It is a tough job, in Moritz words:
“Every time we invest in a little company, it’s a battle against the odds, we’re always outgunned by companies that are far larger than us, who have threatened us and the founders with extinction. It’s incredibly thrilling to prove everyone wrong. You can’t get a bigger rush than that.”
Sequoia’s listen to 200 pitches per month to usually ending up funding two. The partners can be considered a mix of detectives, listeners, growth hackers, seeking ways to make startups “rocket faster”. There is also a “tough test” that entrepreneurs should pass, this way they can understand how would he/she react under pressure and if he/she can handle all the adversities to succeed. Hence, what they are always looking for are people that come from a humble background and have an urge to win.
Some of Sequoia’s investments included:
Scanntech, Airbnb, Apple, Aruba Networks, Google, YouTube, Klarna, Zomato, PayPal, Instagram, Medallia, Meraki, Capillary Technologies, Cisco Systems, Oracle, Electronic Arts, Skyhigh Networks, TuneIn, Yahoo!, NVIDIA, Lattice Engines, Navigenics, Cotendo, Atari, Ameritox, Kayak, Meebo, Admob, Knowlarity Communications, Followap, WhatsApp, Zappos, Adallom, Seculert, Percolate, Green Dot, LinkedIn, Indeni, Skyscanner, Kontera, Relcy e Nubank, First world info.
If you want to read more about Sequoia, here is an amazing article about it: https://www.forbes.com/sites/georgeanders/2014/03/26/inside-sequoia-capital-silicon-valleys-innovation-factory/#74cc091b3a82
2 comments on “Venture Capital Firms: A short passage through Sequoia”
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Interesting overview of Sequoia! You briefly touch upon the people deciding on the investments into startups (General Partners or GPs), and the people that invest into the fund (Limited Partners or LPs). There’s a really great book on Venture Capital by Mahendra Ramsinghani (The Business of Venture Capital), which explains in depth the process of raising a fund. One of the LPs interviewed for the book (ebook, Chapter 12, Build your target list of investors) says “I don’t see GPs who are still in kindergarten–they can call me after they corss Roman numeral IV” highlighting one of the biggest competitive advantages that Sequioia now has over many other VC firms in the Valley and beyond. Crunchbase lists 14 of the more recent Sequoia funds (https://www.crunchbase.com/organization/sequoia-capital/fund-raises), but the real number seems to be well beyond 20 by now. Their solid track record, which is also evident from the list of their investments, also makes the process of raising a new fund a much lighter effort than that of VCs raising their first funds. When I asked Mr. Eschenbach about this he estimated that 80% of the LPs are returning ones, and hinted that their funds tend to be heavily oversubscribed. Hence, I would argue that Sequoia’s advantage today does no longer rely on creative spirits and being underdogs, but rather on a tremendously long and impressive track record of consistency.
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Thank you for the comment Ghita. I will have a look in the book you mentioned (The Business of Venture Capital).
Moreover, I agree with you when you said that the advantage of Sequoia today rely on their record of consistency. However, I think that creative spirits and being underdogs brought them together at the beginning and contributed to their growth.