David Rosenthal: belief

Transcript context

…Well, I think it all comes back to this super long-term orientation. Does Sequoia have ego around that? Of course, they do. Go look at their website. It's all about long-term, it’s not about like look at this deal we just did. It's about looking at this company that was built over decades that we were part of. Look at all these companies and look at Sequoia itself which we’re going to get into much more in our next part of this series here. I try for this section to kind of catalog and crystallize what are the elements of, if you have to distill the Sequoia playbook from this history and from Don’s experience? I think these are the points that I would put it. First and foremost, of course, is focus on the market, both the size of the market and whether the dynamics of the market will lead to rapid adoption by a new entry. We didn’t talk about this as much in the history but another lesson that they learned at Sequoia is you don't necessarily want to create markets. You want to exploit markets early, because if you’re trying to create a market that doesn't exist yet, you’re going to spend so much money in marketing dollars trying to educate the market. This is the key to the dynamics of the market versus just the size. You can look at the size but that doesn't tell you, “Is the market ready to adopt a new solution?” I think they spent a ton of time focused on that. The second is that change equals opportunity. This also didn’t make it as much into the history and facts, but Don has this great quote about this. He says, “One of our theories is to seek out opportunities where there is a major change going on. A major dislocation in the way things are done. Wherever there's turmoil, there's indecision, and wherever there's indecision there's opportunity. When it becomes obvious to anyone who reads Time magazine that it's useful to have a disk drive on a computer, then it's already too late in the cycle to invest in disk drives.” “We look for the confusion phase when the big companies are confused, when the other venture groups are confused, that's the time to start companies. The opportunities are there if you're early and you have good ideas,” which I think was just such a perfect way to frame it. Hard to do in practice but a really perfect way to frame it. Next, I think is when you find one of those opportunities, don't get caught up in overly focusing on the team. Of course, you want the team to be great, but if the team doesn't look like a traditional team that you would pick from central casting to do this, don’t worry about it. You would better to pursue the opportunity and you can augment the team if they're receptive to working with you on it. That gets to the next piece which his be a company builder, not an investor. To really do this at the early stages, you got to dedicate the time and effort. You have to have a partnership of people made up of people who have actually built these companies. er, not an investor. To really do this at the early stages, you got to dedicate the time and effort. You have to have a partnership of people made up of people who have actually built these companies. Whether that's in their careers as investors or their career as operators, but people who really know what they're doing, that can help the companies make good decisions and recruit great management teams around them. Related to that, you can only do that at the early stages. Sequoia now of course, and we'll talk about this much more, invested all stages of company’s life cycle, but this type of company building and investing they were talking about, you can really only do it at the outset. It’s interesting. I think Sequoia used to have one of these quotes on their website in their ethos section. I don’t think it’s on there anymore. They believe that the DNA of a company is set within the first 90 days of operation and after that, it's really hard to change it and having lived through that and now, making the whole focus of my investing at that stage of the market and you too, Ben, I completely agree with that. Just reflecting on how crazy it is that this asset class exists, we all take for granted that there’s early-stage fundraising. En masse, a couple of million of dollars are going to get deployed into ideas, thousands of times per year and that there is a whole asset class of investors that are willing to do that. Now, it makes sense because we've seen a handful of those becomes so valuable that you index the whole asset class and sometimes it over performs, sometimes it underperforms, but it tracks other asset classes in terms of risk-adjusted return. It's a pretty special thing that it exists—this is probably an ethnocentric statement—in our country. If you think about the impact it has had on GDP, the access to early-stage capital from a large group of people who it's their business to take a flyer and their business to underwrite a tremendous amount of risk by having a 20 plus company portfolio, I think it's a really good thing that this system was created and that this type of capital is available today. Surely it is not deployed in the best way that it could or certainly the most fair way that it could. The fact that it exists at all is intensely value creative. We take it for granted that it exists today and it's mind-boggling how difficult it would have been to convince people at this point in history that they should plow money into it.…

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