Sequoia Capital partner Roelof Botha shares his thoughts on the past by changing models of capital and talking about DeFi and Metaverse.

Roelof Botha is a partner of Sequoia Capital, one of the oldest and most successful companies in the world. Recently, it was announced that Sequoia Capital would become one of the most innovative companies since its establishment in 1972. It aims to dismantle the existing 10-year venture capital structure and develop the model permanently open under the name of "Sequoia Fund".

The discussion began with a summary of Sequoia Capital's dealings, including Roelof Botha's changes over the past two years, use of PayPal, affiliates with like-minded affiliates, and his comments on Square and YouTube continued. throughout my career. And the investments of Udemy and others have started again.Content provided by audio from Patrick's Conversation podcast edited by TechFlow Friends member 0xtree.

* TechFlow Friends is a group of volunteers within the Deep Wave TechFlow community.

TL; DR: (too much to read)

1. Today, the business model of venture capital was established in the 1970s and has not changed for 50 years.

2. The 10-year cycle process always leads to early-season client-merchant relationships.

3. It takes 5 years at the start to achieve values ​​from 0 to 3. After 5 years, the profits of listed companies will increase further.

4. Depending on the situation, you may lose interest on the investment. The founders were mercenaries, not missionaries. The mercenaries will face difficulties.

5. Taking Square as an example, many businesses will be restructured, but most organizations are their own worst enemy, and good ideas often suffocate within an organization.

6. The advantage of payment is that it helps you lubricate the cogs of your business. Even if it's a hackneyed word. But what costs really makes trading easier.

7. I love the promise of smart contracts to include cryptocurrencies in payment activities to make them more efficient.

8. The promise of some DeFi technologies in creating smart contracts and reducing business costs is badly needed.

9. The real risk of the Metaverse is managed by large companies.

10. Do you think of the three most important things that will happen to every company I work for over the next month? It will help you eliminate problems caused by little things in front of you.

11. When I joined Sequoia Capital, I believed that if I succeeded, I would be able to play an important role in future partnerships. I don't work for others, I work for them or for them.

12. Knowledge is a matter of inspiration and knowledge is a matter of sweat. There may be guards who can help you go from N to N 1. But going from 0 to 1 requires genius.

Rewrite the VC rulebook

Patrick :Please let us know what you think of this change. What problem is the new model trying to solve?

Roelof: The modern economic model was developed in the 1970s. It is motivated simply by the historical context of the time. He hasn't changed for 50 years. This is a step back from the impact on ROI.

The problem with the model is still there with the budget closed over 10 years. Ordinary business organizations are required to strictly adhere to a 10-year budget.

If you look at the existing business, you can see that the life of the circle is not as Sequoia's main goal is to find a unique designer who can build a legendary business and stand out from the experience of time.

For example, when designers only have a rough idea, we help their business model find a company, find the right people, and overcome obstacles on the way to success. We all have the background, the relationships with the designers, and the ability to help them be successful.

However, setting the default for the normal 10-year cycle is excluded immediately after the IPO and distribution of the shares. This leads to a premature breakdown of the relationship between the entrepreneur and the investment objective, forcing different objectives between the startup and the investment partner.

Why should an IPO be a venture capital firm? Now I have been working for the development of many companies for over 10 years. Why does an IPO mean venture capital has to be invested by the board of directors?

And we know these big companies will keep raising their interest rates and most of their prices going up after they go public. So from an LP point of view, at Sequoia we work on what is called good reason. Most LPs are donations, foundations, and nonprofit organizations. Our goal is to make them earn money. After the company went public it made a lot of money, why sell the shares so quickly?Therefore, the formation of the Sequoia Fund is designed to achieve two objectives. In other words, helping developers have a longer capacity while helping LPs perform better.

Patrick :You can go through the process of investing in Square and use it as an example to illustrate the importance of the new model, but in fact Square is without a doubt a very good example.

Rolf :We consulted the company in 2010 and promised to invest, the actual investment closed in January 2011 when the value was 95 cents per share, and I am still a member of the wisdom council. By the time Square went public, the cost of its IPO was $ 9, or about nine times the profit. However, since we decided to patiently ship three or four years of IPOs, the final part of the sale costs between $ 80 and $ 90, with gains of 90x. This endurance has a major impact on recovery from LP.

