Sequoia Capital's $10 Billion Plan for the AI Economy

Last November, longtime Sequoia partners Alfred Lin and Pat Grady became the firm's co stewards. For more than 50 years, the Silicon Valley firm has backed some of the biggest winners in technology, from Apple and Google to Nvidia. Today, it manages more than $80 billion. But as detailed in Bloomberg Businessweek, it recently raised another 10 billion across its growth and expansion fund. Since then, the Sequoia partners have made a risk to the franchise investment in anthropic. They've returned to investing in chips and continue to hold on to one of the firm's greatest investments. Space with us now on Bloomberg Tech. Alfred Lin and Pat Grady to discuss what's changing at Sequoia. The technology companies of tomorrow. I want to start with how Sequoia you published. What reads to me is like a mission statement. It outlines principles the firms held for quite a long time. And I think some new ones that you are trying to emphasize. Alfred, is that fair? Well, first of all, thank you for having us. It's really fun to be here with my co-host Stuart, and we get to do this together and it's because it's our sequel. It's not. It was never done. Sequoia when he named it Sequoia Capital, and it wasn't 54 years ago, 54 years ago. And so update. And I wanted to make sure that everybody at Sequoia thought of it as our Sequoia. That's principle number one. Principle number two, if you take care of the founders, you will they'll do right by our LPs. We do right by LPs, we'll do right by Sequoia, we do right by Sequoia. We can take care of the team, and then we can take care of every single person at Sequoia. Right? That is principal. That is a principal that has been at Sequoia for a long, long period of time. And also we are only as good as our next investment. And that is not a risk. Your franchise. It is what makes us Sequoia. And I noticed the smile when I read out the line. We will get into to how that manifests. I mean, they it's a cost you a title. You regard yourselves as partners. Yeah, as part of a partnership. Yes. You are not managing partners? Correct? Correct. Um, as Sean Maguire outlined to me in a telephone call. You know, he rejects the notion that your bosses, you are partners in a partnership. So lots of people that like, how would that work? Well, so first off, on this boss thing, we had a funny conversation with one of our partners a couple of years ago where he referred to somebody as a supervisor. They're like, your supervisor? What are you talking about? He's like, well, he's my boss. He's my supervisor. Like, no, no no no no. This is a partnership. The only way that we're going to bring out the best in all of our partners is if it feels like a real partnership. Okay, so one of those principles that you mentioned with, with our Sequoia is this idea that influence should be awarded to expertise and reason and not to tenure and hierarchy. And what that means practically is in any given conversation, if we're going to make an investment decision, how often I might have less of a say than our other partners, like Shawn or Andrew or Sonia or David or Constantine, because they might actually have more expertise on a particular topic than I do. In fact, they have more expertise on most topics than we do. And so this idea that influence should go to the people with the expertise, not the people who happen to have been around for a long time. That's what makes it a partnership, and that's what allows us to play at our best. There's no tiebreaker, essentially, that you to get awarded. You participate under the same rules as the rest of the partnership. Right. I mean this with full respect. What does the term coast steward communicate that any other title doesn't? You know why you I think you both don't want to get bogged down in administrative duties. You want to participate in the partnership. That's part of the reason why it gets the two of us together. There's no. And part of that is we we are partners across the board. And we get to help lead the organization. Uh, and part of leading the organization, it has to do with making sure that we have structure and we sign SEC documents. A lot of it is administrative. And we get to split that so that both of us can stay on the field. I try to make sure that Alfred signs all the SEC documents, but literally that this is the part that is really good about this, but this is a partnership. We wanted to show the value of partnership, and we want it to be a team effort. And not everybody has to do everything. And this idea of stewardship, if you go back to the original generational transition, which was in Don Valentine, head of the firm of Doug Leona and Michael Moritz in the late 90s, the standard at the time was to have the younger partners buyout the departing generation, right. Don instead gave it to them for free and said, your only job is to leave it better than you got it. And so that's become a very core part of this and