Jason Kincaid currently works as a writer at TechCrunch.
He grew up in Danville, California and later relocated to UCLA in Los Angeles, California, where he studied biology with a minor in ‘Society and Genetics’.
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Today at TechCrunch Disrupt, Sequoia Capital partner Roelof Botha took the stage for an interview with Michael Arrington, where they discussed everything from startup valuations to Sequoia’s biggest misses.
Early on in the conversation, Arrington asked Botha if Sequoia partners have a lot of internal pressure to perform, or if the firm is patient with investments. Botha says that the firm is indeed patient, but that there’s an internal motto: “you’re only as good as your next investment”, and that partners are always staying hungry.
Next, the conversation turned toward the broad array of companies that Botha is involved in — he’s on the board of Square, Tumblr, Evernote, Meebo, Eventbrite, Unity and other consumer-facing companies. But he’s also involved in bioinformatics companies like Gene Security Network (GSN) and AssureRx.
GSN helps patients who are going through in-vitro fertilization select the healthiest possible embryo they can — one cell is removed from the embryo and then compared to the genes of the parents to look for chromosomal defects and disease (if this sounds familiar, they do something vaguely similar in GATTACA).
AssureRX involves the drugs that are used to treat psychiatric illness. There are around two dozen drugs commonly used to treat mental illness, and two patients with identical conditions can react very differently to drugs depending on their genetic profile. AssureRX looks to help doctors figure out which drugs will work best for which patients.
Obviously both companies are pretty different from, say, Tumblr, but Botha says he’ll continue to make investments in both bioinformatics and consumer-facing companies.
Asked about the startup valuations and whether or not there’s a bubble, Botha said that he is indeed worried about valuations, as they have definitely crept up. But Sequoia isn’t going to stop making investments — in 1999, when the industry was completely ridiculous, Sequoia made investments in Google and Paypal, which have obviously worked out for them.
Regarding Sequoia’s R.I.P. Good Times slide-deck that leaked just as the recession started in 2008, Botha says that he doesn’t think Sequoia was being overly alarmist. Many of Sequoia’s portfolio companies trimmed some fat, and a lot of companies that could have gone by the wayside because of bad timing managed to tough it out. Sometimes companies raise money they don’t need early because they don’t know what the market will look like down the line — this was sort of the inverse.
The conversation then turned Sequoia’s investment strategy. Botha called out a few opportunities that they missed, including Twitter and Zynga. Asked if it’s a bigger problem to miss a winner versus investing in too many losers, he said that it’s by far the former. Because of the way the model works, returns are very asymmetric — a failed company will lose 1x, but a home run could get 50x or 100x upside. He quoted fellow Sequoia parter Doug Leone: “When it doubt, lean forward”.
And finally, a question that many entrepreneurs ask themselves: how does one go about contacting a Sequoia partner? Botha says that the partners actually read the emails that people send, and that while there is a lot of noise, they do read them. He says that Sequoia funded a company that’s now earning $200M in revenue and is planning an IPO — and that the initial pitch was from a random email to a partner.
TechCrunch Disrupt.
Every time I come up here the chairs are different. These are interesting.
You said you wanted to sit on this side because it is your better side, okay? Whatever works for you.
Better profile.
We're gonna starts slow because everybody's still coming in from lunch. Everybody, please welcome, I say Reolof Botha, you tell me how to pronounce it Roelof Botha.
Reolof Botha.
I have a Starbucks name.
Does anyone say it right? In the office, do they say it right?
No.
A partner from Sequoia Ventures. Sequoia Capital, sorry. You have been on stage with me, I think, once before, at the last disrupt, right? Never before that. You're always a judge but we had you on stage but you didn't get a chance to talk because it was an Angelgate discussion, where you let all angels do what they were doing to each other and you sat respectfully and quietly and just, I don't think you wanted to jump in the middle of it.
And so I wanted to have a chance just to talk to you on stage without a lot of drama happening around you.
You 're a man of few words, that's one of the things I like about you. That's one of the things that David Karp from Tumblr was telling me backstage after his talk how much he appreciates you on the board. You don't say much, but when you do, everybody listens.
Thank you.
Ok . You want to say something?
One thing I remember when I just joined Sequoia was Don Valentine who started Sequoia Capital in 1972, gave me this one line where he said, "You never learn anything when you speak, you only learn when you listen."
Does Mike Moore, does he subscribe to that sort of theory of life?
Absolutely.
I have been talked to by Mike quite a bit. Once when he was kind of upset with me, but so, you are, the guy found it YouTube? You incubated in it your office?
Well, the three founders were friends of mine from PayPal, colleagues of mine from PayPal base. They started the site in Chad Hurley's garage in Menlo Park. And their first business address then was at the Sequoia office when they were the three founders.
Yes.
