Doug Leone Q&A at Web Summit 2021

Fantastic. Let's bring out the man himself. So come on out, Doug. While he's on his way out here, I'll just remind you guys how this works. We have some volunteers in the crowd. We have Mafalda and Rodrigo somewhere around here who will make their way towards you with the microphones if you have some questions for Doug. Also, if you're a little bit shy as we get warmed up here on day one, if you want to enter some questions via the app, you can do that. There's a little tab on the right that says 'Questions'. You send it in there via text and we stick it up on screen behind us. So, two ways to ask some questions. But we do need a speaker for that, don't we? Here he comes. Can we get a round of applause, please, for Doug?

Thank you for being with us, Doug.

My pleasure.

Briefed our audience on how this works. And I'm going to start you off with a question to get the ball rolling. Can you tell us a little bit about your new fund announcement?

So, we decided to try something that nobody else could try, and that is to be the long-term business partners to founders. We've eliminated the 10-year fund structure so we can now tell founders we can be there from day one to year 21. And so what the goal really is, is to be with you past the IPO. We tell founders the IPO is just a day in the building of a great company. Why should we be limited to these 10-year fund cycles and have to give up shares, have to get off your board after the IPO? Now we can stay with you for 20 years. So basically, we move from investors to long-term business partners, and we feel that we have the returns and the results, thanks to the terrific founders we've been in business with, to do this in a unique way.

Great. Well, that kind of sets the scene for what Doug is mostly going to be talking to us about here at Web Summit during your time with us. But we are open to questions on pretty much anything. Who has a question first? Who wants to start? Got one in the front row here, please, Rodrigo.

Hi, thank you for your time.

I'm interested in how you guys manage to keep tracking the innovations that eventually will be part of your portfolio. Where should we be investing next? How is the process of keeping up-to-date with the most important trends?

There are two answers to your question. The first is a cultural question, and that is, we understand we live in a world of accelerated change, and the great innovation is in the minds of a 22-year-old. I use 22 as a figure of speech. Sometimes it's 17, sometimes it's 45. The innovation is in your minds. We have market maps, meaning we know enough to understand where the world is and where the world is going. However, some of our greatest companies, our greatest investments, have been in areas where there are no market maps. There was no market map for Airbnb. There was no market map. Then, someone like you came into our office and said, 'I've got an idea. You're going to sleep in my house and we'll sleep in your house.'

My first instinct was, 'No chance. I'm not sleeping in your house. You're going to sleep in my house.' You learn to ask the following question: 'What does this founder see that I don't see?' And you dig, and you have empathy, and you ask the questions. So, we track innovation through a culture of making sure that we change as the market changes. The announcement you saw was a change. And also, by having market maps—probably more effective in B2B, business-to-business, because that tends to be more evolutionary, and less effective in B2C, when these are the business models that you could never market map. Did that answer your question? Fantastic. Anybody else have a question for Doug? Oh, fantastic. Rodrigo, if you could meet that gentleman, please. Thank you.

Hi, Doug. Thank you very much for being here. I got to tell you personally, your story as an immigrant coming to the US and carving your way in VC has inspired me a lot. Thank you very much for even referring to innovation in 22-year-olds because I'm exactly 22 years old. And so I would actually ask you, what's your advice for somebody who is this age and is starting to carve their way into VC?

Into VC. First of all, don't let people tell you no. There's been all backgrounds that have been successful in VCs. Jim Breyer was a consultant. I was a salesperson. Mike Moritz was a writer. So there's many roads to heaven, to quote my partner in India, who's a spiritual person. There's many roads to get you there. Second, if you ask me specifically, I would say go get operating experience in areas that are meaningful to founders. What's meaningful to founders? A little R&D, usually product management. Product management is a great area because it incorporates engineering and the market. In some ways, that's the ideal area. Revenue is also an important area because most founders have technical backgrounds.

