Demystifying Sequoia

This week I am presenting on one of the top venture capital firms in the world — Sequoia Capital. In my presentation, I will focus on Sequoia’s past: the founder Don Valentine and his partnering with Atari and Apple. In this blog post I want to address two main points:

  • How is Sequoia different from other companies?
  • A Female’s perspective of the venture capital industry from Sequoia’s first female partner, Jess Lee
  • And a final mention of what’s Sequoia doing in Asia?

What makes Sequoia different? From Don Valentine’s point of view

Sequoia focuses more on the market and less on the entrepreneurs. They consider the size and dynamics of the market and the nature of the competition. Sequoia’s goal is to build big companies, which is only achievable with a good market. Don was very successful in his early investments in companies like Atari and Apple that he seemed to “know the future”. The truth is he is good at analyzing markets and finding the next big trend. To Don, he doesn’t care where the entrepreneurs went to school but whether they have unique ideas, whether they understand the problems at hand, the products and the markets. And when a company fails, Sequoia learned that it’s not the product that didn’t work, but the dynamics of the market didn’t work.

The critical thing is getting a product developed where the timing of the product’s availability and the market demand are simultaneous.

The Art of Storytelling and Asking Questions.Sequoia likes entrepreneurs with the clarity of purpose, in other words, know how to tell a story efficiently. Don Valentine once paused a pitch to have the founder recollect himself and write out his business plan on the back of a “calling card” (business card). However, since not everyone is a great story teller, Sequoia emphasizes the art of asking questions on their half, to prompt the entrepreneurs for deeper conversation of the products and the markets. When a portfolio company fails, Sequoia partners often think back to the questions they didn’t ask or what answers they didn’t understand.

Supporting its entrepreneurs as mentors.Many first-time entrepreneurs are clueless on how to build a new startup and later how to run it. Many of Sequoia’s partners are former entrepreneurs that have had similar experience and understand the struggle the founders face. Sequoia train their partners and other employees to “know what they don’t know”. In addition, Sequoia supplies a strong team of management, data, operation and other valuable connections to the companies they backed.

Female voices in Sequoia and the VC industry

Remember how we mentioned Sequoia only hired their first female partner, Jess Lee, in 2016. This was a big moment in the company’s history. In 2015, Mike Moritz, one of the seed/early stage partners in Sequoia, attracted some unwanted attention during an interview in which he was asked why Sequoia’s US partnership hadn’t yet hired a female partner. Moritz said that the firm was looking for the right candidate but they didn’t want to “lower its standards” to simply satisfy outsiders unhappy with its all-male team of investors. This answer spurred negative criticism to the company and to the industry. I understand both side of the argument. In the company’s stand point, as Doug Leone, Sequoia’s Global Manager and Seed Partner, pointed out in an interview at Stanford Business School that by not having a female partner, they knew they were missing out on things but they were not sure what. The venture capital industry is dominated by men and it was not Sequoia’s goal to actively seek out the small pool of females just to meet the social equity standard. On the other side, Moritz’s words seemed to mean that females were not as “able” as the men.

Nevertheless, Jess Lee became Sequoia Capital’s first female investing partner in the US in 2016, just a year after Moritz’s controversial comment. Although not directly addressed in any of the interviews and articles I found, I think Sequoia was somewhat pressured, or at least accelerated, the process of hiring their first female partner. After graduating from Stanford, Lee first worked as a product manager in Google. While in Google, she fell in love with a fashion platform app called Polyvore, which enables users to mix and match to create outfits. As a product manager, she noticed a lot of problems in this new startup site, but instead of complaining about it, she wrote a two-page analysis email to the founder Pasha Sadri, addressing all the problems and suggesting solutions. She ended up working at Polyvore as a product manager and rose to the CEO position. As Polyvore’s CEO, Lee had to meet with a lot of investors and soon realized that not many male investors in the male dominated were not interested or didn’t (and probably still don’t) understand products targeting women and didn’t realize the underlying market these products represent. Remember the case with Madison Reed: at first, everyone was probably thinking if selling hair dyes have that much market; but it turns out it does. Lee was interested in joining the other side of the table and finding female founders and spaces that catered to women.