continue that tradition, this idea that stewarding it for the next generation, as opposed to there's no concept of ownership, it's acquire all of the partners, own the partnership together. Our job is to make it great. We're sitting here talking about, you know, you're eight months in essentially, um, as co stewards. But in that time quite a lot of things have happened. I want to get to what you've you've enacted or changed. That's different in that eight month period to the history of the firm, and one of the things outlined in the Businessweek article is if you are a partner that is interested in an investment, you can propose at any time. Yeah. Yes. Through a various means mechanism. So traditionally in Silicon Valley venture firms, you have your Monday morning meetings. You guys have said basically seven days a week, any time. Um, well, let's talk about let's talk about like, being customer obsessed. Yes we are. Who are your customers exactly. As founders. And so we should work on the founders timeframe. If the founder wants to make it make, uh, a raise a fundraising, they have a timeline. We should abide by their timeline, not the other way around. Right. And this notion that we get to, like, have every decision happen on a Monday is kind of a little backwards. Are we the customer to the to the founders or the founders, our customers? And for us, we want to make sure that we want to send a clear message that the founders are our customers and we're customer obsessed. And there's a second concept here, which is outlier. Founders want to work with outlier people. And so our partner Ravi has this idea of playing free. You know, everybody should play free. And we don't want Luciano or Andrew or Constantine or Sean or David or Sonia. We don't want them to to become another Alfred or to become another part. We want them to be the best version of themselves. And the only way we can do that is if they feel like they can play free. Like they have rope to just go at 100% velocity all the time. And then our job is to help enable them not to get in the way. And so we are we are tight on principles and we are tight on values. We're very flexible on process. So some people that might sound chaotic just it literally how does it work mechanically. It is. Somebody will send a WhatsApp to the rest of the partners saying guys got a great off. We have to meet now and talk about it. And what happens? A couple days ago, an email came out recommending an investment, controversial investment. We go into a document. There's a lot of commentary in the document. Here's what's good, here's what's bad, here's what I like. Here's what they're not like. What are we going to do? We had six people on Reddit to New York a couple nights ago. We went to spend this week. This. This island a week. But now I'm back. Tuesday night we had six people on red ice to New York randomly or on five different planes. I don't know why we took five different planes to get to New York, but it was a spur of the moment decision. It was a spur of the moment thing. We spent two hours of the company yesterday morning. Yesterday afternoon we signed a term sheet. So gang tackle, get everybody in front of you. Sit down to ask you which company. Oh, I know, I'm sure you would, but yeah. And the answer is uncommon for any company, but probably a monster. Probably one that's going to be huge. Was it a big check as the stakes were high? Come on now. Hang on. We can get the smallest possible dollars for the largest possible one. There is job is to put small dollars in work and make them large dollars. There is some case studies. We're going to get to you later in this conversation that would say slightly otherwise. Let me ask you this. Let me say I'll ask you this. We could do the big dollars if we have to conviction over consensus. So in lots of partnerships, be there a venture firm or a law firm. You know you vote. Yeah. Your structure is very different. Things are not achieved by consensus. How does it work? We vote. But the point about conviction is that you need conviction to to to be committed for a company for a long period of time. We love building companies and helping founders build companies. We want to be an early believer and compound with them into the future. And that requires real conviction by the person who has the most expertise. And so when we debate, we are trying to get to truth. We are a truth seeking organization. And there's much better conversation when there's a debate than when everybody is. Oh yeah, I agree. And then it's a it's usually a net investment. And let me give you an example on that since 2019. Okay. 2019 Sean Maguire joined Sequoia Capital. Yes. He joins the early stage team. Okay. 2019 zoom had just gone public. We just got into business with Dylan Field of Figma, who I know you guys just had on, um, the combined market caps of Tesla and Nvidia were approximately the same as the market cap of Salesforce. So to set the stage in 2019, the thing on