Web Summit 2021: Doug Leone & Assaf Rappaport

All right. Next up, a legendary investor and a serial entrepreneur are here to provide two perspectives on navigating today's funding environment and building long-lasting companies. So here to talk about the historic trends and key decisions behind their biggest successes and failures, please give a big round of applause to Asaf Rappaport, CEO of Wiz, the fastest-growing cybersecurity startup ever, and Sequoia Capital Global Managing Partner Doug Leone. So far...

Let's get closer, since we like one another. Wow. This is my fourth time in the Web Summit as entrepreneur. First time on that side. Super excited to have you with me. So, Doug, you are most well-known for being one of the godfathers of Silicon Valley. But actually, I think very little people knew that you actually grew up in this continent. What's your story?

You know, it's a little insulting to be called a godfather, being that I came from Italy. But I'll take it. So I emigrated from Italy at the age of 11. I came off a boat, not even a plane, to New York. I went to some good schools. I started selling computers for Sun Microsystems. I did enough volume that the board had noticed the volume I was selling. And I got to know these people called venture capitalists. I said, 'Wow. I don't know what that is, but it sounds good.' And the more I dug, the more I wanted to be one of them. I wrote 80 letters. Back at a time when you wrote letters, I cold-called. And I fought my way into Sequoia, who, when they gave me the offers, said I'm lucky to be receiving any money, $72,000, and I should be paying them.

So that was the beginning.

Yeah, I know the story from that side, from the entrepreneur side, that we should pay you in a way. But anyway, Sequoia, $7 trillion, more than 25% of the NASDAQ. What makes you different than the other VCs?

I think the main thing is our culture. When you walk in a Sequoia office, there's all these adjectives: the resolute, the underdog, the dent-makers. Those are the adjectives we look for in founders. We like spiky founders, founders that are overly ambitious, super smart, have something to prove, are angry at the world, something. And those are the same traits that we look for in Sequoia partners because we want spiky partners who can see things when other people just miss it. So we have a terrific culture, a culture of risk-taking, a culture of understanding that the world is changing at a rapid pace and we better be able to put ourselves out of business before somebody else does. That is the secret.

Doug, you talked about partners in your VCs. There's a well-known story about an Olympic athlete that interviewed by you to become a partner in Sequoia.

So it's a little edgy, but I once interviewed a man who said he won second place. Now, he could have said, 'I am thrilled to have come second.' 'I am proud to have come second.' 'I am pissed off to be second.' All those are good. But he used the words, 'I won second.' And that always stuck with me. You don't win second. When you're second, you're the first loser. And so we want people who want to win, we want founders who want to create very large companies, monster companies whose market cap can exceed a hundred billion dollars. We're not interested in unicorns, we're interested in centricorns. Companies that change how we live.

Great. A year ago, you opened your European office. And you once said, if you cannot ride a bicycle there, don't invest in it. What has changed?

So back in the '70s and '80s, we invested in technology—San Jose to San Francisco: chips, systems, and communications. Suddenly, we became interconnected with the internet and the iPhone. Founders all over the place. Business models that were new. Founders went from being 42 years of age to 22 years old. And so we asked ourselves, where are the most valuable companies in the world going to be built? It took us to China first, India second, Southeast Asia third. We came to look at Europe a few times, most recently six years ago, and we thought Europe was a great economy but not moving as fast. And then we noticed, starting two or three years ago, that market leaders were starting to come out of Europe.

Think of Klarna, think of UiPath, think of Unity. Those are market leaders whose market cap in those three companies alone is over $100 billion. So we're interested in market leaders. Europe has more of it, great universities, great founders, and we decided to open an office here starting 18 months ago.

So we have many entrepreneurs, I guess, in the audience, and many are intimidated by Sequoia and think to themselves, 'Hey, we should keep Sequoia for last.' What do you think about that?

We like to be the first partner. Notice I'm using the word partner, not investor. And we are happy to invest $100,000—Airbnb seed investments, Stripe seed investments, many seed investments. And so the other firms would like to position us: 'Go to Sequoia later.' I would urge you that it's never too early to find a business partner with more scar tissue than anybody else that you could ever find. We have made more mistakes than any other investment firms. We're about to enter our 50th year. We've made more errors. And our goal is to help you, founders, from making fewer errors. So I would argue, come see us as soon as possible.

Last week you announced that you're forming one investment fund, that you're going to invest everything from that fund. What does that mean for me as a founder, for your LPs?

Think of it as permanent capital. We're no longer bound by the 10-year fund cycle. You now have the bad news or good news to have the ability to have me on your board for 25 years, meaning that we can now stay with companies without selling shares for 25 years, which means we can help you keep the entrepreneurial fervor when you're doing $10 billion in revenues. We have the ability to do that. That is unique in the industry. It's an earned right. The reason we could do that: our limited partners, our clients, our investors, most of which are non-profits around the globe that make the world a better place—Wellcome Trust, Oxford University, Ford Foundation, Harvard, MIT, Stanford. Those people have entrusted us with permanent capital, meaning they've said, 'Please take our money and manage it for the very, very long term,' which means now we can stay with you for a long time.

Definitely it's going to be the longest in a way, because you were the first dollar in Wiz, actually. Why Wiz?

'You' is the short answer. We had a spiky founder that was overly ambitious, and I mean that as a compliment, not a knock. You had built a business before. You sold it to Microsoft. You had domain knowledge. It was simply a no-brainer. It was a five-minute conversation at Sequoia. So thank you. But now I want to turn it around and ask you some questions. Tell us what Wiz does and why does the world need another company in the cybersecurity space? What was the insight you had?

