Sequoia Capital is one of the oldest Silicon Valley investment funds in the United States. It was founded in 1972 in California
Sequoia’s most successful investments include Apple, Cisco, Google, Instagram, LinkedIn, PayPal, Reddit, Tumblr, WhatsApp and Zoom.
The biggest investments in crypto projects in recent years include blockchains Polygon and StarkWare Industries, the FTX exchange, auditor Certik, interblockchain protocol LayerZero Labs.
So, let’s dive into the history and principles of Sequoia Capita!
At the same time let’s break down what crypto projects the firm has invested in!
Don Valentine
Sequoia Capital was founded by Don Valentine in 1972 in Menlo Park, California, at a time when the venture capital industry was just beginning to develop.
Sequoia formed its first venture capital fund in 1974 and the following year became one of Atari’s first investors. In 1978 Sequoia became one of the first investors in Apple.
Don Valentine continued to lead Sequoia until he handed the reins over to Doug Leone and Michael Moritz in 1996, but he continued to attend partner meetings for another 10 years.
Michael Moritz retired for health reasons in 2012, but remains active in the firm.
Rulof Botha
Rulof Botha joined Sequoia in 2003 and has appeared 14 times on Forbes Midas list*.
Rulof Botha has backed 10 startups to go public, including MongoDB (IPO 2017), Eventbrite (IPO 2018), BridgeBio (IPO 2019), Unity (IPO 2020), 23andMe and Bird, which went public in 2021.
In 2017, Rulof Botha was appointed head of the firm’s U.S. operations, working under Doug Leone, who oversaw the firm’s global operations.
In 2020, Rulof Botha achieved $10 billion in total profits for the firm, putting him in the upper echelon of technology investors.
In April 2022, he was named in charge of the firm’s global operations (replacing Doug Leone).
*Forbes Midas is an annual ranking of the most influential and effective venture capital investors by Forbes magazine .
About the Company
Sequoia Capital is a venture capital fund focused on energy, financial services, corporate, healthcare, Internet and mobile startups. The firm seeks to invest in all sectors, focusing on energy, finance and financial services, health and medical services, Internet, mobile, outsourcing and technology.
The firm has backed companies that now control $1.4 trillion in total aggregate stock market value. Popular companies Sequoia has invested in include such well-known companies as Apple, Oracle, Youtube, Instagram, Zoom, Google and others.
Sequoia focuses on markets, not people. Sequoia does not seek to create new markets, but rather invests in existing markets.
As a result, instead of focusing on the founder’s credentials, they focus on market size and trends related to the concept.
Sequoia’s staff comes from different demographic backgrounds. The firm is 59% female and 57% ethnic minority.
59% of employees are female and 41% are male.
The most common ethnicity at Sequoia is White (43%), followed by Asian (35%) and Hispanic (11%).
The average Sequoia employee earns $74,486 per year.
On average, Sequoia employees have been with the firm for 1.5 years.
The total number of employees is about 50.
Sequoia expanded into Israel in 1999.
Sequoia Capital China was founded in 2005.
Sequoia Capital bought Indian venture capital firm Westbridge Capital Partners in 2006. The company was later renamed Sequoia Capital India.
In 2020, Sequoia opened its first European office in London, UK, and hired Luciana Lixandra to run it.
History of the company
Sequoia Capital was founded by Don Valentine in 1972. He came to California because of military service and then worked for a number of technology companies, ending up as a salesman at Fairchild Semiconductor. He then went to National Semiconductor.
At both companies he evaluated technology and markets as a sales and marketing executive, and the problem was the same. Engineers could do amazing things, but there wasn’t enough capital for projects, so he had a system for determining where corporate capital should be invested.
Don Valentine felt that his interest in Fairchild and National was to invest in companies that operated in very large markets and solved certain problems. At National, with its limited engineering resources to create custom circuits, he had to help the company decide which business to accept and which to reject.
Within four or five years, Don Valentine created “a more intuitive investment selection process based on huge markets and solutions that made significant commercial sense in the short term. First the market, then the technology.
Don Valentine was approached by The Capital Group, a large Los Angeles-based mutual fund company. He was invited to create a venture capital company that would become part of The Capital Group, and so Sequoia Capital was founded (Don Valentine made it independent in 1975 from The Capital Group).
