Sequoia Capital Part II (with Doug Leone)

Hey, Acquired listeners. Instead of a cold opener, we want to use this space to dedicate today's episode to the late Don Valentine, who passed last year.

We are excited to be working with Sequoia today to bring you something really special for Part Two. And with that, on to the show. Welcome to Season 6, Episode 2 of Acquired, the podcast about great technology companies and the stories behind them. I'm Ben Gilbert.

I'm David Rosenthal.

And we are your hosts. Today, we tell Part 2 of the Sequoia Capital story. We are going to pick up where we left off in 1996, when Sequoia's legendary founder, Don Valentine, turned the firm over to Sir Michael Moritz and Doug Leone. In this modern era of Sequoia since 1996, Sequoia has been the investing partner behind an absurd number of the industry-defining companies of the last 25 years, including Yahoo, Google, PayPal, LinkedIn, YouTube, Reddit, 23andMe, HubSpot, WhatsApp, Dropbox, Airbnb, Docker, Stripe, Instacart, UiPath, DoorDash, and Robinhood. Ooh, no kidding. And while David and I spelunked into Part One of Sequoia's history on our own, we have the very best person in the world with us today to help us do Part Two right, Doug Leone.

Now, David, who is Doug?

Doug is the global managing partner of Sequoia Capital in charge of overseeing the firm's many diverse businesses, which we will get into, from seed to global growth investing across the U.S., India, and China. Doug first joined Sequoia in 1988 after famously cold-calling Don Valentine and was the champion of Sequoia's expansion from a single $150 million early-stage fund to the multi-billion-dollar global powerhouse it is today. Welcome, Doug, and thanks for joining us. Thank you very much for having me. It's my honor to be here. It's great to have you.

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We're going to talk a lot about Sequoia during your time and its evolution. But before we do, we want to ask you to tell your story a little bit. Your family immigrated from Italy to New York when you were 11 years old. What brought your family here?

So we had a bit of a World War II heritage where my dad's sister got married to a lieutenant, ended up in America, had a child, called Mom. And so now we had Grandma for me and Aunt in America. And we were the Italian family with the American branch. My first name was Douglas, but in the church you cannot be called Douglas for the simple reason that you need to have a name from one of the 365 saints. So in Italy, I was Mauro Douglas Leone, or Douglas, as my mom called me and my dad called me. And in school, I was Mauro. When I came here, I just flipped the two names. But, long story short, my dad saw an opportunity, maybe his career, it was not going so great in Italy, saw an opportunity to come to America.

He came here. It took me about two years and my mom to come here. I went two years without seeing my dad. Wow. And then we finally came here on August 1st, 1968. Wow. What did your dad do in New York? In New York, he was a service engineer for a marine equipment company. And the most he ever made, I remember, was $25,000. That's amazing. So when you arrive finally in 1968, in, like, America in 1968, by boat? By boat, on the Michelangelo, past the Statue of Liberty... Wow. ...to the West Side of Manhattan. Do you remember the first time you saw the Statue? Absolutely. I remember being outside. I remember crying day one or day two, and just being in a fog for the next five days when we did the crossing.

Wow.

That's amazing.

So America in 1968 must have been pretty different than the world you left in Italy, right? How was adjusting in high school?

So it was really interesting because what I am here today is really a product of those times. I was an only child with aunts and uncles with no children. So I was overloved, very warm, very warm upbringing, lots of trust, lots of love. And I came here and it was a shock to my system. And it was abusive in high school. Imagine, you know, it's not like being in school where right now everybody preaches you have to be good to your fellow kid and all these wonderful things. There you get the crap beaten out of you emotionally, emotionally, physically, and so on.

We talked about this with Jan from WhatsApp. Same deal, immigrated in high school, had the same experience.

And so that makes up the two sides of me, which is the very warm side, the very big heart, and the super tough side where I just don't give an inch.

So you've talked about in other talks you've given that we've listened to that you do the Myers-Briggs test here at Sequoia. How did those combine into what your Myers-Briggs type is?

I'm not sure those affect the Myers-Briggs, but this is how I tested early on and how I changed. People think of me as an extrovert for the simple reason that if I have to turn that on, I can. Especially as I get older, I went from insufferable to charming. It's amazing how it happens. But what I really am, I'm halfway between an introvert and extrovert, exactly halfway in between. And early on, I was tested as a process-driven person, meaning my whole mind is a tree structure, there's a lot of logic to it and so on. And in 2012, when Mike Moritz stepped down—and the relationship I had with Mike, he was the intuitive one. He was really the leader of Sequoia. I was 1A. I was the COO, if it helps.

I understood that would not be a winning formula. I always thought that great COOs would make lousy CEOs. Now, I'm not the CEO here, but you get the point. And so I took myself completely out of my comfort zone and understood I had to rely on intuition. And when I was tested on Myers-Briggs by a lady that tested me, she was shocked by the transformation. And she said, 'You and Michael Dell are the only two people I've ever tested that have made that change.'

And when I hear people can't change, I chuckle a little bit because I felt like I changed. I felt like I had to rely on my gut, and I can't have all the answers in a tree structure prior to, you know, letting people create. I can't manage every inch. I just have to let terrific people do their thing.

Yeah. Well, I can totally imagine, you know, the things that we're going to talk about that you championed here at Sequoia. Doing that is, I think, what led to a large part of your success. So you finished high school. You must have been a pretty good student. You go to Cornell and then Columbia to study engineering, right?

So I was a great student until I grew up. I went to Cornell. I got thrown out of Cornell after my first year. My first two semester grades. That's not in your bio. My first two semester grades were 134 and 122, which is not easy to do. I did not see half of my professors because I just never went to class. And so I guess- And what was behind that? And I'll mention in a second. What was behind that after being abused in high school, I was never abused when I was in Italy. I was a smart kid who was athletic. In high school, oh my God, that was rough. At Cornell, I became normal again because when I went to Cornell, I could speak English. And all of a sudden, I was one of the very accepted kids.