They quickly grew to about a dozen or so people inside our office, within about three months.
Yes.
After which they moved out to San Mateo, their first outside office.
I 've come by your office once, and I have this habit when you're in a little bit different place than you are now. Whenever anyone wasn't looking, I started wandering around because you have the incubator where there are always super secret companies, and you said, is that the one, was it YouTube or was it a later company where you were worried that I was going to sort of to find them or something.
It was a later company wasn't it?
Yeah I can't remember the exact date.
Yeah it turned out I did a video chat with them, and I think it was Topbox. And you were worried with the background and all. You always try to keep that secret, so you, how much You ended up putting what, 15 million of the YouTube total. Less?
No it was less than that. I think our total investment was 11 or 12 million dollars.
And how much of the company did you own when it was acquired?
Approximately 27 percent, I think.
So that's, even in Sequoia, that's considered a good day. When you sell for 1.65 billion and you turn 11 million dollars into, to the dollar, I bet you know how much it returned. It was...
493 million.
493 million dollars. Do you get like 10 percent of that just to take home? Like how does that work around the office when you bring home half billion dollars?
It's a little more complicated than that because we set up these funds.
Just kidding.
Today, Sequoia, it's just massive wins, right, all the time. Is it really competitive, where like even a month after that or a year after that it's like "Hey, well what have you done for us lately" or is the firm patient with their investments?
The partnership is very patient but we have an internal motto which is "you are only as good as your next investment" and there's a very Strong sense of insecurity of not wanting to look back on yesterday's successes and resting on those laurels.
Yes.
Continuing to be hungy and driven to be a great choice for today's entrepreneurs.
Your last investment, at least that you're on the board of is square. Which is doing outstanding. We had some news from them yesterday. Was the one before that Tumblr in November?
Yes.
Okay. What other companies you are on the board of now? The ones you are particularly proud of.
[xx] is a lead investor in a company called Evernote, late last year as well. I'm also on the board of a company called Zoom, which is international remittance space, Meebo, GSN (Gene Security Networks) which is a bioinformatics company.
I want to talk about that, yeah.
Company called Jawbone which makes the noise canceling headsets and the jambox wirelss speaker product. A company called Unity Technologies that provides 3D tools for people to build iPhone games, browser based games. Sweeden? Where are they headquartered?
Copenhagen.
Copenhagen, ok. And? There's one more at least, right?
It's a company called Nimbula, which is a cloud infrastructure company started by the guys conceived of and bought EC2, a service that most entrepreneurs here today have probably used.
Ok . There's one on here I've never heard of. It's Maha-- what is that word? Mahalo? Are you an investor in that company?
Yes.
A good friend of mine started that company. Were not gonna talk about that anymore.
The two companies we talked about like crazy from my perspective, is SureRX and GSN, can you tell the audience a little bit about that? Cause you're investing in a broad spectrum in technology companies.
True. So, a couple of years ago, we had this notion that Iron Traumatics is going to provide a very interesting environment for technology investors like ourselves to get involved. Because Sequoia doesn't invest in drug discovery or medical devices. but if you can apply Information Technology to interesting biological problems we thought that was interesting.
And so the first investment we made was in this company called GSN which was started by a guy I met in high school in South Africa. He ended up being a gold medalist in a national science olympiad, a number one student at Stanford, electrical engineering PhD. And what this company does today, is they help patients who go through invitro fertilization, select the healthiest possible embryo to implant.
So what they do is they take one side of the embryo, analyze it's genetic profile, look at the genes of the parents and use that information to make a very reliable estimate of the embryo's genes to figure out whether the embryo's healthy so they can check for chromosomal defects and diseases.
Yeah.
So you can screen for cystic fibrosis or muscular dystrophy or things like that. The other company is Sure RX providing a screening for patients who get psychiatric drugs. And it turns out that there are about two dozen FDA approved psychiatric drugs. Even our different genes, we metabolize those drugs very, very differently.
If you're a psychiatrist today and you provide a prescription for literally the same condition, two patients who have schizophrenia, you may end up wanting to give them very different drugs, depending on the genetic profiles. This company helps the psychiatrist select the best possible drug regimen for their patients.
I don't know many Venture Capitalists who invest in such a wide variety of technologies. How do you go from a Tumblr board meeting and then talk to these guys at these companies. Is it just that you have many interests? In the bioinformatics space, do you want to invest more there? Do you think that's a good space to invest?
Yes.
It seems that the one company is your friend from high school, so that's perfect. The other one you found through the traditional...
Are you still interested in the Tumblrs of the world? You invested in them less than six months ago. Are consumer internet...
Absolutely, I think the consumer internet space continues to be incredibly interesting. I think a lot of people back in... When I joined Sequoia Capital in 2003, after having been at Paypal, a lot of people said, "Oh, consumer internet is over. The big places have been set." eBay owned a piece, Amazon owned a piece, Google owned a piece, Yahoo owned a piece and it was to be like that forevermore and just look at where we are today.