So how can you provide complementary know-how? And I would say product management to marketing to sales is probably the areas. So go build a little bit of operating experience so you can help these founders build up their companies. Rarely do the founders need help in engineering. They may need help in hiring one or two or three world-class engineers, because unless you start with A+, you can never stay with A. If you start with the first three hires as B-caliber, you can never go up. And so get a little bit of operating experience, but whether you do or not and you have a dream, push, push, push, push. In my case, I wrote 80 letters back when you wrote letters, in my little Mac, you know, with a little screen that big, and so on. So be aggressive, show you want it, don't let them tell you no. Recognize that if there's a hundred venture investors, about 40 of them are incompetent, 30 of them are no-ops—no damage, no good—and only about a third of them are really knowledgeable. And so don't let this industry say no to you. Go for it and take no prisoners.

Thanks for your question. Let's take one from over this side. Anyone over here have a question? No, okay. Anybody? Anyway, here we go. Yeah.

Hi, nice to be here and thank you for your time here. So I would like to know, what are your thoughts about cryptocurrencies? How do you see intrinsic value in these protocols, and your thoughts about NFTs?

So I think of crypto as I thought about the ARPANET in 1988. If I told you about the ARPANET, prior to Netscape, we're talking 1988, you would have thought it's a connectivity network. You would have by no means have envisioned Netscape, and never mind a Google, and never mind an Uber or a DoorDash or an Airbnb. So I think cryptocurrency is the weapon for the young generation to attack the older generation and have wealth transfer. I think you have now the ability to attack all the systems that my generation has built. Keep in mind, when my parents were protesting in the '60s, they didn't protest, but if they protested, they had a sign that said, you know, "No War." You have something far more powerful called blockchain.

I think it's serious. You also should know that in the early days of a market, we overestimate its abilities and later on we underestimate. So do I think crypto are in a little bit of a bubble? Absolutely. Do I think NFTs are in a little bit of bubble? Yeah, there's really 20,000 whale users. that are buying and reselling apes and crypto punks and so on. But it's going to go mainstream. And so you have to appreciate all these are extremely real. I think of it as Internet 3.0 and 4.0. I think the real interesting area of DeFi is going to happen probably in the next 5 to 10 years. First on the front end, then on the back end. I was having a dinner and I want to tell you the CEO of a major bank who said, this crypto stuff is baloney.

We move $3 trillion a day. I asked him, 'Sir, so-and-so, what is your take rate on the $3 trillion?' He said, '10 bips.' I go, 'That's exactly why crypto is going to happen.' And so I think it's real. I think governments are going to try to control it through taxation because the cat is out of the bag already. They do not want a shadow currency. That would be a mistake if the community tries to implement a shadow currency because governments are going to be rejecting that. It's a way for the West to stay competitive against the East. China, as you know, has outlawed it. So it's an opportunity for the West to stay advanced. And it's a hell of a weapon for the young generation.

Let's take a question from our digital audience now. Doug, we've got one on screen behind us. Rafael asks, 'What are Sequoia's operations? What are the operations' toughest challenges at the moment?'

Well, to quote Jeff Bezos, 'Your margin is my opportunity.' Turn it back to us. Our margin, our success, about $7 trillion of market cap you created, we've been associated with, a quarter of the NASDAQ, is everybody else's opportunity. So the question is, in a business that if you let it happen, it's gonna turn into a commodity business, venture industry, how do we stay ahead? And I think of it the following way. There is tracking you when you're in college and talking to you—marketing, that is winning you over; or talking to you when we spot you as a founder—sales; making the right decision; company building; holding your shares for the long term, the new fund structure; wrapped around a great culture, wrapped around great systems and a mindset of taking no prisoners.

The biggest challenge for us is to execute in every single one of those aspects, with people whose adjectives to describe them are the same thing thrown your way: the resolute, the independent thinkers, the underdogs. Those are the people we'd like to back and those are the people we'd like to hire. That is the greatest challenge. How do you stay ahead of an industry whose rate of change is only accelerating and whose influx of capital is gonna get it to a race to zero, zero returns? You, as founders, have to decide whether you want a long-term business partner or just an investor. That is a decision you get to make. I can tell you we are working in every way we can to be of assistance to you.