And I kind of lost my mind. In some ways, I lost the opportunity to learn, but I became normal again. Now, for a fall term, I went to a two-year school to make up a couple of classes where I got F's, mainly math and physics, which are my strongest classes. I mean, I love math and physics. And I also was working part-time, doing deliveries, talking to truck drivers, and it just showed me a range of life, of what life could become. Nothing wrong with truck drivers, don't get me wrong. Was it right for me? Probably not. So, a little bit of the carrot and the stick. I went back to Cornell. I did fine. I graduated, and I went to work, and I decided that I needed to do something.

And after that, you end up in sales. Was Prime Computer your first job?

No, the first job was selling computers for Hewlett-Packard. I remember there were two people in a room, age 45 to 50, and they said, quote, 'Kid, don't worry, we'll split Manhattan in three thirds,' and I didn't know anything, so I trusted them. One got all of Wall Street. One got from Wall Street to 96th Street—Midtown. By the way, this is 1979, where it wasn't safe to walk north of 79th Street. And, 'That's your territory.' Mine was north of 96th. I didn't even get 79th Street. This is pre-Giuliani and Bloomberg. Oh, yeah, pre-Giuliani and Bloomberg. Well, pre the fact that we became urban and so on, burned out buildings and so on. But that was a lucky break because one thing that's up there is Columbia.

And I remember there was a dean of the School of Engineering, Dr. Traub—I still remember his name—who came from CMU. And he explained to me what the ARPANET was. And he explained to me what open systems were. And yes, I went to Prime for a year and a half because I wanted to sell computers on Wall Street because I knew that's what the money was. But that was where the short-term money was.

Was there prestige associated with that, or was it just literally?

Selling money on Wall Street was money. It wasn't prestige. It was money. And Prime was the second youngest company to be invited at New York Stock Exchange. It was a go-go company. I'd chosen well. But I realized that was only a sales career. And I was beginning to crave for something more. I wanted to, quote, make it. What does that mean? I remember walking on 6th Avenue and seeing all these buildings. I said, how do people? become successful, clearly there must be more. And so I said, probably I want more risk. So I co-call Vinod Khosla. Well, actually it was Owen Brown, which was the CEO at Sun at that time. I got a job because of open systems. I went back to Columbia, open system, call Sun Microsystem.

Employee number, I don't know, 50, 60, I can't remember. First people, the first person in five states, and I started doing volumes of business, so much so that the board wanted to know who this kid was. Vinod Khosla wanted to know. Scott McNealy wanted to know.

And I had an idea to open Wall Street. And the reason I did that, I learned of a machine called Convex, which back then was a high processing math machine. processing type of machine. And I read in Business Week that PhDs were dropping out of Yale going to Bear Stearns on Wall Street. What does that mean? And I don't know if you want to hear the story, but the story was I got a call from Bear Stearns. They said, can we get a budgetary quote? A budgetary quote is somebody you haven't met just wants to know how much. I gave someone, and my quota was two million. I gave someone a budgetary quota I hadn't met for 2.8 million. I went on vacation for two weeks. I came back and there was a purchase order on my desk for 2.8 million.

I said, 'Truly, holy, holy cow.'

I think that is the definition of product-market fit right there.

Exactly. And so what I did is I poured all my time on Wall Street so much that my office was a depot because Sun could not support these systems. So my office, my desk was a printer stand that had a hole in it for the paper with messages all around it. I had computer systems that were missing out of Sun all around me. Because if you were down, I brought you back up in an hour and a half. I just drove to Wall Street with that machine. And Scott McNealy—" "So you're a support engineer in addition to sales?" "Oh, yeah. I was doing all this volume. I go, 'What's going on?' And Scott came to see my office. He was impressed and horrified at the same time. This is the CEO of Sun Microsystems. And we just did lots of business.

And long story short, I met Vinod Khosla, venture capitalist. What the heck is that? And I want to be one of those. Boy, 134, 122, how do you get into business school? So I went to get a master's at Columbia. I got in luckily, and I did extremely well, which padded the resume a little bit so I can get into business school. And I went to business school, and then I co-called my way into the venture industry.

Yeah. From what I could read, you sent and called 80 different firms?

So back then, there was a big green book called Pratt's Guide to Venture Capital Sources." "No way!

And I took all the venture firms in three states: Connecticut—no, no, four—Connecticut, New York, Massachusetts, California. And I just actually wrote letters, because you wrote letters during those days. And in California, I would say things like, 'I'm going to be in California.' Of course, I wasn't going to be in California. Yeah, follow up as if, you know, God knows I was coming to California.

How many entrepreneurs do that to Sequoia now, too? 'Well, I'll be down in the Bay Area in case it happens to work for me.'

Yeah, well, I pushed a little. And in the case of Sequoia, there was an assistant, a spicy New York... person called Barbara Russell that worked for Don, did the distribution, may have been a receptionist. It was at a time when somebody did it all. And so I sweet-talked my way with Barbara. And she tells me—she's become a very good friend, she's no longer here, she's retired up in Seattle—she said she went into Don's office and she said, 'This kid may have something. You may want to spend some time with him.' And so at five o'clock on a Monday, I was interviewed by Don.

What did he ask you?

One question: 'What's important?' And I talked for three minutes. And silence didn't bother Don. We could be quiet for an hour; it'd be okay with him. And he waited 20, 30 seconds, which seemed like an eternity to me. And then he said, 'What else?' And I laughed. I said, 'Don, what do you mean, what else? I just told you everything.' But he liked how genuine I was, I think. He loved the sales approach because a great company has product from the inside out and the customer from the outside in. And he read correctly that I'd be a hustler—but not in the word 'hustler'—that I would hustle, that I was smart, I was human. And he knew the question was, 'Can we reprogram him? Can we break him down to pieces?'