According to the analysis, Square's trading capital at the time of its IPO was $ 2.95 billion. Five years after the initial public offering (IPO), the total value is 86 billion won, and now the value is 115 to 12 billion won.

In a sense,It takes five years for startups to achieve values ​​from 0 to 3. After 5 years, the profits of listed companies will increase further.

Patrick :Can you please explain how the new model works? Let's say I'm a big Sequoia LP. I invested in every new fundraiser or in every Sequoia fundraiser. What will happen next?

Rolf :The background can be a bit tricky. At the initial stage, the money we are working for did not really show up in the Sequoia Fund.

In short, the Reconstructed Sequoia Fund is an open-ended fund with a liquidity portfolio and the first full-chain crossover fund since its inception with public companies. The aim of the operation was to raise funds from participants in low-cost SQs, and then to divide those funds in stages into smaller closed budgets. seeds), all of which can be used for a capital investment, and have no time to leave. The proceeds will be donated to the Sequoia Fund, which may hold long-term participants.

In the new model, Sequoia's Limited Partner LP retains the right to return each year and the right to distribute funds to small funds. Once the companies concerned have gone public, Sequoia will not distribute for LPs, but may be referred by traders. Sequoia continued to control its stake in the New Silver Sequoia that never expires.

This approach radically simplifies the difficulty of converting capital for LPs in order to better manage their cash flow.

He then gives the LP the option of buying it back for money. Part of the problem with previous distribution models is that they were determined “all or nothing” for everyone. When deciding on the distribution, everyone gets their share. Unfortunately, most vinyl records are safe to sell when we distribute them.

It also makes sense. Manage $ 5 billion or $ 8 billion in loans, get stock in a new company you don't know, and what do you do next if you don't have a stock market? Therefore, these funds are preferred over the Sequoia Fund, but if you are having financial difficulty as LP and need funding for further studies or medical research, the Sequoia Fund may pay back part of the default balance. Like everyone else has to adjust liquidity.

Patrick: As a reminder, key funds, similar to LPs adaptive tools, allow LPs to determine where their funds are going, but to create more resources and backend choices, reducing financial management and redemption issues. Therefore, the use of value for money is better.

Rolf :This is true, but above all our determination to make this excellent work last and our ability to provide high quality to our vinyl records. Square is one example. Therefore, a disclaimer is necessary as past performance is no guarantee for the future.

Patrick :After IPO products related to the daily market, it is unchanged and completely different from the global industrial market, what do you think about this change?

Rolf :Of course, we have been patient for exporting for many years. We currently have a public safety rating of $ 45 billion in the US and Europe, and receive weekly archive alerts for activities the team will pay for. So we used to avoid changes today.

The important thing is that you have to think differently: you have to think of the whole decision rather than the distribution decision, because the sale or the distribution is a risky risk of the contract. If you are lucky enough to work with a great team, you should use a different framework.

Because the only way to get more feedback or work with passionate and patient manufacturers is to keep growing their business.

Patrick :What are the advantages of this new model?

Rolf :The investment community has always followed a policy called the venture capital exemption, which requires at least 20% of investment in non-equity capital. In other words, the game includes investments in the middle class, the cryptocurrency market, public offerings and income restrictions of less than 20% of the total capital.

Many companies spend years going public, limiting exchange rates in some processes. When eBay acquired PayPal in 2001, it accepted eBay's regular offer and brought money from the table to exchange funds with the group.

For many years we started our scouting program through our scouting program (VC Trooper program), but we have supported some managers including the 20% VC exemption restrictions for all owners who feel similar. This is why we need to re-evaluate ourselves, Another indicator is our investment in crypto, we have been working in crypto for 5 years and getting very good results, things will be limited. Newer models may reduce this limitation.

Patrick :What is the LP value model in these new models? How it works?

Rolf :In our Future Seed Risk Growth Fund, the cost is constant. However, there is now an additional pool of resources that have received standard rates agreed to with the LP, and the management costs are minimal.And I have personally invested over 1/3 of my debt in new products. What works for LP seems to work for us as well. By investing large sums of our own money with our clients, we have developed value models with a well-balanced incentive system that only rewards us when our investments are successful, beyond our standards.

how the world is changing

Patrick :How do you see the changing landscape of the capital from a design perspective?