the menu was software. Yes, software was consensus. We love software. Everybody loves software. Shawn, a brand new early stage investor shows up and says, I think we should invest in a rocket company at 20 billion. We thought that was insane. But Shawn had conviction. He had done the work. He painted the picture. This is pre Starlink, right? This is what it was a launch company and the main customer was the government. Right. Shawn painted the picture of what this thing had a chance to become. And it's become one of the best invest. We're talking about SpaceX. And so that was that was SpaceX. Yeah. So that was that was conviction at work. That was 2019. But what I'm trying to get to is the idea that in any number of voting partners, the majority might say, I have a lower conviction, I have a full you guys do it on a scale of 0 to 10, you don't count five. But just two might say we are 8 or 9. We love those kinds of investors. And you do go with the investments. We've been recording the data since 2014, so we now have 12, 13 years of data on this. And we thought that continuous investments would actually be the best investments. And it turns out it actually doesn't matter whether it's continuous or consensus. Yes, all that matters is presence of conviction. I want to get to Sean because it's outlined in the Businessweek article, and Sean has been on this program, and I've spoken to him somewhat regularly. Right. The idea is that, uh, Sean, uh, has made, uh, let's say, incendiary, uh, posts on, on social media. Um, he has said things that are divisive, but you regard him as being unique, right? He has a unique background and set of interests that you believe, uh, put Sequoyah, uh, into opportunities that you would not otherwise have. I don't want to speak on your behalf, but, you know, let's talk about that. Let's. I think we should just talk about the balance sheet. Sean, like lots of balance sheets have shown the positives and negatives I see. You just talked about a bunch of negatives, and I just want to make sure that people understand the positives. The guy was one of the like, top ten Counter-Strike gamers when he was in high school. He was a day trader in high school. He then went and got a PhD in physics and quantum theory. Mhm. Much if you regard physics is hard. Quantum theory is one of the hardest. He when he joined Sequoia he put together a hardware manifesto. He led us into hardware. He led us into space with a lot of conviction and a lot of courage, because there was there was votes by GPUs. That was a one. Now, on a scale of ten, it was a one. And he kept pushing and pushing because he had ten. He was a ten out of ten and tends to be there a zero or a ten. Okay. Fairly binary for binary person. And so, you know, in terms of conviction, he has strong conviction. He's been right a lot. He will lead us into crypto. And I want to talk just about the negatives because I think people need to understand the Space Acts is one of the biggest returns that this faces in its history. And I also go back to the thing we were talking about earlier. We want everybody to become the best version of themselves. Um, now again, we are strict on values and principles, and so we need to believe that when people behave, they are doing so with the best possible intentions, and they're doing so with a standard of excellence that we expect of all of our partners. If they are doing that, and if we happen to agree or disagree with the output, the agreement or the disagreement doesn't necessarily matter. It's the inputs that we tend to focus. I would say for the record, that, you know, Sean told me that he would not work anywhere else. And, you know, he believes in the principles that you outlined also, that, you know, his belief is that his intentions were never, uh, to have a net, uh, net harmful effects on the intentions are pure. His intentions are always pure. And that's another thing I was going to mention. But he also has great courage. There's conviction, there's people with conviction, and they don't have courage. And, yeah, you can talk all day long and then you don't sort of make the investment or you push the discouraged look like, what's the action that you're looking for the partners to take. If you have a GP and you're not a GP and there's a vote of a one by a GP, but you still keep pushing forward. That is courage. You're willing to get fired for something that you believe is going to be a great investment, and that turns out to be one of the best investments in Sequoia history. We have a list that we keep of all the different failure modes that we can run into on investments. There are 40 or 50 of them, one of which is called a Wimpey sponsor. With B sponsor is you say you love something and then you get to know and you just go away. You just what? You probably didn't love it if you got one. No and you went away. If you actually love it, you're going to keep pushing and keep pushing it. Keep pushing, keep pushing and keep