And will he build himself up?

Doug, what do you think, in retrospect, are the differences between what has made you an amazing technology investor versus what you thought would make an amazing technology investor at that point in time?

It's a difficult question for me to answer because I don't think I thought. I didn't know anything about what would make a technology investor. What has led to my success is I hustled a lot. There are people like Jim Getz who can product-manage with a founder or product. There are people like Mike Moritz who have incredible intuition. Guess what I did? I bet you can guess. I made thousands of cold calls. I got in front of everybody. I am not kidding when I say I went from being insufferable to sufferable over time. Charming was maybe the last five years. It's a journey. Exactly. It was a complete journey. And so I just worked and built knowledge, and I developed a network. And some luck—there's always some luck—lots of hustle, some brain, some skill.

I was able to generate some of the right deal flow and had a very lucky, good start. My first three investments were IPOs, which was good, but it also built a false sense of confidence because after that, I thought I knew something. And I woke up one day in 2001, I looked at my 10 boards, and I said, 'Oh my God, there's not a winner there.' And so it was an early success, go through the abyss. And I see investors here go through the abyss. And when someone goes through the abyss, you got to let them pull themselves out. If they come out the other side, they're terrific. And so I went through the abyss, and then I went...

What were those first three that were IPOs?

There was Arbor Software, which is a darling software company that went public and then merged with Hyperion. When it went public, it was the largest win Sequoia had ever had. A company called INS, which was a services company built on the notion that companies cannot swallow routers as fast as they'd like to swallow routers, and therefore we could have a services company. A company we took public and sold for $7 billion to Lucent. $7 billion in 1998 was a lot of money. And a company called Renaissance Software, which was a Wall Street trading system, which was really my strong point. I understood what I was looking at there.

I did not know that was a Sequoia investment. Yeah.

And a funny story in the case of Arbor Software, if you want to know the real story, I was here for three years. I almost got thrown out. People wanted me out. Don is the one that saved me. Quote, 'give the kid more time' kind of attitude. And I needed to get something done. The founders of Arbor were two weeks from bankruptcy, personal bankruptcy. That night they came to my house. I said, 'You got to get a deal done. I got to get a deal done. I think you're investable.' We created the presentation that got presented the next day to Sequoia. And the insight I had, and Don Valentine helped with that, they understood the problem. As consultants, they understood the domain of the pain, and they just didn't know how to articulate it in a fundraising pitch.

And so we created a pitch and we got the company—I say we because even though it was Sequoia, we got the company funded. The partners trusted me so much that one partner, I won't tell you who, the only reason why he did it is because there was a credible co-investor in his mind, nothing to do with what I knew or said. But we got the deal done, and we got the investment made, just starting with two people, not a line of code. A seed, if you will, back then, although it was a Series A, two million. And we made it.

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So we ended part one of our Sequoia history with Don in 1996 calling you and Michael into a conference room and passing the firm over to you. What was that day like for you? I assume these three companies had become winners.

Yeah, I could imagine the conversation of, 'We should make Doug a partner.' I'm sure it was an easy one. In one case, I had a track record. In the other case, remember the insufferable part. And the conversation must have gone around, 'What is he going to be like if he's a partner? Is he going to turn into a monster?' kind of conversation, which I didn't, obviously. It's not as black and white as Don turned it over to Mike Moritz and me. I actually went back and looked at carry allocation, not because I wanted to see how much carry I got. I wanted to see if my memory served me right. It turned out that Mike and I had more carry than the other folks. It wasn't the black-and-white, 'It's yours.' We were the ones with the track record.

Well, I got promoted to GP. I had one, you know, one-tenth of the carrier down Valentine in Sequoia 6. And a year into the fund, Don said, we ought to change all the carrier, make us all equal. He understood that he needed to make sure that young people were not going to act like... Like associates, even though they were partners. And so he flattened the partnership in Sequoia 6. And now it's Sequoia 7. It was more Mike and I were the more aggressive ones, the ones that had a bit of a track record. I remember Don sat with Mike and I. And he didn't say, you are the leaders. He did not anoint us. But he had a conversation just with two of us. And Don had a green sheet of paper with all the things an investor does.

and check marks next to what he's willing to do. And he pushed a paper, as he always would, and said, you figure out if you want me around. And this is what I'm willing to do. He wanted, oh, we offered Carrie in that fund. We gave Carrie, Don, the next fund, which turned out to be the Google fund. We actually took good care of Don. We gave some carry, not GP carry, of a couple more funds. Never aggressively asked for it. I remember when I had to walk into Don's office and tell him no more carry, three funds later. And he chuckled. He said, what took you so long? But Mike and I were the two, if you will, more senior. We rotated money. The partners meeting, who would write down the company, who was the leader of the partners meeting for a year or two until Mike stepped up and said, this is not going to work.

He offered to be the one doing it. We all agreed. He did it. And so it became that Mike was really one and I was one A, just to, I don't want to rewrite history. 1A. We had exact comp. Mike was a CEO, if you will. I was a CEO. We're a partnership. And that's how we ran Sequoia until 2012 when Mike stepped down for health reasons.

And, Doug, as a point of clarification, when you say Sequoia 6, Sequoia 7, can you explain a little what you mean by that?

Sorry, they're the funds, the successive funds. Sequoia 6 was our sixth fund. I see. Where I became a general partner was the last really true partnership where Don was full, full-time. In Sequoia 7, Don was a general partner. He had less, you know, and the partnership was run by five or six other partners. And then Mike Moritz took the lead, and I became 1A.

