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Picture yourself investing in Atari, Apple, Google, & Nvidia

Diving into the 3 innings of Sequoia Capital history: the Valentine era, global expansion, & the three way split.

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Today's Takeaways

For today's post, I dive into arguably one of the most successful venture capital firms ever: Sequoia Capital.

Recently, the firm made a huge announcement that it would be splitting into three separate entities:

  1. Sequoia Capital (U.S. & Europe) led by Roelof Botha

  2. HongShan (China) led by Neil Shen

  3. Peak XV (India & Southeast Asia) led by Shailendra Singh

This was amazing to me. 50 years ago, Sequoia Capital started as a small $3 million fund and now is so large that it literally had to split into three separate entities. I decided to go into the history of the firm and learn about the unique events that led to where the business is today.

I split up the history into 3 innings. The first is the early days with the start of the firm by Don Valentine. Then we move onto the glory days of Sequoia in the post dot com era led by Douglas Leone and Michael Moritz. And lastly, I talk about the beginning of the third inning which just started with the official formation of HongShan and Peak XV.

The Grandfather of Venture Capital

Sequoia Capital was founded in 1972 by Don Valentine aka "The grandfather of Silicon Valley VC". He built this firm before the term "Silicon Valley" and "Venture Capital" had even been coined.

Valentine started off his career in the aerospace industry at Raytheon as a sales engineer and then shifted over to the semiconductor industry. At Fairchild Semiconductor, he spent 7 years building out the sales team and then shifted over to National Semiconductor where he served as the VP of Sales and Marketing.

In case you missed it, I did a post a few days ago covering the origins of Fairchild Semiconductor. The early employees of this startup went on to start Intel, KPCB, AMD, and Sequoia. Check it out here!

While at National, Don started writing checks to technology companies and built a muscle for identifying innovative ideas. Capital Group, one of the earliest wealth management funds, took notice of his investing capabilities and ended up seeding the majority of Sequoia's $3 million fund. Don himself put up $150,000 of his own money to get things started. Thus, Sequoia Capital was born, the product of Valentine's tech and sales expertise, developed over a decade in semiconductors, coupled with the financial powers and support of Capital Group. This synergistic partnership laid the foundation for what would become one of the most influential venture capital firms in the world.

Remembering Don Valentine | Sequoia Capital

Don passed away in 2019, almost 40 years after the start of Sequoia. In those 40 years, he built a team that had made ~1000 investments in companies that have over a trillion dollars in stock market value.

His legacy persists in the tech industry and venture capital world, and he is remembered as one of the pioneering figures of Silicon Valley. Valentine's vision, his keen ability to spot technological potential, and his commitment to supporting innovation laid the foundation for one of the most successful venture capital firms in history.

Atari, Apple, & the First Inning

In 1975, Don made perhaps one of the most seminal investments in the firm's history. He wrote a $150,000 check in Atari, the pioneering video game company. Atari, founded in 1972 by Nolan Bushnell and Ted Dabney, was responsible for some of the OG games such as "Pong". And soon after the investment, Atari sold to Warner Communications in 1976 for $28 million.

NYT: 09/08/1976

However, the financial profit from Atari was the second best thing that came out of the investment. The first was most definitely Don's introduction to a young video game developer named Steve Jobs. Their brief introduction in 1975 eventually led to Sequoia's next biggest investment and arguably the most important check ever written in the firm's history: Apple. In 1978, Sequoia invested $150,000 in Apple which ended up resulting to $6m in the IPO (40x return). These two investments put the firm on the map. Everyone in the tech industry knew about Don and from that point on, Sequoia started to dominate the venture capital scene in the bay area.

Another notable investment worth discussisng is Sequoia's early history is LSI Logic. The firm wrote a check in 1981 and when the company had it's IPO in just two years later in 1983, it resulted in a $153 million return! Note: this is in the 1980s - that would be worth close to $450 million today. The second fruit that came out of the investment was in 1993 when Wilfred Corrigan (CEO) introduced Don to Jensen Huang, who at the time was an employee of LSI Logic. Jensen pitched Don the idea for Nvidia; the pitch itself went terribly, but Don trusted Wilf and ended up investing anyways. 30 years later, Nvidia is one of the 6 companies worth a trillion dollars (the others being Amazon, Microsoft, Apple, Alphabet, and Saudi Aramco).

In the following two decades after Apple's IPO in 1980, Sequoia invested in a variety of companies such as:

  • Oracle

  • Cisco

  • Nvidia

  • Electronic Arts (EA)

Doug, Michael, & the Second Inning

Don named the firm "Sequoia", after the tree that lives thousands of years. Instead of naming the firm after himself, he decided to go with Sequoia to ensure he was building a brand that outlived him.

That Don chose “Sequoia,” a tree that lives thousands of years, rather than naming the firm after himself surprises no one who knew him. It was his humility and commitment to empowering the next generation that has enabled our team to stand the test of time. (Sequoia website)

Perhaps the two best decisions he made while active at the firm for 30 years were in the late 80s. In 1986, he brought on Michael Moritz to the firm who came from the journaling industry. And in 1988, he recruited Douglas Leone, an engineer who started his career at companies such as Sun Microsystems, HP, and Prime Computer. It was both of them that kept his vision for Sequoia alive - they continued to grow the Sequoia tree far beyond what Don had probably ever imagined.

