Sequoia: Not your Grandad’s (Or even your Dad’s) Venture Capital

As Jere outlined in our discussion about venture capital, the VC game is rapidly changing. The costs of starting a company are substantially less than in years past, and VC funding is happening earlier in the process. Many people credit AWS as being the biggest difference, as cloud computing minimizes the upfront cost of hardware. This mean that moonshots like Airbnb can be given a small amount of funding and possibly take off. Still, Legends like Don Valentine could never have predicted hundred billion dollar funds in the future.

In order to make these changes Sequoia is going through a little bit easier to understand, I’ll take a page out of Gavin Belson’s playbook : animal comparisons!

 

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Upstream Migration: “Consider the Salmon”

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One of the major trends is moving upstream, and working with companies earlier and earlier. Unlike the salmon’s upstream migration you learned about in Rivers, platforms like AngelList and several VC funds are moving to earlier & riskier waters. Sometimes, this is called the “spray and pray” method because VC’s will seed a large amount of companies with a small amount of money. This is not entirely true, as Sequoia still only makes 1-2 investments per year per investor, but many of these are seed or series A. In some instances, this can lead VC’s to reduce the time spent with companies advising them. On the other hand, this has given rise to incubators, which focus much more on guidance than the $.  In the place of angel investors, VC giants like Sequoia now have seed specific funds. Although seed funding is nothing new, in order to increase returns on LP’s money, it is an exciting opportunity.

Scouts: “Consider the Wolf”

Another way companies like Sequoia are changing VC is through the implementation of “scouts”. These scouts are entrepreneurs that are challenged with finding interesting opportunities for Sequoia. They have found that following and empowering entrepreneurs has let them leverage their network to find opportunities first. The scouts are given a portion of the carry on the fund as a “finders fee”.  Just like a wolf, sometimes in sheep’s clothing, these scouts allow the VC to swoop in undetected. These scouts are a new opportunity and have been used in a handful of Sequoia funds. 

Settling Down: “Consider the Swan”iStock-506179506.jpg

Sequoia is also meeting with companies earlier and earlier, even if not to invest. They call this, “not getting married on the first date”. But just like the swan, once they find their partner, they are fiercely loyal. Because of their diverse partners, they can create a good match between VC and team in terms of what they can provide. They really try and create a partnership, and do not take board seats in the initial round. By having a small number of VC firms on a deal, they can really create a partnership. This could be one of the reasons that a Sequoia seed-backed company is 3x more likely to raise another venture round in the future.

Liquidity Length: “Consider the Sea Turtle”

One of the problems with early stage investments is a long time to liquidity. A normal VC fund is about 8 years, but it can sometimes take longer before the investor can collect their earnings. By investing earlier, the fund has an even longer time horizon, and therefore demands a higher return. Another worry is that because the returns need to be quick, VC’s are looking to invest things that will grow really quick and have exit options in the form of acquisition or IPO instead of more complex solutions. Crowdfunding and ICO platforms are also putting pressure on VC’s as they are not the only way to raise capital anymore. Just like Crush from Finding Nemo, 150 years, and still young. 1d60cab13c75b5b0944f11de82b88759.jpg.gif

 

CJ Reim & Amity Ventures: 

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On the trip, we will be getting dinner with CJ Reim from Amity ventures. If that last name looks familiar, it’s because he is my cousin. He graduated from BC in 2013 as a finance and info systems double concentration and is a TechTrek Alumni. He originally worked at Highland Capital where he specialized in early stage companies, but in the last year, he has been raising money to start Amity Ventures with Patrick Yang and Peter Bell. Amity currently has about 20 portfolio companies (not all are public). Many of these are early stage tech companies, but I will talk about a few of them in detail.

Flirtey: the world’s first turnkey Delivery via UAV solution that is safe, scalable and more cost effective than any other form of last mile delivery today. Based in Reno, Nevada this company is trying to bring drone delivery into the mainstream. So far, it has been FAA approved to deliver medical supplies, online retail merchandise, and food delivery.

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Omni : Omni is like a cloud based garage. It will come and pick up your stuff, taking pictures of it, and store it for you. Your stored things can then be rented out to other customers, and you recieve Omni credit or cash for them. If you wanted to rent a bicycle, guitar, or skateboard, you can for as little as $10 a day. This shared consumption platform allows you to get cash from the things that take up space in your garage.Omni-before-after.jpg

Ouster: We will be visiting this company on Wednesday morning. This company has a mission to bring 3D LIDAR sensing to the masses, so that safety is no longer a luxury. Amity was part of the $27M series A for Ouster, alongside 5 other VC firms. They sell their 3rd generation 3D sensor, with applications in self-driving cars (check out video here). It is designed to be small and fit with any platform. Retail price is $12,000.Ouster OS1 Lidar-2

Cj is also very plugged in to the cryptocurrency market, and he spoke at a Shea Center lunch about it earlier this year. He would gladly talk to you about all things crypto and ICO, so feel free to ask him if you’re interested. If you want to have a little bit of a background into crypto markets, here are some sources that he recommended to me.

Questions: 

Some questions that I would pose to Sequoia about the changing VC environment:

  • Besides the network effects, how do you believe that the scouts can help Sequoia expand moving forward?
  • Valentine talks about markets being the only thing that matters when investing, but how are factors like team cohesion or experience weighed?

And finally, some questions for CJ at dinner.

  • What was the most difficult part of raising money when this is Amity’s first fund?
  • How did your experience at Morgan Stanley help you as a VC?