And give us a sense of what early-stage fund number are we on now?

We are in 17.

Got it. Okay.

So right when this happens, the transition to Sequoia Fund 7, the whole world is changing, right? Because Sequoia originally, and Don, came from the semiconductor industry, and then there was the PC software wave, but now the Internet is here.

Yeah, well, not yet. There's actually a few parts. And part was, first of all, Sequoia 5 was $67 million because of truly lack of ability to raise more money. We had raised a growth fund for $165 million that we didn't know what to do with. In fact, we invested the growth fund and the average check size in that fund was $2 million. That turned out to be a 4.5x net funds, which is a terrific performance because we invested like a venture fund. When we raised Sequoia 6, which turned out to be the Yahoo fund, the returns from 5 were not yet visible. When Mike and I went out fundraising Sequoia 7, the limited partner said, who the heck are you guys? And we lost some big clients. And we lost some big clients.

And Sequoia 5 turned out to be a fabulous fund. Sequoia 6, an incredible fund. Sequoia 7, a spectacular fund. Sequoia 8, the Google fund, an amazing fund. So Mike and I and the other partners got an incredible start. And then 1999, 2000 happened. We did not know the meaning of the word clawback. For you listeners, what clawback means is when your funds are doing so poorly that now you owe a lot of money back to your limited partners. And we had war room meetings here at Sequoia in 2000 where we owed more than our net worth. And how do we get ourselves out of that?

And is that out of the fees that you've already taken as compensation?

It's fees and carry. Maybe we had an early win and we took carry and the rest of the fund is a turkey and we owe not only... Because you assume when you have early wins, you assume that the fund is going to be in the carry, but if it's not... And let me make things more difficult. In that early win, you're given shares that you hold and they go to zero. So you didn't even have that. So you hold the shares in your account. Because it's 1999, those are not real companies, the shares go to zero. So we had war room conversations and we had a choice to make. And the choice to make is to borrow a line from golf, and I don't play golf, called a mulligan. Most of the venture industry considers the funds of that period called the mulligan funds.

They're crappy. They lost money. But you know what? It's a do-over. We took the opposite approach. No one was going to lose money at Sequoia Capital. So we took funds that were 0.3x, meaning if it was $100 million, that fund was worth 30. Or in that case, it was 300 or 500, it was worth 30% of that. And we brought them up to close to 2x just by giving up fees, not collecting them, and reinvesting money. Every time we had a gain, we reinvested it. We reinvested it because we wanted to have the pride of never losing money. Yeah. And so those were formative times for the culture of Sequoia Capital.

And it would have been so easy for you guys, and most other venture firms did, say, 'Call a mulligan. We're going to take the loss on this. We'll start a new fund that we get fees on.' You got it.

Well, think about it. Sequoia 4 is the Cisco fund, Don Valentine. Sequoia 5, younger team, older team, terrific fund. Sequoia 6, Yahoo, and many others, NVIDIA and many others. Sequoia 7, many companies. Sequoia 8, Google. It would have been so easy for us to call it, and we just refused to. And we just refuse to.

Doug, it reminds me a lot of the 2008 story where Ford refused to take the federal government bailout and said, 'Yeah, yeah, it would be easy for us to do this. But reputationally, it's important to us and all of our customers or your clients for the next decades to come that we don't do this.'

Absolutely. And while I tell clients those times won't be chapter one in the Sequoia book, there'll be a chapter. There should be a big chapter that's devoted. It is maybe our proudest moment at Sequoia Capital. It is not when we've had, you know, we have had funds close to 20x. It is not those 20x funds. The most proud time is when we decided no one's going to lose money at Sequoia Capital and we're going to go to work. And we went to work for 10 years to make sure those funds were in good shape.

It would have been easy to say, "Yeah, these are zeros. We're just going to do whatever." But you roll up your sleeves and say, "No, we're going to turn these into returning capital at a minimum."

So Mike Moritz is a Brit, strategic, man of few words, thinks 14 steps ahead. I'm a gregarious Italian. And I'll tell you, it hasn't always been easy. Mike would say the same thing. But we made it work for 20 years. And I'll tell you, during those times, we thought exactly alike. You can burn cigarettes on our arm, and we're not going to flinch. We're going to bring these funds home. And it was amazing how two different cats with two different backgrounds, with two different styles, who got along a lot, and really argued some, as you would imagine, which is terrific because that means we brought two different views on issues. That is a strength. During those times, there was no question what we were going to do.

I don't think we ever had the conversation. I don't think we even said, "Should we do this?" I just think we had to. Yeah.

That's a special thing to be able to get in that lockstep with another person. Do you feel like that's sort of that rare thing that happens once or twice in a person's life? And how do you attribute Sequoia's success to you two being in lockstep like that?

On that issue. Look, it happens in sports teams. It happens when people go to war. They never again feel... Why do people keep on going to Afghanistan? The reason they do that, they miss that sense of camaraderie. I don't know if you study situations like that. That was wartime, make no mistake. It wasn't our lives. I don't, for a second—I love and respect the people that serve our country. The things they do are far more important, far more courageous than what Mike and I did. I want to make that crystal clear. We should be grateful to them. But it was a similar sense of camaraderie. It was your business lives. No, nothing to do with business lives. It was... It was the fact each one of our cells in our body could not do that.

Nothing to do with, "We got to save our career, our money"—none of that. It had to do with being a badass and doing what nobody else would do. That's what it has to do with. Do the right thing when it's inconvenient to you.

Yeah, it would have been... So many other firms did throw in the towel, get the mulligan, their business lives were fine.

We're talking about this era right around Google's founding, and we're talking about your partner, Michael. There's a quote that I've heard you mention in the past where it's something along the lines of Michael telling you a few months after making the Google investment, "We've never paid so much for so little."