Jess Lee offered a couple advices on pitching ideas to investors who may or may not understand your products:

  • Don’t rely too much on empathy. Often times people don’t have an intuition about a specific market as well as you do, and you can’t expect them to grow an immediate interest in it right away.
  • Come up with analogies and illustrative examples. When Lee was pitching Polyvore, she took out a thousand-page Vogue magazine and explained, “this issue generated hundreds and thousands dollars of revenue and now imagine it on the internet.”

When Jess Lee stepped into the office of Sequoia, she was nervous if she could truly be herself in this all-male-investor environment. She was surprised by the amount of diversity and styles in the Sequoia ecosystem and the welcoming community of non-investor female employees at Sequoia. She refers to the information at Sequoia as “tribal knowledge”, which is shared between the partners about certain industries, lessons learnt and how to evaluate market, product and the team. Lee now specializes in industries like social community, mobility, female consumer and commerce. One of Sequoia’s newest partnering with Ironclad, mentioned in my presentation, was through Jess Lee and led its Series B funding of $23 million.

Do a few things well. No one is good at everything. You have to figure out the one thing you’re really good at and just work your ass off.

What’s Sequoia doing differently in Asia?

Doug Leone summarized the method they used in Sequoia’s non-US offices is “decentralization on the attack, centralization on the defense”. Leone argued only traveling to Asia a couple times a year, the US headquarter didn’t have the expertise knowledge on the culture and business practices. By relaying the trust and knowledge to its Asian partners, Sequoia achieved decentralization on the attack side. And by effective communication, Sequoia centralizes the defense on compliance and financial reporting. No other venture capital firms has tried this method and Leone believes this courageous and somewhat foolish act has been the key to Sequoia’s success overseas.

Here’s an article further dove into How Neil Shen, founding and managing partner of Sequoia China, built a winner VC firm outside of Silicon Valley:

https://www.forbes.com/sites/alexkonrad/2014/04/02/how-neil-shen-built-a-winner-at-sequoia-capital-china/#4938852c3f4a

Also check out other blog posts about Sequoia from our Tech Trek alums by clicking on the “Sequoia Capital” tag below

7 thoughts on “Demystifying Sequoia

  1. Nice post. It’s good to know before we visit that Sequoia focuses on the market in which entrepreneurs are trying to enter or disrupt and focus less on the entrepreneurs themselves. That sounds a lot different than True Ventures in which the entrepreneurs and their teams seem to be the main focus.

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  2. Great post! I loved hearing about Sequoias investment strategy and how they focus on if the market is ready for the product. It reminded me of a book I read called The Creative Curve, the premise was that in each industry there is the correct mix of familiarity and novelty to achieve success. This idea seems to echo what Sequoia uses as its investment strategy. Looking forward to your presentation!

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  3. Melanie,
    Really great read. It seems like Sequoia’s principles (from Don Valentine) are very similar to Professor Shaw’s presentation to us last week (ie. focusing on doing one thing well, finding a good market, etc.). !Thanks for sharing, I look forward to your presentation on Sequoia.

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  4. Great post, particularly for someone who one day would like to be an entrepreneur. One piece of advice really stuck out to me, provided by Sequoia’s founder Don Valentine: A good founder is also a good story teller. I can only imagine the many firms that entrepreneurs go through pitching their ‘revolutionary’ idea and plans. I wonder how many of those meetings were unsuccessful simply due to the presentation itself. Delivery matters. This is something that people may easily put less effort into compared to other aspects of the startup, such as cost analysis, networking, and scale. A great insight to know before entering this industry!

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  5. Very interesting stuff on how the first female partner changed Sequoia, which reminds me of what we have discussed before on how different voices in a firm can really improve it and help it to become a more sustainable brand. I think it is the same for VC firms. When investing in startups, female’s view on things (sometimes more empathetic for example, not to stereotype though) can really make a difference if the startup’s goal is to attract customers from all genders. And this also leads to the possibility of VC firms hiring LGBTQ partners in the future.

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  6. Cool post! I am excited to learn even more about Sequoia on our trip. One thing that caught my eye in your post was the mention of the “art of storytelling”. The idea of telling one’s story is something of great interest to me, and it’s easy to see how it can apply to entrepreneurship. It’s cool to see that Sequoia has identified it as something that they look for when choosing companies to fund. I also really appreciated your discussion of Sequoia’s hiring of their first female partner. It was obviously an important step for the company. But much of Silicon Valley, including the VC sector, needs to do more in terms of diversity. Enjoyed your post!

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