That's why I'm here today. I'm here today because a founder that we're in business with asked me on my wife's birthday—who's standing right there, this is her birthday—to get my butt to Lisbon so I can be with them. That is bending the arc, that is helping founders, and that's what we're gonna be known for.

That's dedication. Let's take another question from the audience here. We've got one in the front row here, please. Mafalda, thank you.

So Sequoia has been a lot in the news in the past days talking about LatAm. So I'd like to know a little bit about global expansion and how you're planning to leave Silicon Valley.

So once upon a time, we used to say, 'If you can't ride a bicycle, we're not going to invest.' That was the '80s when we invested in technology and all the companies were between San Francisco and San Jose. Then we asked ourselves the following question: How do we become the major outside partner to the most valuable companies in the world? What do you need to have a valuable company? Clearly great founders, but you also need great expanding type of economies. We went to China first, we went to India second, we went to Europe maybe a year late. We finally came here. I grew up in Europe. I wanted the Portofino office. I grew up in Italy, so Portofino seemed like the great place to have an office.

And why did we come to Europe? Because we saw more market leaders. We're not interested in investing 10 million, taking out 30. We're interested in investing 10, 20, 30, 200—whatever the number is—$100,000, and helping you build a monster of a company. We saw more market leaders. Klarna, Unity, UiPath are just three examples. Latin America—we're investors in one major company in Latin America called Nubank. We're also investors in Rappi. Now, there's been billions going into Latin America in the last one or two quarters. We do not think that opportunity is that broad. But we are going to invest in Latin America. We are partnering with the most valuable company in Latin America, the most valuable company in Australia called Canva, a private company.

And we're going to go where there's terrific founders, great universities, and markets that can allow companies to become extremely valuable over time. So we will be more active in Latin America.

We'll come back to the floor now in just a minute. I'm conscious we have an awful lot of people joining us digitally, virtually via our app. So I'm going to take another question now online. Constantine would like to know: what industries, regions, companies, and entrepreneurs—where will the next mega-billion monster come from in the next 10 years?

Darned if I know. And that's the honest answer. Dumbo—big ears. You know, there's the cartoon character, the elephant called Dumbo. We need to do this. And whenever something seems crazy, remember my Airbnb example. Hmm, what do they see that we don't see? What do we know? In general, new markets tend to be more interesting than replacement markets. Revolutions tend to be more valuable than evolutions. Those are the things we think about, and the founders we look for are spiky founders. Spiky is: they have one dimension that's off the charts. It could be IQ, it could be ambition, it could be domain expertise. And we love founders who have a first-hand knowledge of the problem. My favorite question is, 'How did you get the insight?'

Go back to Airbnb, you know what they got the insight? There was a conference in San Francisco, hotels were all booked, and they got the idea to rent some room. They had two weeks' worth of data, but there was an insight. Zappos, shoes, how did you get the insight? Couldn't find the shoes I wanted. So it's interesting, the businesses that get a little worried about are the one with three people get in a room and say, we want to start a company. And we ask some customers what the problem were. I'm not sure customers can never articulate the iPhone or the iPod. And so question one is, how did you get the insight? Where were you and how did you understand the problem? So I don't know the answer to that, but I know you do.

And you're going to come by our office and we're going to find you and we're going to chat with you. And if you can articulate the problem crisply, you almost don't have to talk about the solution. The more clearly you articulate the problem, the more we know what you're going to do. And so the first part of the meeting is, tell us how you saw the problem. Who are you? How spiky are you? I emigrated. I immigrated. That already said you self-selected. I was poor. I was desperate. Good. You were pissed off. Terrific. Already you're spiky. And then what's your first hand knowledge of the problem? Terrific. We're in. 100,000, 200, a million. We want to be there as early as possible. Don't believe these things.

'Save Sequoia for later.' It's never too early to find a great business partner so you can make the right one or two steps at the beginning.

Perfect. Let's go back to the floor here now. There's some, actually. There's one in the front row here, Rodrigo, if you don't mind. And Mafalda, I might send you down the back beside that camera. There's a few questions there. We'll take some from the back after this one.