I think that quote is what John Doerr told Mike Moritz. We didn't know what Google did for a long time. We knew we had smart founders. We knew we were aimed at the internet. And we just knew we had to be patient. Sometimes patience is: sit on your hands. I had a similar but a smaller story in Meraki. Smart founders couldn't figure out which way to go. And if you talk to them, what did Sequoia do most? They left us alone and let us figure it out.

We hear that from so many founders on this show that have partnered with you guys. And that's one of the biggest differentiating factors is, "Let us, you know, we're in the driver's seat."

Let us figure it out. If it's creation time, the founders create. Now, there could be execution time where they don't execute as well, in which case you help them. But the thing I tell founders, you get to do product-market, you should do product-market fit. We can't help you there. If you got product-market fit, we can help you with everything else. And so when founders are meandering their way early on and focusing on something that's going to work later on, you just let them create. They're the creators.

All right, listeners, now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

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And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. We want to make sure we dive deep into what you and, presumably, you and Michael created here at Sequoia in your time and stewardship here, which is, you know, Sequoia was—I think the phrase that Don at least used to use was you invested in companies that were a bicycle ride away from headquarters here. The decision to expand, not just geographically, but also product-wise in terms of investment products you offer is—how did that initiative happen?

So the first thing, I don't like the notion of you and Michael. It is we're all standing on each other's shoulders. Michael stood on Don's shoulders. I'm standing on Mike's shoulders, and Jim gets a shoulder and Roelof's shoulders. So it is really we. It is really a we effort. And the other thing, when confused, there's only one curve I look at for the decisions I have to make. It's the exponential curve of accelerated change. It's not linear. It increases through time, which means... if you believe in that, which means that doing nothing is the worst thing you can do. It's the riskiest thing you can do. And then we also know that in the early days of the curve, you over-forecast because you're a linear thinker.

In the later days of the curve, when the curve is steep, you under-forecast. So I'm not that smart a person, but I know these simple principles. And I know that doing, you know, do stuff. Take the shot and we'll talk more about what that means. But turn the clock back to 2003, 2004. Mike and I are both immigrants. There's other immigrants here. Founders we look at are immigrants, more and more founders. And so I started wondering, what happens if the world becomes globalized? They're gonna go home, and I thought of NEA's offices with posters from Indian companies in India, and the US-India founder coming here, and we don't have those posters. I thought, "Oh my God, defense." But defense alone should make you do things.

And then you think of the world that's more globalized. The world is flat, blah, blah, blah. And I thought maybe we should go there. I learned that other firms were doing flyovers, going there and flying in and flying out and making investments. Dropping the brand. Yeah, or making investments, dual brand. And so a few brain cells said, if we're going to do something, where are the large and growing economies? That brought us to India. Sorry, China and India. It didn't, as I say, didn't bring us to Vietnam because it grows, but it's small. It didn't bring us to Europe because it's big, but not growing. So those were the two geos. So we started making trips and trying to meet teams, trying to figure out how to get there.

Investing teams or founding teams? Investing. Founding investing team. And I'm very mindful of a line from an old sitcom, from a scene. The sitcom is Hogan's Heroes. You know Hogan's Heroes? So Colonel Klink is the commander of a POW camp. And he's a putz, obviously, in the show. And Colonel Hogan is the American who's very smart. And Hogan and Klink have a safe. And if you turn the handle one way, you open the safe, and there's money. If you turn the handle the other way, it blows. It blows up. And Hogan looks at Klink and says, 'Klink, which way?' And Klink goes, 'Left.' And Hogan pulls it right, and it opens. And Klink goes, 'How did you know?' And Hogan says, 'I wasn't sure whether I'd get it right, but I was sure that you would get it wrong.'

And believe it or not, that scene is the scene that caused me to say, 'I know for sure Mike Moritz and I, if we make investments in China, we'll get it wrong.' We didn't know if the team we found would get it right, but we thought that was the least riskiest thing to do. And so we're shopping for teams, and we came across—it's funny, I made 20 trips to China, and then the team we were introduced to was introduced to us by a founder of Billpoint, which was a predecessor to PayPal, sold to eBay. She introduced us to two Chinese nationals that had grown up in China, had gone to school here, which is exactly what we wanted, had moved back to China, had served on the board of the same company, Focus Media.

One was an investor at DFJ. One was a founder, a co-founder of a company called Ctrip. We met them on a Tuesday. We met again on a Thursday. And on a Friday morning in a conference in Sequoia, we did a handshake deal. No contract, no anything. They were going to another venture firm in the afternoon. They canceled that meeting. By Monday morning, Mike Moritz, God bless him, had a PPM, private placement, for Sequoia China one and gave it to them with the notion that you want to delight your partners. When people do a deal, after the deal's done, you always find out it wasn't as good as you thought. We love doing the opposite. We don't want people to be blown away. Holy cow. Sequoia culture. Wow.

Of course, the second person there was Neil Shen. It was Neil Shen. There were two founders. One of them was Neil Shen. And so we went fundraising. We still didn't have a signed contract. And we raised a $160 million fund. We were ridiculed by limited partners. We held the annual meeting in Beijing in a brand new hotel where the heat broke. Everybody was freezing. We were slightly abused. That has turned out to be a spectacular fund. And the rest is history.

Yeah, what are some of the companies that Sequoia China has invested in?

