Today, longtime venture capitalist Doug Leone of Sequoia Capital sat down with TechCrunch founder Mike Arrington at the TechCrunch Disrupt conference in San Francisco, and he was about as vibrant as his socks. That is to say, Leone — whose modish, striped socks were a point of discussion both backstage and onstage at the show — was a great guest.
Leone spent some time talking about how the industry along with Sequoia have evolved since he joined the firm in 1988. (He became a partner five years later.) For example, Leone said that when he started out, a typical founder was a “45-year-old middle manager – maybe an engineer, who thought he knew everything.” He also said Sequoia itself was a “very different partnership” and “not very friendly.” How have things changed over the last 20 years? Below are some bits of the discussion that followed:
Leone said that Sequoia still runs the partnership the same way that it coaches companies. One of its bits of advice to partners and entrepreneurs alike is to return emails within the first five minutes of their receipt if possible. Another is to “be a clean thinker.” (Leone didn’t elaborate much on this last point, but in the context of the interview, it seems Sequoia prefers entrepreneurs who can be strategic and consider not only the next six to 18 months of their startup’s trajectories but the next four to five years.)
The firm also seems to prefer investing in very young entrepreneurs. Leone said it typically invests in people who are age 25 or younger these days. He assigned the shift to the fact that technology infrastructure – in which the company historically invested – is now fairly mature, which in turn has Sequoia focused primarily on the “application layer.” (Put another way, founders needn’t know as much deep technology, including about chips, as they once did. It’s also possible for someone younger to get a company going given that related costs have fallen precipitously over the years.)
Leone called the shift a thankful one, explaining that if you want a founder to serve as the VP of product or in a very important technical role or as the CEO, it’s possible to have such conversations, whereas it’s “different conversation” with a 45-year-old founder who’s “bent on being CEO.”
Arrington asked – as I would have – if there wasn’t age discrimination in the industry. Leone was quick to say no (not entirely convincingly, I might add), pointing out that Sequoia has “many founders who [are] more advanced in age” including at ServiceNow, an on-demand enterprise IT company whose founder, Fred Luddy, launched the company at age 45.
Arrington asked Leone if Sequoia has ever lost investors money. Here, Leone had lots of revelations for the crowd. He said that Sequoia’s worst fund “has returned capital and then some.” He also said that when “in 2002, it looked like one of our funds wasn’t going to do well, [Sequoia’s partners] wrote personal checks to individual investors — the Silicon Valley crowd that invests side by side with us — to ensure that no one could say, ‘We lost money investing in Sequoia Capital.’”
Leone later declined to say exactly how much money Sequoia has raised over the years, but he guessed that the firm has pulled in between $5 billion and $7 billion. He preferred pointing out how much the firm has returned to LPs – which include Harvard, Princeton, Yale, and the Ford Foundation. According to Leone, that figure is somewhere between “$15 billion and $20 billion.”
ON ANGEL INVESTORS AND INCREASED COMPETITION
Leone tried to be diplomatic about all the cash sloshing around Silicon Valley these days, but it clearly irks Sequoia that the firm – along with all venture firms – has been painted as a later-stage investor by many seed and angel entrepreneurs, despite that it regularly makes seed investments.
Indeed, Leone said his advice to entrepreneurs is to “think of investors as your business partners” and not just in terms of “what you need over the coming months but over the next four to five years. Some companies, you may try to answer a question in the next 90 days, [and in that case] maybe having angels – who we consider partners – makes sense. But if you are extremely focused and know where you are going from day one – it’s not so cheap to roll out a company [with big ambitions] – one of the things you may want to consider is finding a business partner from day one that can take you through the winding road and can help finance the company over what may be tougher days ahead.”
Leone added that “angels who now have a $100 million fund but still call themselves angel investors even though they are micro-VCs make me the most nervous.”
Leone also said that contrary to popular belief, no matter how young a company is, Sequoia “wants to be the first penny of capital” it receives “because we want to be partners with entrepreneurs from day one… We know after many, many years that your DNA is set in the first 60 to 90 days, and we want to be there to assist you to create some of the best DNA that Silicon Valley has ever seen.”
Relatedly, Leone seemed less supportive of Arrington’s new $20 million venture fund, CrunchFund, than conference attendees likely anticipated. Asked by Arrington if Sequoia would squeeze a new fund like his out of a round while it’s working to help shape a young entrepreneurial team, Leone said no, that if an entrepreneur thinks that “CrunchFund has a differentiated set of skills that will help you, then by all means” take its money. (It wasn’t exactly a ringing endorsement.)
Pointing out that too much money is already chasing startups, including from Europe, Russia, and the likes of Goldman Sachs, Leone then told Arrington, “You’re joining the abundant side of market, instead of the scarcity side of the market…Why you want to join [the world of venture capital] is beyond me.”