Sequoia Capital, the renowned Silicon Valley venture capital firm that has backed companies like Apple, Google, Dropbox, Airbnb and Stripe, recently disclosed that it had opened its first office in Europe. To staff up, it hired partner Luciana Lixandru away from rival Accel Partners.
Even without an official European presence, Sequoia has quietly operated in the region for more than a decade, first investing in Klarna in 2010. Other Europe-founded companies in its portfolio include Baaima, CEGX, Charlotte Tilbury, Dashlane, Evervault, FON Wireless, Front, Graphcore, Mapillary, Metaswitch Networks, n8n, Remote, Skyscanner, Songkick, Tessian, Tourlane, UiPath, Unity and 6Winderkinder (Wunderlist).
Yet, it is only now that the VC firm is putting people on the ground here in Europe, starting with an office in London that has a remit to invest across the continent.
Working alongside Lixandru is a more junior investor, George Robson, who joined from Revolut. Most recently, Sequoia recruited Zoe Jervier Hewitt from EQT as head of talent in Europe. And finally, Matt Miller, a Sequoia U.S. veteran, is also part of the European efforts and plans to relocate next year, while I also understand that Sequoia’s Doug Leone will be spending a lot of his time in Europe.
Last week at the virtual “Node by Slush” event, I interviewed Lixandru and Miller and teased out some important details about Sequoia’s plans.
1. Sequoia now believes Europe is producing market leaders ahead of Silicon Valley
“There has been this evolution and maturity of the tech ecosystem that has been really meaningful, that has attracted us to want to put down boots on the ground and be more invested in Europe than ever before,” said Sequoia partner Matt Miller.
“One change is in the attitudes of young people. Europe has always been this place where there’s been incredible talent coming out of the computer science programs, across the universities across the continent and the U.K., and these young people previously, were going into careers in investment banking and consulting are bigger conglomerates. And now that those young people are interested in startups and technology careers, that’s fueling a lot of great ideas and a lot of great talent.
“There was a long time this question of, when will there be a $10 billion plus startup, and now there’s multiple of them across the continent. And now the question has really changed: When will there be the next hundred billion dollar startup in Europe, and I think it’s just an evolution over time.
“We find ourselves getting pulled more and more. So when … we want to invest in the best AI semiconductor company in the world, we looked at them in China, Israel and Europe. And the one we wanted to invest in was Graphcore, in Bristol [in the U.K.]. And when we looked … [to] invest in the best process automation company in the world, we looked at automation anywhere in California … and we looked at companies all over the world, and the one we wanted to invest in was UiPath in Romania. And that is increasingly becoming the case.”
“To some extent, success breeds success, too,” said Lixandru. “I think role models are really powerful. And the fact that there have been these category-leading companies created out of Europe, but that are winning on a global scale, like Spotify, Adyen and UiPath … I think that’s really inspirational to the next generation of founders. And I think that has helped a lot.”
2. The firm will make investments out of the same fund as the U.S.
“We work as one partnership across two geographies, and we invest from the same pool of capital across both geographies,” explained Lixandru. “And the rationale behind that is exactly what Matt talked about. We want to be able to partner with category leading companies, and if they start in Paris, or in Stockholm, or in San Francisco, for us, it does not make a difference. We want to partner with them early. And we want to be able to help them on the ground early … whether they start here in Europe or in the U.S.”
Related to this, Sequoia will share carry — the fund’s profits — with partners across the U.S. and Europe, regardless of where partners reside or where the deal was sourced.
“One of the things that I love the most about Sequoia having been here close to nine years now is the way that we operate is very, very team centric, and that everybody is compensated the same amount in a fund, whether or not it is the investment that they lead or the investment that their partner led,” said Miller. “So when we make an investment, we lock arms together as a team, and we work collectively to help that company be successful.”
Miller said portfolio companies in Europe also get to work with Sequoia’s operational supporting partners in the U.S., too. “And the economic model is one that supports that,” he said.
