Decoding Sequoia Capital: How Do They Dominate the VC Landscape?
Discover the Winning Strategies of the World's Top VC Firm for Unprecedented Entrepreneurial Growth | VC Remote Jobs
In the world of investing, there's no need to start from scratch. One way to amplify our own investing skills is to just study the best and try to adapt as much of their thinking into our strategy. Among the giants of the venture capital landscape stands Sequoia Capital, a powerhouse founded by Don Valentine in 1972. Today, it reigns as the top VC firm globally, commanding immense respect and attracting a flood of eager investors whenever its name is mentioned. In this captivating write-up, we will explore the remarkable strategies that have propelled Sequoia Capital to its unrivalled position.
Join 3330+ investors, operators, innovators and students inducing content every week in our VC Newsletter.
Sponsored…
Get your message in front of thousands of Investors, Operators, Founders & students.
New Initiative: We are also open to featuring the startups (looking to raise funds) in the newsletter. Our featured startups got a lot of interest from the investors after mentioning in the newsletter.
For More Visit: theventurecrew.app
Let’s continue from above….
Even with the transition in management to Michael Moritz and Doug Leone, the firm continues to maintain its leading reputation. In 2019, Sequoia became even bold by making more new seed-stage investments than Series A deals. This is due to the fact that Hurun Research Institute identified Sequoia as the world’s top unicorn investor, noting it had invested in one in five of all private companies valued at $1 billion or more. WHAT.
One VC firm was in on 1/5 private unicorns in the entire world? This is even more impressive considering they do not necessarily invest everywhere in the world, even though they do have operations in Europe, China, India and elsewhere. If that weren’t enough, 1200 of their long-term investments from the past contain 300 IPOs. An astounding 25% going to market. Oh my. With that kind of track record, if I could get in, it would be a no-brainer to have some of my money invested by Sequoia. Alas, that is not the case so will have to make do with other alternatives.
Investing as if we were thinking like Sequoia could be a good place to start, given the successes they’ve had:
1970s-1990s: Apple, Cisco, Google, Nvidia, Webvan, Oracle, Cisco, Microchip Technology, LSI Logic, Linear Technology, Network Appliance
2000s: Airbnb, Palo Alto Networks, ServiceNow, Unity Technologies, Youtube
2010s: 23andMe, StarkWare Industries, Instacart, Klarna, Nubank, Snowflake, Stripe, WhatsApp, UiPath
2020s: BitClout, Bolt, FTX, Wiz, Loom, Shein, StrongDM
Don Valentine
Direct, blunt, and candid, Don was the founder and managing partner from 1972–1996 and made several notable investments prior to the 2000s. He noticed the trend of technology and began making personal investments in technology companies. What’s most interesting is that at the time of the founding, he did not make the name of the company named after himself, but rather after trees that are the largest, oldest, and tallest in the world. That seems to represent humility, long-term thinking, and durability and may translate into the types of founders that he himself was additionally sought after.
Source — Google Images
Given the large size of Sequoia, it would make sense that the companies he looked for were involved in large market sizes, with TAMs, total addressable markets that were already gigantic, and potentially that could even increase in size. Large markets typically are already saturated with a wealth of competition. So, it stands that the large markets targeted will be markets that are not obvious to the majority, or they would already be filled. Don’s bet on Apple led to an entirely new market, which didn’t even exist at the time, but now seems more like a necessity as opposed to its initial luxury, and even undiscovered market. His initial specialized knowledge of microprocessors from his work experience led to personal computers which led him to invest in Steve Jobs.
Somewhat counterintuitively, Don did not place the same emphasis on the founder as VC firms do typically. He looks first at the biggest markets and then looks for the people to fill those markets. Products that can disrupt existing markets, or that can create new market categories that people actually need or want, are what make a good opportunity.
He has no consideration towards the educational background of a person; some, in fact, had no ability to run businesses but with the product idea, were set up with reputable people from business backgrounds to help run the business side. The founder must be mission focused on getting a new invention out there; if they are in it for the money, he will not consider these types of founders. The people he invested in typically have a strong technical knowledge of technology and engineering. Only then would marketing and sales come into play. Don was the one who knocked on the founder’s doors, rather than VCs typically having founders call them first.
The art of storytelling is very important; be able to tell good stories that can convince people to follow you. Knowing how to ask good meaningful questions, particularly concise questions in under 20 words, is also a good skill to learn on the social communication side. Having post mortems on failed companies to see what went wrong is a good way to improve future decision-making, which Sequoia does for every company they invested wrongly into. He also cautions, similarly to Charlie Munger, that knowing what you don’t know is very important, and perhaps more important than what you actually know. In terms of timing, the best time to invest is in bear markets, as there is more opportunity.
Doug Leone
Doug Leone was hired on by Don and later made managing partner and owner alongside Michael Moritz. He was the managing partner from 1996 until 2022. Doug likes to look for someone with strong strengths, that achieved an improbable unusual success, particularly at an early age. If not in business directly, other achievements when younger could signal success.
Source — Google Images
We want to be partners with entrepreneurs from day one; we know that after many years, DNA is set in the first 60–90 days. This can be seen in a person’s history. When they were younger, did they try to set up businesses? Such as lemonade stands, lawn mowing, app creation, etc. Someone who started as a kid has the DNA of an entrepreneur. Someone who started something on the side while working is as well. Someone who just wants the glamour, status and money of being a successful entrepreneur would not fit the mould.
In terms of finding great people, Doug Leone believes that exceptional individuals have a unique ability to attract other exceptional individuals. They stand out because there aren't many of them, and they can easily recognize each other. One important characteristic of a great founder is their use of the word "we" instead of "I." They have a team mentality and aren't just focused on themselves. Another advantage of small teams is that they tend to perform better than larger teams, where too many opinions can slow down decision-making. Small teams can make decisions quickly and learn from mistakes more efficiently.
Startups benefit from being small because they can maintain their stealth and speed. It's important to avoid spending too much time and money on the cocktail circuit, attending fancy conferences and networking events. Instead, it's better to find one strong believer who can provide financial backing and focus on creating a superior product, rather than seeking the support of lukewarm believers for a mediocre product.
Some venture capital firms have been unable to generate positive returns for a long time, yet they continue to raise funds. To find more opportunities, it's worth looking abroad at untapped and rapidly expanding markets that may not have the same level of scrutiny as developed markets. In the 2000s, Doug set up separate teams in China and India to run operations, showing his humility in recognizing that he doesn't fully understand consumers and businesses in those countries. These markets hold great potential for future growth and may uncover hidden gems that could outperform even those in the US. Larger populations in these big markets offer even greater potential returns for market winners. A notable example is Shein, a Chinese clothing retailer that has surpassed its competitors with its affordable prices and efficient supply chain, similar to Zara but even better.
Sequoia Capital's incredible success story is truly inspiring. From backing tech giants like Apple and Google to being a top investor in unicorn companies, their track record is unparalleled. While we may not have the chance to invest directly with them, we can learn from their strategies to enhance our own financial journeys. Join us as we explore the secrets of Sequoia Capital and strive for financial success together. Stay tuned for more insights in our upcoming newsletters.
Today’s VC Jobs:
Vorwerk Ventures - Visiting Investment Analyst - Apply
Iterative Venture - Investors Relation - Apply
Vento Venture - VC Intern - Apply
Also, Join our globally verified active community of founders, investors, operators and students. If interested in joining the community, please fill up the form.
Subscribed to “The Venture Crew” newsletter to receive daily updates on startups, venture capital, startup investing and vc jobs.
By - The Venture Crew!