You have almost 10 times as many people with internet access today as a decade ago and I think it will continue to evolve in very interesting ways. And I think mobile is another dimension to consumer services. Connected to consumer services provides another dimension to that, which is why companies like Tumblr, like Evernote continue to be of interest to us.
Do you think Turn, which isn't one of your start-ups but Sequoia funded, do you think that they'll find success in what they're doing? I believe they will, otherwise we would not have provided Well I watched the company yesterday.
Yes.
They have gnomes. You took pictures with gnomes in it so I think there is some great underlying technology that he actually didn't really get to in the demo, but it's gnomes.
Omar is a very, very special entrepreneur. I know if you... people don't know the story perhaps, but, Omar was a one person entrepreneur, building a company - Admod - out of his dorm room while he was at business school, with a wife and two children, out here on the East Coast. We met him; he didn't have enough money to come to California.
So we literally bought him plane ticket to come and meet us at Sequoia and within a week, we were committed to being his Series A financier. Omar ended up being inside our offices for probably about six months incubating Admod, which Google acquired last year.
Yeah.
So he is a very, very special entrepreneur and I have a lot of confidence in his ability to continue to iterate and innovate.
Are you worried about valuations at all? Would you invest in Facebook at 70 billion? Personally ? I know those are different questions, but we talked about how you're still excited about the consumer space, but are you worried about valuations in this cycle right now?
I'm worried about valuations. I think that they clearly have crept up. But I think the thing we think about at Sequioa is being judicious and not wantingTo sort of ring things and say we are going to make any investments because the last time the environment was very crazy. In 1999, Sequoia invested in two companies--one was Paypal and one was Google--that ended up being fabulous long term enduring companies.
Yes, there were a lot of other companies started in 1999 that didn't make it, but if you just stopped investing because you thought the environment was too pricey, you'd have missed two fabulous companies. I think what we just want to do, is be very selective about the companies with which we get involved, given that valuations have crept up.
In 2008, you guys did the "Rest in Peace" sort of slides right? Was that a mistake in hindsight?
I don't think so. The truth is that the environment was very difficult for many companies in late 2008 and for much of 2009. And many of our portfolio companies who were aggressive, who were just trimming a little bit of the fat that existed in the company, Yeah.
had enough cash to lose to so that they could survive until 2010 before they needed to raise money, for example. Instead of facing a very tough fundraising environment in 2009.
Okay. You don't think, I meanFor me, in some sense, we're old enough to have gone through what happened in 2001, the complete meltdown of our lives and the industry. Although things that were still good for you at Paypal. You didn't leave until '03. You don't think it was an overreaction, based on a fear that something was happening?
Similar to that might mean an ice age for four or five years.
You're saying what does that mean.
Just with the benefit of hind sight. The recession wasn't that bad in our industry.
It wasn't that bad in the hindsight, but I think, it's one of these things where, it's like when an entrepreneur has an opportunity to raise money, you know, when they're maybe don't quite need to raise the money yet. Maybe they can wait but there's always the chance that the money isn't available later when you need it.
Presumably here if we didn't act as swiftly as we did and, it ended up that the recession was a lot worse, a lot of companies may have gone by the wayside. Just through for timing, so, you know, of the two different trades you of could have made. Was it better to be a little bit more conservative?
Or not be? I think that was the better decision. Do you know how David Cowen, at Bessemer has that list of companies he passed on. I forgot what he calls it. Do you know what it's called?
I don't know.
Is it anti-portfolio? What is your company that you passed on that try to make you human by the way? A lot of people see Sequoia so daunting that they don't even want to think about how to contact you. Is there some company, you know it was like awesome that came in and you were like "Nah.". Now it's kind of silly that you didn't invest in it?
Many .
What's one on top of your head?
I had a few opportunities, meeting with Twitter founders from the early days and we failed to become the investor there and I believe that was a big mistake on our partoriginal review of twitter. I said it's dog. It doesn't make any sense. Why are the founders focused on ODO, or not focused on, anyway.
So, I was right there.
Zinga was another one where I think we made a mistake, to not invest. We got a very long list. I think the portfolio you could build from all of thecompanies where we're not investors.
Are you ever worried about missing a winner or having too many losers. What's the bigger problem in your business?
Missing a winner.
Missing a winner.
Absolutely .
You need the winners. Yeah.
But the truth is that the returns are so asymmetric, at most you could lose a hundred percent of the investment, but the upside could be fifty times or a hundred times, and so as long as you get a decent enough number of those winners, they can compensate for a few losers, which isn't to mean that you shouldn't be careful with due diligence and be judicious about the investments you do make.
But it just, Doug Leone, one of the partners at Sequoia has this great line: "When in doubt, lean forward.