One of the first big successes was Nolan Bushnell’s Atari, which was 3 years old in 1976 (with profits of $3 million on sales of $40 million in 1975), and Atari needed money to grow. Don Valentine invested in Sequoia and raised funds from the Mayfield Fund, Time Inc. and Fidelity Ventures. That same year, Bushnell realized Atari needed more money, and the entire company was sold to Warner Communications for $28 million, making a quick profit for venture capital investors.
Don Valentine’s biggest deal was the financing of Apple Computer. Bushnell suggested that Steve Jobs and Steve Wozniak visit Don Valentine. Don Valentine got them to focus on marketing and “thinking big,” and he paired them with Mike Markkula, a thirty-year marketing manager, so they could launch Apple in 1977. In January 1978, the company raised $517,500 from Venrock, Sequoia and Arthur Rock with a promise to keep the stock for 5 years.
Don Valentine foolishly sold his stock in the summer of 1979 for tax reasons and for distribution to investors. This was a big mistake, because by 1980 Arthur Rock’s $57,000 share was worth nearly $22 million (and by 2010 would be worth over a billion dollars). Other notable successes were funding Cisco in 1987 and Yahoo in 1997.
Sequoia learned the lesson of the premature sale and decided not to make the same mistake again. Now the firm invests throughout the company’s lifecycle, from the initial stage to the late stage of growth.
Don Valentine developed the “aircraft carrier” method of investing, in which a large ship/company would sail with a fleet of other ships/companies to maintain and protect. In this way, a large strong portfolio company would be supported by smaller ones. Thus, Apple was the carrier and 13 other smaller companies maintained it (e.g., Tandon Corp. made disk drives for Apple computers). Nor did Don Valentine rely solely on the qualities of people: he wanted to know the potential size of the market, the driving force behind moving toward it, and the exact product/application.
Don Valentine realized one interesting point: semiconductors were the core. In 2004, he estimated that Sequoia funded probably 600 different companies, about 40 of which were semiconductor companies, because the industry was the fundamental business of the digital revolution.
By the early 1970s, there were many semiconductor companies in the Santa Clara Valley, as well as the first computer companies using their devices and programming and service companies.
For decades, Sequoia has followed a key principle that is either genius or extremely distasteful: “If we can’t get to [the company] by bike, we won’t invest.”
This mantra helped turn Silicon Valley into a global hotbed of startup activity.
In 1999, the firm became one of Google’s Series B leaders, turning $12.5 million into $4.3 billion during the search engine’s IPO in 2004 (a 300-fold return).
The firm invested $60 million in WhatsApp in 2008, making nearly $3 billion when the company was acquired by Facebook in 2014.
The firm made an initial investment of $1.2 million in Dropbox, which turned into $2 billion after the cloud provider’s IPO.
Other wins include Oracle, Nvidia, Zoom, PayPal and LinkedIn.
Sequoia Partners
Nine Sequoia partners appear on Forbes Midas list of the most successful venture capitalists thanks to the firm’s lucrative investments in companies such as Airbnb, Dropbox, FireEye, Palo Alto Networks, Stripe, Square and WhatsApp.
In first place is Sequoia partner Jim Getz, who backed WhatsApp in 2011, long before Facebook agreed to buy the mobile messaging company for $19 billion.
Doug Leone ranks sixth, followed by his colleagues Michael Moritz, Alfred Lin, Rulof Botha, Neil Shen, Michael Gaughan, Brian Schrier and Kui Zhou.
Base salaries at Sequoia do not look dazzling. While the salaries of the firm’s nine general partners can exceed $1 million, Sequoia is not worried about guaranteed Wall Street-style bonuses, and some of Sequoia’s more junior partners have taken pay cuts to join it. Capital gains far exceed base salaries.
For example, Sequoia Venture XI fund, which in 2003 raised $387 million from about 40 investors, mostly universities and foundations. Eleven years later, Venture XI has recorded a return of $3.6 billion, or 41% per year, net of fees. Sequoia partners would get 30%, or $1.1 billion, and the firm’s investors would get 70%, or another $2.5 billion.
When Don Valentine ceded control of Sequoia in the mid-1990s, Michael Moritz and Doug Leone jointly took over. On the surface, they don’t look alike. Michael Moritz started out as a staff writer for Time magazine; he’s an Oxford graduate who’s always coming up with clever phrases.