pushing. And that's what courage looks like. I'd like to talk about the anthropic investment. It's detailed in the Businessweek article, but essentially it was something a bit new. Uh, it was an example of risk or franchise risk or risking the franchise. Where should we start with what happens? I mean, you, uh. Uh, along with, uh, Sonia. Right. The sponsor on on that opportunity. So, um, so there have been multiple sponsors of this. We work as a team. There's no model sponsors on on the company. Uh, Ravi had sponsor for a period. Uh, one round. Sonia had sponsor with him for another round. And then we kept passing. Part of it was because we wanted to sort of, uh, the we were early investors and open eye and we thought, well, we can invest in both. And for a period of time, that was our mode until we checked with all of our founders and they were using both companies, and they were using the technologies of both, both of the for different things. Exactly. And so obviously open. I started with, um, the consumer app and finding information and um, anthropic had cloud code and it was much, much more focused on coding. And so over time we got greater and greater conviction. Our own, um, and our own engineering team was telling us how good the cloud code coproduct was working right. So we gained more and more conviction over time that we should make an investment in anthropic on the on this billion dollar round, this last round that we made investments. Uh, it came together because we had just been following the company, and three months before we had made an investment in the company. That was January of this year. Yes. Yeah, it was actually November. And then it was it closed and disposed then. Yeah. And so we've been following the company. The revenue ramp continues to go up. And we decided that we're going to make a fairly large investment in this round. A fairly large investment initially was a billion, but the idea was a recommendation by Sonya and I that we invest a billion. And we were like, where are we going to get the money? Um, well, we have plenty of places we can invest from, right? And I was, uh, pleasantly surprised, first with a call from Sean and then a call from Pat, and then in the in the room. We started with a number that I thought was like, huh, interesting. Where are we going to get that number from? Right. And the number started at 5 billion. And then you work backwards then? Yes. So have to come in and explain your take on the events that that transpired. Well, I mean, the, the simple, the simple explanation for the investment is this is the tectonic shift of our lifetime. In a perfect world, we would have back entropic many years ago. We didn't. And so the best thing we can do now is to come in at the most scale that we can muster. And so 5 billion was kind of a theoretical number I mentioned to be provocative. We ended up to two and a half because we can't really do 5 billion across all of our different funds. And so two and a half is kind of the most we can do. And that's sort of how is it fair to go as far as to say, like, how much money can we deploy without putting the firm at risk? Yeah, that was part of the conversation. Two and a half or five would be comfortable numbers as far as that goes. But but one thing we don't we've never done spvs. We're not in this SPV business where you speak for something. I think we have enough time today to talk about. Yeah. So we don't we don't do that stuff. And so 2.5 billion was what we could do out of the core funds committed capital. Yeah. Let me ask you this or give some background growth. Early stage since 2017. You led the growth co-led. You've co-led early stage but you sass consumer. But there's a lot of overlap right. You have made significant growth stage investments and joint boards. You've made early stage investments, particularly in I just talk a little bit about how the two of you see that progressing, you know, forward looking. I think it's very, very simple, which is like if you've been in this business long period of time, you know what a good early stage investment looks like. You know what a good critical investment looks like. So, uh, Pat has but traditionally a growth investor who made the early investment and Harvey, I've, uh, I've seen how early stage companies grow and advocated for growth investments in Airbnb and DoorDash when they grew up. Um, and over time, I think if you've been in this business long enough, you'll make both early investments and growth. Since we have Constantine, the champion, Citadel Securities and Waymo, we have we talked about Tron. We have we have, uh, David that has, um, um, invested in a Nikola that's relatively early. Uh, we have Sonja, who's recently sort of flew with me to, uh, to London to advocate for the investment. Ineffable, ineffable. So these are the our team is much more fluid. And we don't just going back to like, most of our partners don't like being put in a box. We don't want none of us want to be put. You