By the late 1990s, Valentine had left the day to day operations of the company and had transitioned the firm over to Doug and Micheal who served as co-managing partners for the next 15 years until Michael stepped down in 2012 for health reasons. Doug stepped down just last year in 2022 which officially marked the end of what I like to think of Sequoia's second innings.

Sequoia's Doug Leone steps down | TechCrunch

This part of the firm's history is widely known and public. I'll cover some key takeaways briefly from the last two decades:

  1. Expansion & Global Presence - Doug & Michael were probably most famous for their ability to effectively expand out of Sequoia's roots in Silicon Valley. In 1999, they started by deploying a Israel dedicated fund, then established Sequoia China in 2005, Sequoia India in 2006, and eventually expanded to Southeast Asia and Europe. Many other VC firms have followed their footsteps as well. It was Doug and Michael's foresight to recognize that the dot com boom meant the falling need for founders to be based near Sand Hill road.

  2. Major Investments & Successes: Google, LinkedIn, YouTube, Airbnb, Dropbox, etc. Basically, look down at your phone and pretty much most apps you use on a weekly basis were funded by Sequoia. It's worth calling out their return on Google: $12.5 million in 1999 for a 10% stake ended up being worth $2.03 billion in 2004 when the company had its IPO.

  3. Keeping a strong culture: In the second innings, things were a bit different. Many other firms had popped up, capital was being deployed like crazy, valuations got out of control, the model for VC solidified, etc. In other words, there was a ton of noise in the tech entrepreneurship space and avoiding groupthink was actually (and still is) quite difficult. Doug and Michael were both able to keep Sequoia's culture of frugality, long-term thinking, and a hands-on approach alive in a time of such chaos. Sequoia is known for its meritocratic culture and high achieving partner base. Keeping up that level of talent and quality is by no means an easy task.

3 Firms for the Third Inning

Fast forward to two weeks ago - more than 50 years after the start of Sequoia Capital. The firm officially announces that it is splitting up into 3 separate funds.

Let's take a second to digest that. Sequoia Capital literally grew so large that it is splitting up into three companies 🤯

Here's the breakdown of the 3 firms:

  1. Sequoia Capital - this firm will retain the original name headed by Roelof Botha and will focus on investments in the U.S. and U.K. regions.

  2. HongShan - which is what Sequoia China is will continued to be run by Neil Shen. HongShan manages $56 billion in assets and recently raised $9 billion in 2022.

  3. Peak XV - which is what Sequoia India is will be headed by Shailendra Singh and will focus on Indian and Southeast Asia investments. They recently raised $2.5 billion and are zoned in on capturing as much of the new innovation coming out of the Indian tech market as possible.

What was most interesting to me about the new structure is that from here on out, partners from one firm will not be able to invest in the other two. That means the original Sequoia can't profit from the two firms it literally started!

Alex Konrad Forbes

It seems as though there are two reasons why Sequoia is doing this:

Portfolio Conflicts: Sequoia is so large that founders are literally complaining about other portfolio companies as notable competition and are confused as to what the firm support looks like. Up until now, though there were different teams handling funds for different geographical areas, all of them shared the same back-office operations. From here on out, all parts of the companies will be completely separate.

They cited conflict between the funds’ respective startup portfolios, brand confusion as they diverged in strategies and increasing complexity of maintaining centralized regulatory compliance as factors — while acknowledging, but attempting to downplay — a frostier geopolitical environment.

Geographical Tensions: Although all 3 fund leaders don't agree with the sentiment, it has to be worth noting the rising tensions between the U.S. and China. It's hard for the funds to deliberately act in China and other regions while based out of America. By having a clean split, Neil Shen and team can act in full force with their understandings of the Chinese tech ecosystem and government regulation.

Posts since my last e-mail ✍️

Saturday: "Picture yourself as one of the traitorous eight" - You've probably heard of the PayPal mafia - the group of execs from the late 90s that went on to start companies such as Tesla, LinkedIn, Palantir, Yelp, etc.

However, there's a chance you haven't heard of the Bell Labs Mafia or the Traitorous Eight. These two groups were the OG tech mafias in silicon valley. From creating the transistor to starting Intel, these nerds from the 60s and 70s did more than most people can fathom. And guess what, tech bros are no different than your average teenage girls. The drama is wild and feelings were hurt 👀

Sunday: "Picture yourself at the world of tomorrow" - In this post, I cover a common theme underscored by many technologists I optimistic.

I cover the history of the World Fair and how the events were beacons of excitement for technological advancements. However, by the time television went mainstream, the fairs went bankrupt and governments took control of the narrative covering tech. It's essential the folks that are building take back control over the mainstream narrative by productive storytelling.

Here are the key takeaways:

  1. Don't stress about small problems and let them hinder your growth

  2. Build hard things and be resilient

  3. Most optimistic

Monday- "Picture yourself thinking less, doing more, & staying authentic" - In this post, I cover 4 key lessons I learned from reading through popular articles put out by one of my favorite technologists, Kevin Kelly (founder of Wired).

Here are the four lessons:

1. You are not late

2. Stop trying to attract everyone

3. Don't think, just do

4. Authenticity matters

That's all for today's post! If you enjoyed the history aspect and want to learn more, check out Acquired Podcast deep dive on Sequoia. And if you want to get further into the firm changes, check out Alex Konrad's article in Forbes.

I'm always open to feedback - let me know if you have any ideas on how I can improve, things you'd like to see more analysis on, or just other topics you'd like me to cover.

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