Doug Leone got his mechanical engineering degree from Cornell and then sold computers for Hewlett-Packard, Prime Computer, and Sun Microsystems; he swears to get his point across. Michael Moritz got a full partnership at Sequoia after only two years; Doug Leone needed five years.
Nevertheless, both fit the Sequoia template: brash and determined.
Doug Leone now serves as senior partner. Michael Moritz remains an active investor partner, but gave up his administrative duties in 2012 after he was diagnosed with an unspecified illness that he said could impair his quality of life over the next five to ten years.
Sequoia partners hear 200 or more presentations a month, while typically funding only two. Whether the meeting ends with a “yes” or a “no,” the founders describe the hour spent with Sequoia as one of the highlights of their lives.
Michael Moritz is the detective, listening to every detail of the founder’s story and asking some insightful questions.
Rulof Botha, Alfred Lin, and Brian Schrier are growth hacks looking for ways in which consumer-oriented startups can move forward even faster.
Michael Gogen and Jim Goetz are mechanics, each drawing on 25 years of experience working with corporate technology companies to assess a startup’s chances of success.
Sequoia’s advantage among entrepreneurs stems in part from a willingness to move quickly in an effort to get the best prospects. Propose a deal to Sequoia’s partners on Monday morning, and if all goes well, you can make a funding agreement in the afternoon.
Ask for a list of terms and conditions, and you’ll get everything you need on one page, not in a long lawyer’s memo. Among the fans of the Sequoia’s speed is Elon Musk, CEO of Tesla Motors. Musk recalls that in 1999, when he was creating what later became PayPal, Sequoia wired him $5 million to get started, even though the lawyers hadn’t finished all the paperwork.
Sequoia’s partners don’t mind hunting down big new startups in run-down coffee shops and cheap offices, where such companies are often born.
Thanks to some unusual quirks in the firm’s hiring habits, day-to-day operations, and pay, Sequoia has been able to keep its management in harmony and rejuvenate as needed, without any fuss. The firm operates according to Doug Leone’s idea of the big Italian family: lots of personalities, lots of communication, but a determination to stick together no matter what.
Helping company founders
Sequoia partners meet every Monday at 8 a.m. to discuss investment prospects and review existing portfolio companies.
Sequoia partners tirelessly help companies with small things that never merit a press release. When WhatsApp had trouble hiring engineers, Jim Getz met with at least half a dozen candidates over dinner, where he assured them that this humble startup did have a great future.
When Stripe co-founder John Collison, 23, needed help representing his company’s payment services to a major East Coast financial services company, Sequoia’s Michael Moritz gave him two rehearsals, sharing ideas on how to make the story more polished.
Don’t pass up opportunities
From time to time there are “losing” investments when a firm somehow says “no” instead of “yes” at the end of a presentation. Pinterest slipped away, as did Twitter. In 2007, Sequoia had a chance to buy a 10 percent stake in Twitter when the new site was valued at just $20 million.
Their conclusion: they were too stubborn in their pursuit of their ideal goal of 20% to 30% startup stock. Twitter CEO Jack Dorsey only wanted to sell 10% of the stock. In hindsight, Sequoia should have agreed. Looking ahead, partners are now willing to take smaller stakes-at a higher-than-usual price-when a startup extraordinaire comes into play.
Sequoia is just as stubborn about maximizing profits from its most efficient companies. (Back in 1979, Sequoia sold its stock to Apple after holding it for just 18 months, and Sequoia’s partners are not about to make that mistake again.)
Unlike other venture capital firms that manage their investors’ investment funds for 10 years, Sequoia often looks for ways to extend the life of its partnerships by 16 or 17 years. Sequoia owned Google stock for nearly 2 years after that company went public; it held on to Yahoo even longer in the 1990s.
A particularly serious test of Sequoia’s willingness to buy and hold is ServiceNow, a software company that provides help desk services to corporate clients.
In July 2011, a surprise buyer offered to buy the company for $2.5 billion. Sequoia became a major investor in late 2009, leading a $41 million investment round, and Doug Leone joined the board of directors. Cashing out at that point would have earned Sequoia a return on investment of about 10 to 1.