Pinduoduo, Alibaba, Meituan, ByteDance, dot, dot, dot. We've had somewhere near 50, 60 IPOs. And so, I had the idea on a one-page sheet, but if I tell you that, that would leave you with a wrong impression. At critical times where we needed—this is kind of funny—when we needed operational moves, it was Mike that had the insight that we needed to make those moves. It was Mike that made the moves. I—I've never told Mike this—I was incredibly grateful that Mr. Intuitive, as I had him slotted in my brain, became operational at key times, even better than I was, if truth be told. And so, it wasn't me, it wasn't Mike. It was also quiet because, as we're doing this, other people were carrying the load in America, you know? And so, it was a team. It was truly a team effort.

So while you and Mike were sort of championing, "Hey, we should be doing this because we think that the rest of the world is going to hit this inflection point, or at least these areas," did you have this—this is sort of a Bezosism that's more recent—but was there this sort of disagree and commit mentality for anybody who was here that knew that they had to hold down the fort, even if they weren't pounding the table like you were? How did that go?

Look, for many years, there was sniping in the troops: "Why are we doing this? Why are we wasting time?" Because keep in mind that this is not about money. No one's making any more money because we all contribute the same amount. China contributes. We contribute. It is not incremental money.

Also, we're talking about the mid-2000s when Tencent and Alibaba exist, but it's not clear that China's going to be what it is.

It's about building a dominant, world-class, global powerhouse that at the same time can act very local because the foundation of our business is seeds. If you lose seed and venture, you become, as I say, a private equity firm, because later on, all you have to compete is on price. And so, how do you at the same time go global while not losing an inch on the local side?

And some of the best seeds were made during those days.

And so, we somehow managed to pull that off by isolating. Well, the thing, I initially became the global person. Nobody else had to do that. Somewhere along the line, Mike and I reversed roles where he was Mr. International, I spent more time in the U.S. And in 2012, when Mike stepped down due to health reasons, we thought about, "Should three of us run it?" you know, and we made the decision that I should run it, but we should have a second-in-command. And the logical one was someone from the U.S., Jim Goetz at that time, and Neil Shen.

That makes an incredible story.

Thank you for sharing all this. At the same time that you're expanding geographically, you're also expanding the suite of funds in each geography, right? In terms of adding the growth funds, then ultimately the Global Growth Fund. How did you think about that decision and doing that as separate funds versus one fund together? And obviously, the company needs were evolving with stay private longer and everything.

So, the most important thing, as I said, is to be the first $100,000 to help that founder grow. So, whatever we did, we understood that is the strategic part of the house. We've always done seeds, but we thought, both for clarity of thought, marketing, we should do a seed fund because we're starting to have a lot of seed programs, such as a Scout fund and a whole bunch of others we don't really talk about. Then the world continued to change, and while it's never been cheaper to start a company—and by the way, I think the world changed with Netscape, or at least it had a major change, which meant that we went from being deep technology investors, where we really only invested in technology pre-Netscape, to being application layer investing across many market segments, travel, shopping, iPhone, internet being part of the reasons.

So things started to happen. It's never been cheaper to start a company, i.e., seed investing. When you're doing deep tech investing, there's no need for seeds. It takes you two years to build a product. But now—Airbnb's seed was 600,000, I think. Dropbox's was 1.2 million. But that's because an app can be built in a month. At the same time, though, it's never been more expensive to launch a company. Why? You've got businesses that have the words 'unit economics'—the O2O, online-to-offline, Uber, DoorDash, Instacart, and so on. And then if you don't have those businesses, turn the clock back 20 years ago. We used to launch the US, let's say in B2B. We used to be profitable. Five years later, we used to go to Europe.

You can't do that anymore because if you wait, you have to, but you can't do that. You launch the US. Six months later, you launch Europe because if you wait, by the time you get to Europe, there'll be 20 competitors, half of which want to come to the US. So you've got to run fast, which means you have to spend a lot of money, which means there's bigger and bigger rounds. So we were seed and venture when we understood the companies needed more money. And keep in mind, we're the folks carrying the suitcases. We're there from day one. We're carrying the luggage. And we thought to ourselves, yes, we want partners, but why are we letting other people come in and dictate terms to our companies? We were vulnerable and weak.

So we got deeper into the growth business. We vertically integrated. And then when rounds became even larger and we have this incredible portfolio today of maybe five, six, 700 companies, we launched Global Growth. Global Growth is a global vehicle to double and triple down in the best companies in the Sequoia portfolio. And yes, we partnered with other firms and so on, but we're able to enjoy the full ride. I view those as being more tactical product versus seed being more strategic. That's the most important one. And then we also had a hedge fund because we realized that it's way tougher to go from $0 to $100 million in revenues, from $0 to $5 billion in market cap, than from $5 to $25.

We talked about this a lot in Part One of our Sequoia history. The vast majority of the magnitude of gains, of returns, happen post-IPO.

And so we learned to distribute shares to our clients carefully, not the week after the IPO or the week after the lockup. We learned that a public investment vehicle would help us many ways, including how to look at these companies retrospectively. If you're in a hedge fund, you look back to youth and you explain how youth can grow up. Most of us that invest in seed and venture look up. We look from zero to something. The hedge fund guys look from a lot to something. So we were able to have deeper conversations about companies and what companies could become, dare to dream of what companies could become. And so we found that to be quite useful. And then we launched the Heritage business, which is to make it easy.

It's a family office, endowment style. And the reason for that, we have founders and friends at Sequoia who had done quite well. And wouldn't that be a terrific way to maintain a relationship for another 30 years? And so that's why we did it. These were just to try to build a global powerhouse, which is what we want, where we can serve founders from idea to IPO and beyond to personal needs. It'll go so far beyond when they have the personal needs so we can have these relationships that will last a lifetime. We all take an equal percentage of our profits. The venture group is walnuts. China is peanuts. The Heritage Fund is cashews. We blend them and then we redistribute them so that we all get a share of mixed nuts.