Rolf :International interest rates are too low. We have seen a huge decline in fiscal and monetary policy due to the coronavirus, and various assets, including market capitalization, have been affected.

In this environment, people are aware of the benefits of injection technology.

Twenty years ago, when I worked for PayPal, 200 million people around the world used the Internet. Most of them are dial-up internet. But if you look at the resources we have today, technology affects everyone and every industry. Establishing a profitable business can help your business grow faster than ever by attracting an international audience and gaining instant exposure. . High growth will always attract more money.

The choices investors face are when they need help, when they need an entrepreneur, and when they need market capitalization. Who will join the board and who will help grow the business? Are they worth it?

We recently met Jack Dorsey at the founder of the event and he spoke about giving back 1% of his stake to the Square company twice. It's 1% of the business, not 1% of itself. Because he wanted to improve his ability to hire the best people to help the business succeed. Here are his thoughts:"I want to have a small group that is really successful and has a bigger impact than saving as much money as I can on my own."I think his performance was excellent.

Patrick :How do you think the landscape today is different from the past? Or what does the wind change today?

Rolf :One of the biggest changes I've seen in the past 15 years is that designers are passionate enough. He can provide the design. Like PayPal, it was once worth $ 1.5 billion and is now worth over $ 300 billion.Our designers are more patient than ever, with more worldly aspirations and a greater sense of responsibility. Not only in the United States, but also in Europe.

Patrick :What are the advantages of this change?

Roelof: Don't use short, don't close, try to build properly. I saw the founders think better about team management.

Let's make a square as an example. Square Cash was not available for the first 4 or 5 years of the business. Today it is a large company with 10 million users. Jack said: The company has a lot of space for a second update. How do you help your team be successful and be more productive in your organization?

Roelof investment framework

Patrick :What was your goal when you first met the team of developers or startups? For example, what do you want to know?

Rolf :It is a difficult and interesting question.Every meeting, like a good interview, is professional. Identifying problems, asking good questions and building trust in communication is a good balance.

To be honest, finding the problem itself is very necessary. We hope the founders can come back and say, “You asked the hardest question. This is why I want to work with you. Because you make my heart. You help me “I think differently about my business. That's what I want. "

I like to understand their eureka time. When Archimedes took a shower and figured out how to measure the hat, he was surprised to be blessed and shouted "Eureka!"

When did I want to know, how was the creator of inspiration and role born? For example, Natera, a publicly traded bioinformatics company, has a world leader in uninterrupted prenatal screening. The designer and I met in high school. He received his PhD in Electrical Engineering from Stanford University and is now passionate about the study of biology and genetics because he believes people need better medical care.

Because in the 21st century, people are discovering that there is no better tool to help families with healthy children. It is motivation and responsibility that drives them, and they can take a break in their lives to resolve this issue.

Patrick :How would you like to understand your business model or revenue model from the start?

Rolf :This rarely happens.I always think of creating a price before getting a price. It is rare for a business to produce or deliver good results but not build a successful business. Now, if you want to be a good business, not a good one, your business model has to come first.

Patrick :Under what circumstances can we lose interest in a business early on?

Roelof: You can't say for a company. This is part of the challenge. Don Valentine once said that our business is an investment, not an investment.

There are times when you can be dissatisfied with yourself.The founders were mercenaries, not missionaries. Because the mercenaries will suffer.

Carré, Youtube, Unity MongoDB

Patrick :He is a major shareholder and member of Square, YouTube, Unity and MongoDB. What skills can you share?

Rolf :I know the method of payment and it is part of my commitment to the investment involved. What's surprising is that Square can create a huge consumer market. Because the company's first DNA was to help small businesses.

This proves that this company is capable of creating a second. The key to this ability is the ability to bring new ideas to life.Most organizations are their worst enemy, which is why there are often no good ideas.

Patrick :Thinking back to the early days of PayPal, what's the happiest thing about future payments? What's Interesting About Payment Models Today?

Roelof: The advantage of payment is that it lubricates the wheels of your business. Even if it's a hackneyed word. But what costs really makes trading easier.

It's the end of eBay after receiving PayPal. The tight integration of PayPal and eBay payment products has resulted in rapid growth in eBay transactions. This is a benefit that regular payments can more easily bring to the businesses that create economic growth and GDP growth.