Most ServiceNow directors found the offer interesting. Only Doug Leone disagreed. Rallying some of his colleagues, he prepared a 12-page analysis arguing that the directors would “give the company away” even at a $4 billion valuation. In his view, even though ServiceNow was in an early stage of growth, its involvement in the fast-growing software-as-a-service sector made it a company with far more potential than outsiders could see.
After some debate, ServiceNow’s directors rejected the offer. A year later, ServiceNow went public and was valued at $2 billion. Current market value: $81 billion. Simple math tells us that Doug Leone’s stubbornness brought ServiceNow shareholders nearly $79 billion.
Business Principles
Sequoia has financed more than 1,500 companies worldwide, focusing on technology and innovation. These firms currently have a total market value of $1.4 trillion thanks to Sequoia’s funding and incubation.
Sequoia’s business principles:
Sequoia works with markets, not people. Sequoia’s goal is not to explore new markets, but to capitalize on existing ones as quickly as possible. As a result, instead of focusing on the founder’s credentials, they focus on market size and trends related to the concept.
Consistent market identification. They invest in additional methods and software that will work together with the initial future innovations and markets because they invest systematically.
Different, not better – Sequoia argues that unconventionality pays off, so they deliberately look for solutions that challenge tradition to solve future problems in a more inventive and successful way.
Invest in the most efficient companies. While many venture capital firms establish only short-term incubation partnerships, Sequoia has a track record of long-term investments that capitalize on the growth of the most efficient firms.
Partial funding – Sequoia does not provide businesses with all the funding they need at once, preferring to partially fund companies to track founder performance from the start.
Shrinking businesses that don’t meet expectations. Sequoia has closed about 0.5% of businesses that are not meeting targets to reduce losses.
Software is a priority. Sequoia’s most recent investments are largely in technology, including SaaS, business software, and e-commerce and healthcare platforms.
The U.S. and China lead the way. Most of Sequoia’s current investments are concentrated in the United States, mostly on the West Coast, and China, and India is quickly becoming a solid market for investment.
Let’s look in more detail at some of the principles and approaches.
Why Sequoia focuses more on the market than on entrepreneurs
Sequoia invests in several growing markets and different types of products and services. So they look at the market first and then at the founders. They consider the size of the market, the dynamics of the market and the nature of the competition. Why? Because the goal is always to build big companies, and they believe that if you don’t attack a big market, you’re unlikely to build a big company.
They don’t spend time on where people went to school, how smart they are, or anything else. They are interested in learning more about the entrepreneurs’ view of the market they are looking for, the scope of the problem they are solving, and what might happen if the combination of Sequoia and the founders is right.
What functional skills does Sequoia focus on when funding startups
Don Valentine said they started the business with people who had absolutely no business experience. And yet Sequoia organized the companies so that the people who were going to run them, often young people, could run them based on their limited experience. They taught them that to build good companies, they only need to do a couple of things well in their companies, two basic functional skills: technology/engineering, so they can build a product, and marketing, so they can identify market dynamics.
How Sequoia supports its entrepreneurs
The entrepreneurs Sequoia funds often have no idea what they don’t know! And what Sequoia is trying to do is flesh out what they don’t know through the people at Sequoia. Sequoia works hard to make it as easy as possible for founders to create and run a company.
Sequoia funds many companies in-house in Sequoia’s offices. These companies usually have as few as 10 people. They get free rent, free lunches and more for free. This encourages entrepreneurs to focus on their core business and never do in-house functions, which they can outsource. Thus, the last person they hire on a startup’s management team is a CFO, for example. In fact, Sequoia offers shared resources, such as CFOs who work at multiple portfolio companies.
How Sequoia analyzes trends and predicts the future
Sequoia has never been interested in creating markets because it is too expensive. However, the firm is interested in exploring markets early with the right people, technologists, or people who had a dream to solve a problem and create a new product.
Sequoia spends an enormous amount of time figuring out which applications to attack and in what order. So knowing the future has made it easier for them to invest in successful companies.
They don’t focus on one category to the exclusion of other categories. They have groups of people who specialize in different areas, building a knowledge base and market size information about what they should spend their time on. They analyze systems, find out what’s needed, and then knock on people’s doors instead of waiting for people to knock on their doors.
They know which companies to look for, which products to look for, and therefore which people to look for. So people become very important because of their fundamental technical skills when applied to a particular problem that Sequoia is interested in solving.