So we're on a journey to make cloud less cloudy, in a way. You know, we're looking at companies and helping them and their organization to secure everything that they run and build in their cloud. And basically, if you think about it, this is probably the best timing to be in this market. Think about it that, you know, COVID accelerated lots of that. Basically, companies that had projects that they're going to run for two years, they basically rushed to the cloud in two months, and they created kind of a security debt. And this exact pain point, which is top of mind for most organizations on the planet, this is what we're tackling. So I think, yes, it was our expertise, but also this is top priority for any organization today.

And the company was started at the beginning of COVID. How did COVID affect your plans? How did it affect how you rolled out the beginning of the company? I remember when you and I had breakfast in New York City, you were gonna move to New York. You're not in New York; it's still Israel. Tell us how the changes in hiring, location of your employees, strategy—how that all changed because of COVID.

Yeah, so we started March 1st. And if you remember, March 1st was basically the day that we understood this is a pandemic. It's not like an Asian thing or something that—that's going to affect us as a world. And that's where we started, in a way. I'll be honest, on the first days, although I got great partners, I thought maybe I made a mistake. 'Hey, to run a startup, that's risky. And to run a startup during a pandemic, it's like never done before.' Having said that, probably in retrospect, that was the best timing to start a company. And I think that definitely in the security space and cloud security space, we got the attention from the CISOs. Again, top of mind, everybody are pausing their on-prem security projects and asking themselves, 'What can we actually do?'

People are working remotely. So timing was great for us. And also, I'm looking at European and Israeli entrepreneurs, for example. You talked about the global market. For us to be in Israel with great talent, with great cybersecurity talent in Tel Aviv, and to sell in the morning to the UK and to Lisbon and in the afternoon starting in New York, and at the end of the day, talking to San Francisco and all of that in one day without having any infrastructure... Like, if I'm looking at my incumbents, for example, they have a sales office in every big city in the world, in a way. So in a way, kind of, we were able to, as startups, to create a parity with the incumbents, which pushed us even more.

One hint for a lot of you that want to start companies: dark times are terrific times to start a company. It's because a lot of people run away, there's less of a fight for engineers, and since you're going to be in R&D mode for the next year anyway, dark times, not boom times, are a great time to start companies. You chose us as investors, as business partners. I'm curious how you chose your investors in general. What was going through your mind?

It's not my first time with Sequoia, so that's one thing. So I had the experience. But when I think about who to approach, money is not any longer like a differentiator. It's available, in a way, for the great companies. But, you know, you talked about the journey, and, you know, this is going to be a long journey. We're starting with a presentation that basically is in the trash can today. So we started with a very bad presentation, but we needed to start with a product-market fit. So when you're choosing a partner, you think about, you know, who's going to help you and assist you with finding the product-market fit. That's the first thing. But again, it's not—it's not ending there. And then it's about building the team, and who's going to bring you the VP of Sales or VP of Marketing, and who's going to...

Help you recruit these people and interview these people, and then how to scale your business, and then questions, you know, about, 'Hey, we're going to IPO. What's the right thing? What's the wrong thing?' and post-IPO, what you're doing. Very few VCs have the ability to support you along this journey. And I think that sometimes entrepreneurs are running or taking the first check that they're seeing, but not thinking about who's gonna be their partner, and you mentioned that, for the long term.

So in the 34 years I've been in business, I've never seen a company start as rapidly as you have. I've seen companies grow, like ServiceNow and others, but I've never seen a company grow from zero to something as fast as you. How fast should a company grow once it has product-market fit?

Look, so I think that once you find your product-market fit, it's already late for you to understand that. So in a way, it's always a risky thing that you need to think about when and how to invest in that. For example, recruiting sales reps, that's one of the things that's gonna—so that was a risk that we took, and big believing in our product-market fit, even before we knew it, so that enabled us to basically run super fast and being one of the fastest cybersecurity companies in the world. And you just closed the round at six billion. Why have you raised so much money? Actually, to be honest, you told me not to raise so much money. So I didn't listen to Doug. He never does, by the way.

So in a way, $600 million, that's truly a lot. And my thinking about it, and Doug not always agrees with me, but my thinking about it is, 'Hey, we have a great product-market fit. The market is right here, right now. The opportunity is globally. Unlike in other startups where you start in the U.S., then move to Europe, then think about APAC, in cloud, it's not like that. Some countries are even more advanced in cloud adoption than the U.S. itself. So thinking about that, hey, I need to grow in all markets, in all geography at one time. That's one thing. And the other thing that we thought about that there are maybe opportunities for inorganic growth, and that's where we needed the cash. So that's kind of my thinking.'

I know you disagree with me, but we'll see. Time will tell.

Well, I hope you're right. I'm rooting for you. Where are your employees, and where are you looking for talent?

So actually, as I mentioned, I think we're looking very globally, in a way. So the market is not only the U.S. We're very focused in the U.S. I'm going to move someday to New York. It doesn't make sense for now in COVID. So we can operate from anywhere in the world. Basically, globally—that would be the answer. Actually, Doug, we're running out of time. And I have one last question for you. So I actually asked you to come to the Web Summit. Super excited that you're here. But it's your wife's birthday today. Happy birthday, Patty! And you flew 6,000 miles to Lisbon. You're flying tomorrow to Chicago. How come you and your partner are so committed to the founders?

Look, we are privileged to be in business with someone like you. The older I get, the more lucky I feel to be in front of even an audience like this. There's a lot of people; I'm sure there's a lot of founders. It's really a unique moment in time where we are changing the world as a community. We are building new things. And when you've asked me—you are a successful company, you're a terrific founder, you asked me to come here on my wife's birthday—it was a five-minute conversation with my wife. Of course we're going to come. We'll do anything for our companies to help you win. It's our privilege, and it's our honor. Thank you, Doug. Thank you. Thank you.