But no one gets more points. It's just different kind of points that financially intertwine us. But nobody makes more money. But we all have bought in that we're part of this team, this global team where we help one another while doing the very right things for the founders, because it is all about the founders. Founders come first, by far. Limited partners, most of ours are nonprofits, come second, and we come third. And it's not because we're altruistic, because if we achieve that, then it's the way to run the business for the next 100 years.

An interesting takeaway here is as it became more and more expensive to get to your IPO or to get to be a scale global company because you have to do things exactly like you're talking about, launch new geos faster, grow more quickly to get ahead of your competition in these winner-take-all markets. A major takeaway is a lot of firms took the specialization route where they say, we're purely Series A and they stay smaller, or we're dedicated seed, we're this new asset class, we're pre-seed, we're growth, or these large public equity institutions come private and just stay growth capital. But what Sequoia said was, look, we're just going to grow with the company the entire life cycle and take a very different approach rather than specialization, exactly what you're saying, to follow them and have the right products for them along their entire growth curve.

It's just a very different approach than a lot of people took. And certainly there are other people doing something similar today, but it feels five, 10 years later than when you did it at Sequoia.

I'll make two points. The first thing is I will add I agree with everything you said and to get there as early as possible to be the first dollar. Second, if we said we're only an A firm, what happens when, and no company has a linear trajectory. Remember your Google question. They all have a little bump. What happens when that company is a little bump and you have to invest in that questionable round? If you're an only, quote, A firm or only C firm and you own 20%, where's your capital to show to the new investor that you believe? And so because it's never linear, because it's never slammed down from day one, by being there, you can support the companies at times where there are darker clouds in the sky, which helps attract other investors to then get to the sunny skies.

This is the perfect time, since I know we're running out of time, to switch over to Playbook. I think there are two questions I really want to ask you in Playbook, for listeners and for you, Doug. Playbook is, we talk about, let's abstract out some of the themes from this conversation to what's applicable to entrepreneurs running their businesses, to us as we think about partnering with companies. The first one is, it's just struck us in doing part one of the Sequoia history podcast, what actually, like, at the core makes Sequoia successful is some pretty simple things. It's focus on the market, founders come first, listen to what entrepreneurs tell you, you know, don't run your mouth, be a business partner, not an investor.

How have you guys and you thought about staying disciplined on those core things as you've grown so much? I imagine that takes a lot of active focus and effort.

Yes, there are many answers. I think our little secret is our culture. And when I was young in business, I used to hear CEOs talk about culture. I used to think it was a talking point handed to the CEO by marketing. Nothing could be more incorrect. And the culture at Sequoia, if I can spend 10 seconds on it, is finding these quirky individuals who've had shock to their systems, who have something to prove, who, as I say, were not the quarterback of the football team in high school, and you know what I mean by that. They were the shunned ones, if anything. Maybe a couple IQ points high, or something to prove. Maybe something happened in the family. Put them in an environment of teamwork and trust.

We're relatively flat at Sequoia, so we've taken comp off the table, letting them know it's okay to make mistakes, and instilling a culture that we're looking for the truth. Not your truth, not my truth, the truth in the middle of the table that helps the founder. A number of times I sat in a partners' meeting after proclaiming a point, I hear one of our young partners making a point, I say, 'Hold on a second, I didn't think of that. His point is better than my point. I changed my mind.' And so, and applying that to everything that we do and realizing that we've done nothing, realizing our worst enemy is the success we had, realizing that by virtue of our market position, not because people hate us, because who else are you going to attack?

Not the number 14 firm, number three firm. It's just more fun to attack the number one firm. It's what I would do. You know, it's just more of a sport.

Nolan Bushnell told us sometimes, or no, it was Trip Hawkins, sometimes you don't want to be number one because then there's people sniping at you from behind. I'm perfectly happy to be number two.

I actually argue that Don used to say that. Don Valentine said, 'Let's let somebody else be one. It's better to be two.' And so how we do that is making sure we have a mindset that we've done nothing. We have a mindset that we are a hair from going out of business. If you're Amazon, you've got customers, you've got billions, you've got a relationship. If you're Sequoia, you have 20 chickens walking in the back. That's all you have—20 chickens and our reputation. So I tell people, take the darn shot. Everybody at Sequoia would know we'd rather go out of business in a week than in five years, for sure. And so it's just have the mindset of take no prisoners, do the right thing when it's painful to do so, help the founders, recognize when there's no product-market.

It's not always helpful. It sounds so wonderful. At some point, there's no product-market fit. The market has spoken 19 times, then you've got to have a different conversation with the founders. Or five VPs come see you and they say, 'It's either him or her or all of us.' Those are tough times. But that happens once out of 20 times. Some firms do the calculus that says, 'Oh, we don't want to ruin our reputation, let bygones be bygones.' We can't do that. It just goes against—remember the 1999 thing?—it goes against every bone in our body. You have to help as much as you can.

It's interesting that you talk about how it's a negative, all the previous success. And I've heard you talk before about how you pulled down all the posters on the walls here of all these IPOs that you've had. Look at this room. Barren.

No posters in this room.

It's very true. It's still very lovely. It is lovely. Some would argue that the way that the venture model works, a firm like Sequoia has massive benefit from this momentum of you've made great investments, which then in hindsight make you sort of look like a kingmaker. And so then you get all the best deal flow now because everybody wants to be a part of this aura that you've created. Do you think there's truth to that, or do you think that's total...?

There's a modicum of truth to that, but success is a drug. And you can't fall prey to that. We've had investors here that have been successful, made some money, and didn't work as hard. We have 10 tenets at Sequoia. Number one is performance. The other nine are important, but you're missing one. The other nine don't matter. You could have clarity of thought. You could have teamwork, but you're not performing. You're not here. And I tell people, we are not a family. Make no mistake. We are a team. If you don't like teams, we are a show, a production. Maybe the investors are the actors, but you know, the actors don't look so good without a script, without the lighting person, without a director. And so everybody matters on the team.