This is a very different approach than many venture capitalists in the venture capital business. Sequoia knows what to do, and they look for people who know how to do it. They don’t wait for opportunities to come to their door.
Why Sequoia focuses on the art of storytelling
The art of storytelling is incredibly important because that’s how money works. Because most entrepreneurs don’t know how to tell a story like a venture capitalist, you have to learn how to ask questions that make the entrepreneur comfortable telling you their story and what they think is important for you to understand.
For a long time, Sequoia didn’t understand the product or the market during the listing, so they learned to formulate questions in a way that allowed the entrepreneur to explain: what he wanted to do, how long it would take, who the competitor was, and how much money he needed without feeling threatened.
When a portfolio company fails, they try to find out what questions they didn’t ask or what answers they didn’t understand because they are dealing with amateur storytellers.
Why Sequoia is closing companies
Sequoia learned from failed investments not that the product didn’t work, but that the market dynamics didn’t work. Such companies created impressive products for which there were no buyers. It’s critical to develop a product where the timing of product availability and market demand coincide. Otherwise, you’re spending a lot of money developing a market you didn’t intend to spend money on.
Sequoia has also learned to close such ventures if the expectation of return they started with is no longer a reality. In other words, if the expectation of success is no longer realistic.
Portfolio of cryptoprojects
Sequoia’s large cryptocurrency investment funds:
Feb 17, 2022 Sequoia Crypto Fund $600M
Sequoia has launched a new crypto-oriented fund, its first-ever industry fund since its founding in 1972.
The fund is $600 million and is part of the larger Sequoia Capital Fund, which was formed in October 2021 as part of the firm’s restructuring.
Below are general and detailed data about the fund’s crypto portfolio, where they are leading investors.
In 2013-20, the fund participated in the following rounds of investments as a lead investor:
$20 million in BIT Mining.
$250k in SharkPay
$50 million in Bitmain
$6 million in Guanguan Coin
$40 million in Internet of Services
$292 million in Bitmain
$15 million in Drip Capital
$30 million in StarkWare Industries
$30 million in AERGO
$35 million in Conflux Foundation
$3 million in Juno
$280 million in Robinhood
In 2021, the fund participated in the following rounds of investments as a lead investor:
$40 million in Babel Finance
$900 million at Trade Republic
$1 billion in FTX
$310 million in Fireblocks
$420 million in FTX
$5.75 million in Beta Finance
$50 million in StarkWare Industries
$80 million in CertiK
$25 million in DeBank
In 2022, the fund participated in the following rounds of investments as a lead investor:
$13 million in Web3Auth
$5 million in STEPN
$5.1 million in Flint
$450 million in Polygon
$7 million in Multis
$12 million in EthSign
$135 million in LayerZero Labs
$2 million in Nume Crypto
$6 million in MoHash
Conclusion. Sequoia Capital – Plans for the Future
By developing relationships with global corporations and financial investors, the team helps Sequoia’s portfolio companies plan and achieve their financial and strategic goals, such as strategic alliances, fundraising and mergers and acquisitions.
The firm seeks to expand its investments outside the U.S.: it opened offices in Israel in 1999, China in 2005, India in 2006, and the U.K. in 2020.
In October 2021, the firm announced that they were breaking with their tradition of abandoning the traditional fund structure and their artificial timeline for returning capital to investors. The firm’s future investments will soon go through a “single permanent structure” called The Sequoia Fund.
Investors will then invest in The Sequoia Fund, an open-ended liquid portfolio consisting of public positions in a number of companies. The Sequoia Fund, in turn, will allocate capital to a number of closed-end sub-funds for venture capital investments at each stage from inception to IPO.
Gone are the 10-year return cycles that often forced investors to liquidate assets in public companies based on set timelines, rather than determining when an investment is fully mature.
Sequoia says investments will no longer have an “expiration date”; instead, Sequoia will return earnings from startups back to its central fund, which it will reallocate to future investments – what the firm calls a “continuous feedback loop.”
This change would also give Sequoia much more flexibility to channel funds from the central structure to “complementary funds” focused on a particular stage or sector (e.g., cryptocurrencies).
This is a significant change from the traditional venture capital model that Sequoia has long followed, and it is a major adjustment for fund investors that smaller firms without Sequoia’s long-term track record would not be able to make.