Hello, yeah, I have a question about the kind of evolution of the VC space. You touched upon it briefly where you said there's a lot of money coming in, and I was just wondering, from your perspective, where do you think this is going in terms of a macro perspective with the VC industry and the tech industry? Do you see things that you've seen before, like in '99 or 2000, or do you think it's completely different? And how do you see it evolve from here?

Some things are different. Some things are the same. In 1999, what we saw was eyeballs, no business models. What we see now is pricing, which is very high. Is it ahead where it should be? Who knows? but prices are very high. So there's a difference because in 1989 those were not companies that were eyeballs. What's similar is the influx of capital coming in which will run away as fast as it came in, assuming that there's a correction in the market. We've seen the hedge funds coming in before. What Tiger is doing, we saw before, the name some of you may not know may not remember called icg cmgi's these were public companies market caps in the 30 billion who got in business to just put money all over the place so we've seen this influx of money i might add we haven't seen quite as much as this quite as much volume because really tech has become mainstream it now affects

every industry: space, retail, and so on. Once upon a time, tech was tech—only semiconductor, chip, system, communications. So we've never seen such an influx, but remember, we are in year 13 of a bull market cycle. And none of you here are gonna bet that the bull market cycle is gonna last forever. And as far up as it goes, it's as far down as it's gonna go. And that's the way these things work. And we fully expect that sometime in the future—I don't know when—inflation's going to come in, people are going to run away, the market's going to come down, the valuations will compress, hedge funds will run away as they try to retrench, things will become a little more rational. It's good for us, but it's also good for you.

Because I can't tell you how many founders I hear, 'Oh, I got a term sheet last night,' pressure to take it. Let me tell you, male and female, you go into a bar, you meet someone, they ask you to marry that night, you don't say, 'Oh, they asked me to marry last night, I gotta make a decision.' Let me put it into tech terms. You find an engineer that can code fast, don't know anything about quality, but boy, can they code fast, you're not gonna hire him. I often wonder why, if you run your life a certain way, if you run engineering a certain way, why don't you architect the financing of your companies the same way? Long-winded answer to say: lots of money in, it won't always be like this. A little market compression, and you'll see about a third of the capital run away, tail between their legs.

Great. We're going to take a question from down the back now. Before we do, who else has a question? Because I want to share the love here a bit. We've had a lot at the front. Okay. Rodrigo, would you mind crossing the floor there to this gentleman?

There's also that gentleman that's had his hand for 10 minutes.

Oh, perfect. Okay. We'll come to you right after our question from Mafalda down the back there at the camera.

So on the tail end of the last question, you see a lot of these companies getting crazy valuations. Talking—

Right here. I don't see you.

In the middle. There you are. Right here. Yeah.

So we're seeing a lot of these companies get crazy valuations without any customers or any revenue. As an investor, how do you then start to put pressure on these founders after they've raised capital to actually start making money?

So first of all, you do not want to put pressure on a founder. Think about how much pressure a founder has. We don't get as excited as founders. We don't get as down as founders. We are shock absorbers. What we can do is help founders build a great business. There is no pressure to, quote, "make money." There is pressure to get product-market fit. There is not pressure; there is work at hand to get product-market fit. And by the way, product-market fit is black magic. You get to do that. It is rare that we or anybody else in an investment business, which we are, even as your partners, that can help you with product-market fit—maybe the last 10%. But once you get product-market fit, the rolling out of a business, that is not black magic.

We can help you do that—company building. And I will tell you that most investors, most partners get that wrong because oftentimes what you might think is a logical next step is the wrong way to do it. You want to stay away from people that look like me. You want to bring in the best athlete. You want to plan for the next 18 months. You can't get a world-class VP of sales when you're doing 2 million of revenues. You've got to go after a regional sales manager that's built from 2 to 25. Later on, he or she can be national sales manager. Maybe you come over the top. These are the little tricks. No pressure, get product-market fit, and then once you do, start running. And you've got to be able to run as fast as possible, subject to four constraints.