I like the promise of smart contracts that can include cryptocurrencies in payroll to be more efficient. The promise of some DeFi technologies to close smart contracts and lower business costs is a reality.

Patrick :This week, Commerce and Industry, the Meta Universe, sees the Partnership as a great opportunity.

Rolf :Because Unity creates real-time 3D interactive technology, it is an integral part of metaspatial communication. Currently, 70% of the top 1000 games on the App Store are used by Unity. Unity is a powerful engine for improving the metaverse and has been used exclusively in manufacturing and automotive applications.

The difference between Unity and other products is that we believe in an open ecosystem by default.The real danger of the Metaverse, in my opinion, is that it has been run by big companies.

Patrick :Why is open decentralization good?

Roelof: The downside to openness is interoperability. If the situation is very open, the plumbing of the technology can be troublesome and not work properly. However, this is the solution to the problem.

Unity solves these problems. So when developers run Unity, the game or application they create can run on any hardware device. When you build Unity apps, they run on iOS, Android, macOS, Windows, PlayStation, and even Xbox, and can be used on any platform.

A company like Unity can employ every creative person as much as possible.A closed ecosystem will be a monopoly and the monopolies will not have to innovate.Of course the market is technologically advanced? Otherwise, users will choose a closed system.

Patrick :What is the main consideration when investing in YouTube?

Rolf :We recommend that you register first! Three of the founders were my friends and colleagues at PayPal, who came from zero to the Sequoia office in Chad's Garage in Menlo Park. Sequoia is their first place of business and working with them every day for the first few months is a great experience.

Earlier, Chad, Steve, Jawed and I discussed how YouTube has become a platform for developers. We're also thinking about how to connect brands and producers to support their business ventures and ultimately live on YouTube. Now it's true! A lot of people are talking about it. 25 years ago, it was a surprise. How amazing is that?

Patrick :When it comes to MongoDB, you are often involved with developers and I appreciate your thoughts on the developer world.

Rolf :About ten years ago, we had a concept called consensus called the rise of the developer. This provides insight into your investment that Unity and Unity also have with Developers, GitHub, MongoDB, Confluent, and many other companies.

Currently around 25 million people in the world make a living from writing software, but the quality products we use today depend on very few people, so we will have to develop some technological tools or products that can help and increase these manufacturers. Productivity helps the world. Interference that leads to more distractions.

Moments Board, Legendary Entrepreneur and Melting Furnace

Patrick :How can a developer help complete the transformation of key concepts?

Rolf :Sometimes a company will have one or more designers with technological equipment, but they don't have a sales team before but need to go into business. You can ask a good leader in this field to help your business, he won't focus on the key points like me, but he is very good at building a sales force and understanding how to start a business. It's a goal to work harder.

I read a book called "The Hinge Factor" a few years ago. The subtitle of this book isHow Opportunities and Disappointments Changed History. So I'm looking for a moment to decide when a company can turn left or right on the road. It affects the results.

Patrick :Please let us know how you improve your ability to earn points. (correct)

Rolf :In fact, one is a past experience, and the other is that I received training related to joining Sequoia. The third is to think constantly,Think about the three most important things that will happen to every business you work for over the next month. It will free you from trouble caused by little things in front of you.

Patrick :You just said that the board members represent different board skills and different influences in the business, and I think the same answer applies to the business. Having worked with Mike Moritz, Doug Leon, Don Valentine, Jim Gates and many legendary entrepreneurs, what do you have in common? What is the DNA of such an entrepreneur?

Roelof: Curiosity, and most importantly.

Of course, analytical skills, human judgment and business acumen are required. Access the now published YouTube memo. It takes the strategy of supporting 3 people with a product with 9,000 registered users. So you still need some ideas. But the most important thing is curiosity. Do you want to learn something new? Do you want to meet new people? Do you want to hear them think about the business and how they can change the world? If you lose that curiosity, you are bored. Then you have to quit your job as an entrepreneur.

Patrick :What makes a good investment?

Roelof: Clarity and truth.

Ability to explain clearly. I was working with a guy named Shankar Balasbramanian, professor of chemistry at the University of Cambridge. He developed the next generation of drugs and formed a company called Solexa. The company was acquired by Illumina, thus creating the backbone of its continued product business. He must be a wise and intelligent man. He was able to explain very difficult words in a way that I could understand. It's a gift to me that anyone can read and understand if I can relate to difficult business and technology topics. To me that means you've accomplished it.