3. Sequoia will continue building out a team on the ground in Europe
“One of the most important things and significance of us making the decision to hire a local team and open an office [in London] is at Sequoia, when we are in, we are all in. And we have opened geographies like China and India before where we have become the most dominant venture capital franchise in those regions,” said Miller. “Our intent is to do the same.”
“But we know from past experience that if we roll into a new geography, and we hire a 20-person brand new team, that’s a recipe for disaster. And the way we have set up Europe is, this is an extension of the team that has currently been working together based out of Menlo Park in California. And we’re slowly adding and expanding that team so that we have the ability to recruit really, really great people, and have our culture permeate, and our learnings as an organization permeate. We would rather take it gradually and hire outstanding people and slowly build up a team then roll up with 20 new people, but we are as committed as ever to building the dominant venture franchise in Europe.”
4. Matt Miller, long-time Sequoia partner, is relocating to Europe once the pandemic allows
“We obviously started this process pre-pandemic,” Miller said. “And I had planned to be there on the ground by now. But I have young children, and with all of that dynamic, we felt it was better to wait until there was at least a vaccine or some breathing room. So I’m hoping to be there this summer.”
5. Sequoia will do more European seed investments as it aims to build super-early relationships
“One of the things that really got me so excited about how Sequoia operates [is] we invest throughout the journey of a founder,” said Lixandru. “We invest everywhere, from seed to growth to when companies are later and beyond. In fact, our tagline is from idea to IPO and beyond. So we do invest across stages.”
That said, Sequoia wants to take a collaborative approach and work with Europe’s local seed funds.
“We want to be very collaborative, especially at the seed stage,” continued Lixandru. “The seed ecosystem is very local [in Europe, with] seed funds based in France, based in Germany, based in Eastern Europe, and the list goes on. And we want to collaborate with these seed funds. We do want to partner early with founders because we think that the type of outlier founders really want to change the status quo, the type of founders we want to partner with, so we want to find them as early as possible. And we will be collaborative at seed.”
6. Sequoia has already expanded its angel scout network to Europe in a bid to source deals early
“One of the things that we engineered about a decade ago was we wanted to equip the people who were close to our ecosystem to be able to go and identify great investment opportunities for ourselves,” said Miller. “And so we have a scouts program that’s been written about and talked about here in the United States. And one of the things that we have done as we’ve entered Europe more formally with partners on the ground is we’ve extended our scouts program to include European contacts, and the ability to invest in companies that are based in Europe.”
“It’s also really about building a community, we want to bring people into the Sequoia community as we’re getting started in Europe,” said Lixandru. “So these are people that we have known for a long period of time … we’ve been working with for a long period of time. And yes, it is, of course, about finding the next really great entrepreneur and the next really great company, but it’s also for us about building a tight-knit community in Europe.”
However, Miller declined to answer the question of how big Sequoia’s European scout network is or will be. “We don’t actively disclose the numbers because the numbers vary from time to time. Some people come on, some people come off. But it’s something that we’re in the early stages of building, and [are] very excited about the people that we have as part of this community.”
7. “Every round these days is a competitive dogfight”
“The reality is we’re in a hyper-competitive venture market, where there are a lot of wonderful funds that can do great things for companies that are trying to find opportunities to invest,” is how Miller framed it. “And there are times where it makes sense for us to double down and invest more, there are times where the founder might want to have another party around the table for reasons … like they might have something or some partner that they gravitate to. And so signaling is less of an issue, because every round these days is a competitive dogfight. And so sometimes we have the opportunity to lead the next round and we’ve earned that and it works out, sometimes we do not.”
“At the end of the day, it’s up to the entrepreneur,” added Lixandru.
But what if Sequoia chooses not to invest in the next round? Arguably, that is a bad signal to the market. However, Miller pushed back. “There are many seed investments that we have done that have been led by some of our most esteemed competitors at Series A,” he said. “And so you know, it’s a matter of everybody has a different perspective, everybody is doing different work. It’s a very hyper-competitive environment.”