Sebastian Mallaby: observation

Transcript context

…As you know, Sequoia has changed its rules so that it can now hold investments for much longer-term periods than had been the case. If you extend this to its logical conclusion, you could imagine a future ten, fifteen years from now, where hedge funds, VC firms, a lot of other financial intermediaries are all blended mixes of doing varying combinations of similar things. Ten to fifteen years from now, what do you think will be the unique feature of venture capital? Or do you think everything will be a blend? That’s a great question. I would say that the useful definition of venture capital is that it is an early-stage venture, an adventure, in fact. When you get to investing in companies which are more than about $500 million in market cap, that’s a different thing. That’s growth equity. I don’t call that venture anymore. The reason I picked $500 million as a number is that when Amazon went public in the late ’90s, its public market cap when it IPO’d was between $400 million and $500 million. Now what’s happened is that the IPO point has been delayed because you’ve got this ability to raise late-stage growth capital, and more and more checks have been written — $100 million, $200 million, $300 million — into companies that are worth $1 billion, $2 billion, $10 billion. That is being grafted into traditional venture partnerships like Sequoia Capital, so I write a lot about Sequoia. One of the amazing things is how much franchise risk they’d be willing to take. They were a traditional early-stage investment shop in 2000, and then they grafted on this growth equity business. They grafted on a hedge fund business. They built an endowment fund on top of that. Now, as you say, they’ve got permanent capital, so they’re going to end up with multiple business lines. It’s a bit like Goldman Sachs has multiple business lines. I think the venture capital portion of Sequoia’s business will remain the early-stage part. Even after the pandemic, it’s striking to me how much venture capital remains concentrated in the Bay Area. The major deals are mostly done there. What’s your mental model for that?…

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