When in doubt, invest.
When in doubt, lean forward. Learn more.
Oh, OK.
It doesn't necessarily mean invest. But it probably means invest as well.
Are you particularly excited about any companies right now that you're going to invest in that you haven't announced yet that you're willing to announce now on stage?
I don't have-
It's that one we talked about.
Which one? None that are pending close.
You personally seem to make investments every three months generally or you just do board level investments?
At a board level. One of the partner actually commented that I'm very bursty with my investment so there's actually... in the calender year 2008, I didn't make a single investment for 12 months. To be honest, at the beginning of 2009, I did a lot of soul searching. Clearly there were companies started in 2008 that were interesting that I should've been an investor in and I was worried that I had lost my edge and maybe it's time for me to move on and then suddenly I've met a few interesting new companies and then, for example last year in the space about 4 months, I helped invested in Evernote, Tumblr and Sequoia so these things are somewhat random events.
So, you're in a bursty state right now and that means it's a good time for investors to grab you in the hallway and pitch to you?
Absolutely .
Yeah.
The door is always open.
I'm gonna take one question. If there's anyone that would like to ask Roelof a question. outside earlier. If you got one, raise your hand or come up to the microphone. I don't think he's walking up to the microphone. Is anyone walking to a microphone? They just had lunch, they're very quiet.
Food comer sit in There's an audience of ight hundred people out there and no one has a question.
Hi. I have a question.
Here we go.
Alright. Hi, I'm Nancy. I just finished my first year at Michigan and I'm interning at the Cafe and Foundation this summer. And I have some questions for you on a different scope of entrepreneurship. I have more questions about younger generations getting into entrepreneurship should be doing in terms to cultivate more effective entrepreneurs.
Should they be out there building businesses, building incubators, teaching classes? What do you think?
I think the notion of incubators at universities is very interesting. I think Stanford has done a lot of Work in and around creating an environment for entrepreneurship where there are a bunch of student - run organizations where they can get involved in running businesses. They run workshops where they get Industry leaders in, for at least a whole week they do provide them with coaching on Harrison business plan how to pitch, how to recruit, you know, just all the basics of business building, and they do those as conferences in and around the university.
So I think more of that... There 's clearly room for a lot more out of the country not just for Stanford University.
Right. As a firm, just to inquire, I mean, would you guys be interested in doing something? What is your kind of involvement with universities at this point?
So just because of travel constraints, we've tended to focus from early on UC Berkeley and Stanford in around our offices where we spend a lot of time on campus but we're very open minded about ...You know I'm thinking about some of the great engineering schools that you have in Boston, for example, I think.
from what I'm gathering there's a lot of initiative in New York City to provide a a lot more engineering infrastructure over here and another several universities are bidding to provide new engineering campuses in New York. Cornell is close to here. The University of Illinois has a fabulous engineering program.
Carnegie Mellon is out here so we'd be very interesting in spending more time here, helping more of these young students build their companies. The truth is, I think, when you started off talking about young entrepreneurs, many of our companies were started by people who drop out of college to start their companies.
Sir, You guys do a lot of angel investing. If somebody's out there and they're talking to their traditional angel investors and they don't know if they're a good fit for Sequoia or not, what's a good way to know? They just can't just walk in to the office, right? Do they need an introduction? Should they talk to some other investors?
They can always just email us directly.
Does that ever work?
Yes.
Has anyone ever and this is like info@sequoia.com or whatever.
Our email addresses are on our web pages And then like the business plans attached in, like instantly print it out on your desk, and you spend the afternoon looking through it or?
We're not going to waste the paper, I'll just read electronically. But it's all the reason I spend as many hours a day.
Those get read?
Yes. I can't, I mean, the stuff that comes into tips at TechCrunch.com is entertaining, rarely newsworthy, I can't imagine that actual, I don't mean to I mean it just seems a lot of noise.
There is a lot of noise. In business, it is noise ratio problem obviously but this at least one company we invested a couple of years ago, probably go public sometime the next year. So it's a $200 million revenue company in the enterprise infrastructure phase with 7 people at the time in Chicago. Well the founder emailed one of our partners, out of the blue.
Didn't know anybody connected to Sequoia. And, our partner read the email, followed up with him. Company relocated from Chicago to the Bay Area, and . .
I believe you. So go to the web site, and submit your business plan and there's a damn good chance that it getread .
Sequoia Capital is a venture capital firm founded by Don Valentine in 1972. The Wall Street Journal has called Sequoia Capital “one of the highest-caliber venture firms” and noted that it is “one of Silicon Valley’s most influential venture-capital firms”. It invests between $100,000 and $1 million in seed stage, between $1 million and $10 million in early stage, and between $10 million and $100 million in growth stage.
The firm has offices in the U.S., China, India and...