Especially the people that make us lunch and breakfast. They're the ones we have to treat with the most kind of dignity. They are our team members. They are the ones that make this place run. And that's how Sequoia works internally.

Michael wrote one of my favorite books of the last 10 years called Leading, with Sir Alex Ferguson, about his career. Obviously, all of that applies to Sequoia as well. But yeah, it's an organization that you're building. It's not a family. That's fantastic. All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

Yes, longtime Acquired partner. There is a reason why the best product teams at companies like OpenAI and Notion, Atlassian, Figma, Rippling, Brex, and more rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next. Whether it's a feature tweak, a pricing change, a performance improvement, or an AI update like a model change or prompt adjustment, they're not relying on instinct. They're measuring what actually moved engagement, retention, and ultimately revenue. And as more teams build with AI, that learning loop becomes even more important. Building with LLMs introduces non-determinism into your product experience.

The same input doesn't always produce the same output, and behavior can shift in subtle ways in real-world use.

So doing offline evals will give you part of the picture, but you can really only understand the impact once your product is live with real users, and then you can measure how their behavior actually changes. It's very different than the way that you would ship features in a pre-AI world where you knew exactly what the software was going to do in production. Yeah, exactly. So this is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. The result is a tighter feedback loop and learning that compounds over time so you don't just ship more, you ship better.

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On to grading. All right. So, Doug, on this show, when we grade an acquisition that, you know, we—big company buys little company, Facebook buys Instagram—and then we grade how good of a use of capital that was. In that instance, as you're well aware, is one of our far and away A-plus of A-pluses. And we thought about how do we do grading on an episode like this? And the way that we wanted to pose it to you are: what are some of the things as you reflect back, you know, in your stewardship and all your time at the firm where you would say that was an A-plus, and some things where you swung and missed or you watch one go by and you say, 'Actually, you know, that's a C, D, or F, and, you know, we made up for it in this way'?

But this is a way to be critical of a previous decision.

First of all, I'll tell you the overall grade I'd give us, and then I'll drill down. Great. Somewhere between B and a B+. That is what I would give us. I'd give ourselves an A for the war room times of 1999. Those were our best days. I'd give ourselves an A for the times when we had those 51-49 conversations where we leaned the right way. And then I'd give ourselves a lot of Fs in things that came through this conference room and we just got them wrong. And we tend to get them wrong for the most often reason is that we overthink things. Sometimes we see revenue growth even early on and we overthink, well, what can this company be? And at some point, revenue growth speaks for itself. I'd give ourselves a fairly high grade on how we treat people, how we wrap everybody in Sequoia.

I'd give us high grades that we bring everybody in in this teamwork approach. When we have an IPO, a big one, we'll send an internal note about how many people touch a company. You would be shocked to see how many names are attached to success. I'd give us grades on how we embrace failure, our failure. It's always us. I'd give us a much lesser grade on the misses. I'd give us Fs because a lot of them came through here. So my blended grade, if I'm in a Mike Moritz mood, I'll give ourselves a B. In a Doug Leone mood, I'll give ourselves a B+.

Well, thank you for that. I mean, it truly is hard to imagine, you know, a company at some point not coming through the halls here. I'd be remiss not to ask you, can you tell us the Facebook story? This has been in a freaking Hollywood film at this point. How'd that actually go down?

So my daughter from Cornell told us about Facebook very, very early on. Kristin George, who's now a product manager at Instagram. And I told it to Roelof. And for a number of reasons—some good, some bad, some justified, some not—we were never able to get in. And we knew about Facebook for a very long time, which culminated in that presentation at Sequoia where Zuck mistakenly—and he's since said that, obviously; we've all grown up, we don't hold it against Zuck—came to Sequoia. I wasn't in that meeting because I was in China looking for teams. But then we had another shot at Facebook. We had a shot at Facebook early on at a very high price. And then we were asleep at the switch when all those $8, $9, $10 billion rounds were done.

Completely asleep at the switch. I'd give us lower than an F. I don't know what's lower than that. I'd give us a G. Well, you did have...

WhatsApp. So, yeah, it's—let's say that we got some Facebook shares. You got some extra credit. Yeah. Oh, fantastic. Thank you so much, Doug, for joining us. This has been really special. Um, last question: how can people, and especially entrepreneurs, get in touch with you and get in touch with Sequoia? Send us an email. I remember I was on a panel once, and about 10 years ago, and that same question they asked to three venture people—

And the venture person next to me said, 'Well, we'd like to go through law firms, intermediaries, to screen.' It was my turn. I said, '854-3927,' which was our phone number. Does that still work? It still works. I had that written down in the notes. We don't get a lot of calls, but it's email us. And make it a thoughtful email. If you send an email to 14 of us, no one's going to answer. Send us an email. That's—I don't say spend a month on it, but well thought out. You know, 'I was this. I want to start a company. Would you be interested in meeting?' Something like that. There are some emails that we just don't respond to. There's no chance that, you know, there's no chance we're going to do that. And there's just too many.

But if you send an email anywhere near the viability that somebody may, one in 10,000 chances, ever make an investment, you'll get a response.

Love it.

Be aggressive. Fantastic.

All right. Well, Doug, thank you so much. Listeners, feel free to email Doug. And with that, listeners, if you aren't subscribed and you like what you hear, you should. We're available in any podcast player of your choice. If you want to become a limited partner, subscribing gets you access to our bonus show, where we go deeper into the nitty-gritty of building companies in real time. To listen, you can click the link in the show notes or go to glow.fm/acquired, and all new listeners get a seven-day free trial. With that, we will see you next time.