 

 

11 thoughts on “Sequoia: Not your Grandad’s (Or even your Dad’s) Venture Capital

  1. Great post, John! I really enjoyed your analysis of Venture Capital with the inclusion of animal comparisons. It made it easy to understand and engaging! The idea of the Sequoia’s scouts is unique and I am sure very helpful as entrepreneurs will work very hard when challenged to find a new opportunity. I am also so excited you included more on Amity Ventures and your cousin. I saw that in the itinerary and was curious for more information. Ouster sounds really fascinating and with the many firms that they have received funding from, it will be great to follow their journey with expanding 3D LIDAR sensing to the masses. Safety is certainly an issue we have brought up on many accounts, especially with autonomous cars and finding a solution is one giant step in making progress in that space.

    Liked by 1 person

  2. Cool post, John! I can’t wait to see CJ again and talk to him about Amity and the cryptocurrency market. I’m also really excited to visit Ouster (Amity’s portfolio company) and see how they plan to expand the applications of 3D LiDAR into untapped markets.

    I also appreciated your insight into the evolution of VC and Sequoia. Sequoia seems to be taking the more cautious approach to the “spray and pray” tactic by meeting with companies early on and creating partnerships. That said, I’m interested in seeing if Sequoia focuses more on seed-stage investments in the future or reverts back to their proven investment model (and how the rest of the VC industry will evolve in the near future). I can’t wait to visit Sequoia!

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  3. Very in-depth, John! It seems that the more I learn about Sequoia, the more I realize I don’t know about Sequoia. And, thank you so much for the information on Amity Ventures! When I visited Highland Capital with BC TechTrek Boston, it gave me s different vibe from what I gathered about Sequoia. I am very excited to hear more from all the VCs we will be seeing on the trip as their perspectives will probably be all different but insightful!

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  4. Loved this post John! I met Peter Bell at Lunch with an Entrepreneur and I wish I had been able to read this post first and ask better questions about Amity! Peter seems to think the crypto market is hot and something our generation should spend a lot of time learning about. I found the swan analogy you offered to be especially helpful. The notion that “just like the swan, once they find their partner, they are fiercely loyal” algins with Professor Doyle’s class about general partners acting as the #1 contact for their portfolio companies.

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  5. Great post! I had no idea that Sequoia had scouts, but it sounds like a really great idea. It’d be interesting to know if many of these scouts eventually join Sequoia under a more formal role. I’m very excited for our meeting with CJ! While it is really interesting to learn from these long standing VCs like Sequoia, I think hearing from a newly started VC will offer very unique and valuable knowledge. I also watched the 20 minute video you linked and it was great! I’ll definitely share that with friends that are new to cryptocurrencies in the future.

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  6. Creative post, John! I think the scouts are a really great idea and I agree with Alexandro, I’m curious if scouting leads to any future opportunities at Sequoia. The “migrating upstream” idea also reminded me of recruiting on campus – people keep talking about how companies have gradually been looking at students earlier and earlier in their careers, yet it’s interesting because at the beginning of Sophomore year I still had absolutely no idea what my future plans were. Not sure if this parallels the “spray and pray” method, but I’m interested to see how connecting with companies so early on affects VC’s as company visions change over time.

    Liked by 1 person

  7. John, this was an awesome read! I never knew that CJ is your cousin! So funny. When I was talking to Justin about his role at CoinList, Andy was not a direct connection. Justin actually did cryptocurrency research for CJ and Amity Ventures, and CJ then recommended him to Andy Bromberg who needed help on a separate project. After, Justin asked Andy if he could work for CoinList and before you know it, he was hired part-time!

    I agree with Lizzy in that the Swan analogy was incredibly helpful! I think this development in Venture Capital is definitely for the better. I really believe that it’s critical for the VC firm to be involved with the companies that they invest in; as Professor Doyle mentioned in class, unfortunately not all VC firms are like this. With the trend of moving upstream in the investment process, a good relationship becomes even more essential, since the startup will need even more advice as you move earlier and earlier into a new company’s life cycle. This was honestly one of my favorite posts I’ve read all semester, so kudos to you!

    Liked by 1 person

  8. Really great post John! I noticed that you and CJ share the same last name and was wondering if there was a connection! I’m really looking forward to our dinner with CJ and hearing about his experiences in venture capital. The animal playbook is extremely clever and you did an excellent job describing VCs’ tactics. My favorite trend that you mentioned was “salmon migration.” It’s a very fitting metaphor considering how quick and early investors tend to act!

    I especially liked learning about the early stage tech companies that Amity Ventures is involved with. My favorite company on the list was Omni. The sharing economy excites me, and I love the idea of renting out items that go unused. Looking forward to hearing more about the companies CJ is involved with and the challenges he has faced launching Amity!

    Liked by 1 person

  9. Hey John, I’m a big fan of the animal metaphors describing Sequoia’s investment strategies. This is a firm that I am super excited to visit and I cannot wait to learn more in-depth details on how they approach business! I also like the contrast between Sequoia and CJ’s company. I will be very curious to compare the strategies of a megafund versus a new fund.

    Liked by 1 person

  10. I’ve been wondering all semester if you had a connection with CJ. I don’t know him terribly well, but I definitely have met him on past TT (and as a BC student) and have been very impressed. Looking forward to seeing him again.

    Liked by 1 person

  11. Great job giving some color to different roles at a VC firm. I’m really interested to hear Sequoia’s take on cryptocurrency, as they can’t really be valued as a traditionally company (their balance sheet/income statement is unlike anything Apple puts out through investor relations) but they’re undoubtedly going to be a part of the information sharing game going forward. Thanks for the share!

    Liked by 1 person

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