will regard the partners. Sorry to interrupt you to say that these partners, if you stack them up against any venture firm in the world, they would be in the top ten of of of the list of partners all time. I genuinely believe that we have the best partners in the world of Alpha. And I got hit by a bus and we'd be fine if we ever came next. Got hit by a bus, we'd still be fine, right? Um, but this idea of being able to go beyond early in the growth growth into early consumer, into enterprise, enterprise into consumer. I think one of the things you realize over time is that there are two core primitives in our business. It's people and markets. And if you develop a good understanding of what outlier potential looks like in a person, and if you develop a good understanding of where a market has a chance to go over time, those two ingredients kind of transcend the stage at which you happen to intersect that company. And so that's what we see out of the folks on our, uh, at Sequoia. You know, as they progress, they can kind of go across stages. I have to ask you both. Bloomberg reported this week that Sequoia was one of the firms approached by situational awareness as they tried in the reporting to offload some private stakes. You know, we've seen what's happened in public markets, an opportunity to comment on that and how you see the situation. We've been delighted to to comment on that. Um, we were aware of that situation and um, uh, it has been reported that we were talking with them about the anthropic stake, you know, Ken Griffin showed up with what was a better solution for Leopold at that moment in time than he went with the better solution? I think that our our observation is that there is this game on the field over the last couple of years investing the I supply chain. Leopold was one of the first people to recognize that that was the game on the field. And on balance, he played it pretty darn well. And so our suspicion is that he's going to be a fixture in Silicon Valley for a long time to come. I wanted to get to the Valpo case study. Um, we've talked a bit about Schultz on one on the piece. Go ahead on situational awareness. He did just wire $400 million to a company that we invested and so. Oh, could you. We actually reported on the 400 million, but I haven't got a clue who the company is. Yeah. No comment on that, but he's just not a good one. He's not. He's going to be he's he's really good. He's going to be around. We just have sadly 2.5 minutes I found what happened with that a lot of time. It's really interesting. Again we're going over history, but would you just kind of explain how that happened? Sean was the sponsor. He made a really big proposal. Then what happened? Well, we have a partner named Liam Corgan who joined us just six months or so ago. Yes. And you know, Liam, physics undergrad at Harvard happens to be an Olympic gold medalist, but he actually came from the nuclear industry before joining Sequoia. And so we have this person in Liam who understands the market to a great degree of detail. Yes. And then we have this partner in Sean, physics, PhD, as Alfred mentioned, who deeply, deeply, deeply understands the technology. So the two of them together, we're working on this investment. And generally speaking, things that have multiple layers of technical risk remaining with a business model that is many years in the future. Those are scary investments, right? And so we're happy to take risk. But usually we do so with smaller check sizes. And so when the recommendation came out for a $300 million investment, you know, some eyes popped out of some skulls. Yeah. I said, boy, that seems like a lot of money for a company with this much risk in it. But Sean and Liam made the case. We decided to get on a plane and we went to. You got on a plane? Alfred, you were in New York. New York? I was in the Civil Security Board meeting. Yeah. A few of us got on a plane. We went to visit them. We spent the whole day with them. We got to know Isaiah and his team. Isaiah is truly a one of one force of nature. Exceptional founder who were not delighted to be in business with. I think we started to appreciate exactly how many of the different pieces they've put together, how novel their approaches and how well they're executing. And at the end of the day, like Sean and Liam, we think they are right. And we wrote with their conviction. We have literally 30s and I'm sorry to do this to you, but let's end it with your White Swan memo. What would the title will be if you did a White Swan? I just think that there is a lot of negativity around I and it's really just misplaced. Uh, I think we have a text tag to connect shift, and I, we have a tectonic shift in hardware, tectonic shift in. We have tectonic shift and industrialization of America. The future is very bright. And if I had to write a memo today, it would be a white swan memo, not a black swan. Then no. Sequoia partners, Alfred Lin, Pat Grady, thank you both very much.