There are many people who have good analytical skills and can advise you. On the other hand, what we do is decisive, and because there is always uncertainty, we have to call when we are uncertain, so we need that kind of faith, and we need that that. interest unfolds in our heads. and make suggestions.

Patrick :Around 2017, he took on the additional role of overseeing Sequoia's franchise in the United States. I know you are the driving force after the big change in the way they do business in America. What do you think about the skills you need to accomplish this task, which is different from your usual partner and pure staff?

Rolf :I started to think more about the rally. Do we have genetics? Are there the right people for us? Is their work harmonious? How do we work together? I have a startup team and a development team, how can I make sure there is great chemistry between them? As a company, we have decided to add more importance to the work of our organization.

Venture capital has been part of the family business for 25 years. Usually, few people decide to invest. No more than that. Our organizations today are multifaceted. We have a sales team, community team, and professional organization that can help you find developers. Also at Sequoia, we have a technical team that can help develop technology that we can use.

Marketing has become more and more difficult. Therefore, the role of the manager, like any other organizational leader, is to ensure the integration of groups, that is, it takes more time to think about human problems rather than product issues.

Patrick :I love the remarks you made before a major change altered the needs of the design ambitions. I think this also applies to you and your business. Sequoia has a legendary history, what do you think about the meaning of the brand?

Rolf :Let's talk about manufacturing first. In the 1970s, when nearly every service firm, law firm, financial firm, etc., had a signature on their doorstep, Tang decided to be careful, a highly selective redwood tree that has lived ever since. thousands of years. Because you want to build a partnership that will last longer than you.This way the employer will work with you and do the trick, not for you.

When I joined Sequoia Capital, I thought that if I succeeded, I could play a vital role in future partnerships. I don't work for others, I work for them or for them.As the law allows, we see Sequoia as a permanent partnership and we see Sequoia as a platform that allows developers and LPs to work together. Our role is to improve the partnership.

And my job is to help Sequoia find the next team. The team will lead the collaboration of the existing leader. Therefore, their role is to ensure that the Sequoia platform continues to grow and evolve.

This is our job. Everything we do is about it. It signifies our mission and it is our pole star.

What do you think of the world

Patrick :Back to curiosity. What's the most curious thing in the world today?

Rolf :genetic engineering. With the emergence of all the genetic potential that we are developing, the development of precision genetic engineering is essential for the future of the planet.

Patrick :What do you think is the most demanding thing in the tech world today?

Rolf :Durability. But, depending on how you report the problem, I think you want to point out that technology can improve the lives of most people, not just some. And it can make our world a better place.

Patrick :What are the biggest problems?

Rolf :An accurate measurement will be one of them. On the other hand, because people don't have data to transfer, and on the other hand, because there is no internal interference. For example, if we were to seek income without including factors like ESG (environment, social and governance), we would sacrifice our cash-based lifestyles.

I am a professional and financial expert, but business is not good in many ways.

Patrick: You started your career as a lawyer. How could this position affect your future investment experience?

Roelof: My university professor often jokes that accountants are trained to think about a year ago, while staff are trained to think twenty years into the future. I didn't know the full value of this sentence until I joined Sequoia.Mixtures did not really benefit people in prehistoric times, as most bad decisions were made by myopia, ignoring the importance of mixing. But thinking about the evolution of the company is important. Since the inception of the Sequoia Fund, people predicted the potential for success of these companies as a whole.

Patrick :What is the difference between genius and genius?

Roelof: For me, knowledge is a matter of inspiration and knowledge is a matter of sweat. There may be guards who can help you go from N to N 1. But going from 0 to 1 requires genius.

Patrick :I think you need both. This is the final touch.

Rolf :I do not like to insist too much on certain attitudes between the parties. One of the claims of rugby, just like rugby, is that it is a team sport. And there is no measurement for a single instrument. No one left the stadium and said, “Oh, he threw five crosses, he came running back. " That's it. Are we really a team? You did not count if you passed the ball to a team. The important thing is to work hard and to win as a team.

This solution is necessary even when considering starting a business., you should not only admire the quarters, but respect and appreciate the many talents that people bring.