Alfred Lin: evaluation

Transcript context

…The next thing I wanted to ask, in many ways, Sequoia’s history that has sparked me thinking a lot about this over the past year and the Apple investment that we covered so many times. That was an early example of buying low and selling high that, in the long run, probably served Sequoia. Not nearly as well as it could’ve. I think you guys made $6 million in net profit on the early pre-IPO Apple investment. How do you guys think about time horizon? Obviously, you need a long time horizon as we’re talking about that’s the way to compound capital. At the same time, you are a fund structure, a series of funds. You have limited partners, they want distributions at some point. When do you guys think about the right time to start to distribute out your investments? We think about whether the company has brighter prospects in the future than they do today. If that’s the case, then we continue to hold. We don’t actively think about distributions from an IRR money-on-money perspective. Yes, obviously, we are a fund and we get measured that way. But we’re very proud of the fact that our as held multiples are higher than our net multiples of the stock we distributed. It’s a deliberate strategy that that’s the case. The reason that that is is because we both pick the right founders who want to build long-lasting companies and we help them focus on what’s enduring about their business. You’re just a lot better off focusing on the long run than any short run swings up or down in the market. When we distribute, yes, it’s because it’s maybe the end of the life of the fund, but it’s more about even when we distribute we hope that the company has much longer prospects than the day we send the shares to our LPs. We distribute shares and let our LPs decide whether they want to sell or not. We generally don’t sell the stock. It’s funny. It’s a nice thing to say we’re long-run–focused over short-term–focused. But in the business that we’re in, it’s quite literally and mathematically just a much, much better strategy given how much of the area under the curve of a compounding returns business shows up in those later years. I think I heard a stat recently that Amazon made as or more money in its 21st year after IPO than the entirety of the 20 since IPO. It’s just funny to think about these businesses that we’re in. The opportunity to invest where you’re investing does come early, but the real returns do come much, much, much later.…

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