Size of the market, the amount of money you have, the unit economics—meaning if no salesmen are making quota, you don't want to run—and the company's ability, i.e., the founder's ability to manage rapid growth. Those are the constraints. And our job is to help you take these rocks from the flowing water in the river so that water can flow as fast as possible. Let me give you a hint: if you've got product-market fit, you can't go fast enough. That's just a little giveaway.

Perfect. We've got six minutes left, so we're going to take two more questions. This gentleman first.

Hey, Doug. What's your general view on B2B software in general? So there's no enterprise app for basically anything out there. The amount of apps used in companies is growing by the day. Where is all of this going? And in particular, how does that fit into your recent investment in Rippling?

So we're finding that solutions of four or five years ago are getting outdated very rapidly. Rippling is a replacement market with a founder that really doesn't see any walls. I mean, he just walks through anything. So that's why. So Rippling is an existing category with a better mousetrap, and we're seeing that throughout almost all aspects of software. So the replacement cycle is faster than we used to see, point one. Point two, what COVID did and the move to the cloud did, it forced a number of companies that maybe were caught in not spending, were caught in yesteryear, to really spend money or go out of business. The rebirth of software, the rebirth of security—all that happened due to COVID.

The fact all of you are now spending some time working from home—think of the security holes when you do that. And so we're seeing dislocation: move to the cloud, COVID, replacement cycle moving a lot, a lot faster, verticalization of the software stack. The whole software stack is getting redone from Snowflake to dbt to the analytics. Things are getting redone that are faster and faster paced. Move to open source—we're seeing all these factors dislocating the market. Therefore, the incredible growth of B2B software that will not last forever, like anything else. But I don't think we're anywhere near the end.

I think we'll take one more question. I'm conscious, Doug, we have to get you to Center Stage to join the founder of Wiz. We'll take the question from this man here to wrap up.

My name is Giacomo. I'm from Luxembourg. I'm one of the co-founders of Arca Properties. And you were mentioning when Airbnb was knocking on the door and explaining something that was at that time, let's say, unexpected and to what it developed today. And also the way you're using analogies and in a sense of describing a problem. And when you're a founder and when you want to launch in a new market, it's almost like you're entering a sandbox where you have to find your place to build your castle. And I think one of the important questions at the beginning is, am I entering a sandbox which is rather crowded, or is it not yet that established so we can actually find a good space? And I actually want to just ask an open question that what we do is we focus on corporate housing for Airbnb, similar like Airbnb, just for corporate housing, so our niche market.

And we develop actually solutions for B2B to find solutions for mobility and relocations for companies. And, well, everybody can knock on the door, and I wanted to ask what would be the best way how I can knock on the door and actually tell you a little bit what we do in our sandbox in the market that we are operating.

So it's very easy. Send a thoughtful email. We get many emails. If I get an email sent to 14 Sequoia partners, it's sent to no partners. No one's going to answer. If I get an email that's a silly-sounding email, I just can't respond to it. Send a well-thought-out email: 'Hi, I'm so-and-so. I've got a business. I'd love to chat with you.' I will email and call you and say, 'Send me a little summary. Send me 10 slides.' We're in the business of investing. Don't worry about getting the slides—'Oh no, I'm gonna get turned down.' If you're gonna get—look, our business is to invest. All you have to do is to get the meeting. You don't have to get the investment. Do it thoughtfully. Send an email to me, to anybody at Sequoia: doug@sequoiacapital.com.

It's not that tough. And it doesn't have to be world-class. It just has to be well-stated, well-thought-out, and you're going to get a response. It's that simple.

doug@sequoiacapital.com. I think we can all agree it was worth coming to Web Summit just for that. Can we give Doug a big round of applause before we let him go off the center stage?

Thank you.

Thank you so much for being with us, Doug. We'll leave it there. Everybody, we'll be back in two minutes with the top epidemiologist from Johns Hopkins, Dorry Segev, to answer all your vaccine questions. So don't go anywhere.