Sequoia, like a lot of firms in Silicon Valley, is facing this really pivotal, transformational moment.

In any downturn, it's going to be painful for everybody. And it's a really important moment for firms like Sequoia because they have held this gold standard of VC for so long.

It's a story about Sequoia, but it's a story about venture capital.

It's a story about how the industry has grown, and it's going to have to shrink.

When you invest in start-ups, it's going to be rock and roll. It's going to be a bumpy road.

It's not a smooth thing. This is an active, gloves-off, combative form of investment. Why Sequoia itself is important is because it embodies the VC industry and who Silicon Valley is.

Sequoia Capital is one of the most venerated venture capital firms in Silicon Valley.

Its 50 years of investing expertise, investing in early-stage companies, and betting that some of those companies will become unicorns worth over $1 billion or become even more successful listed companies.

The firm has invested in Apple, Oracle, Cisco, Atari, Google, Yahoo, PayPal, Airbnb, YouTube, Instagram, and OpenAI.

Companies they backed right now make up 25 percent of the Nasdaq, which is the tech-heavy index.

That just tells you just how crucial they have been to the growth of technology and innovation in the US.

Venture capital is the backbone of the Silicon Valley ecosystem. It's how companies like Google, like Facebook are founded, essentially.

And it has the good sides, which is that it's fueling this new technology.

But there are also the bad sides, not just of Sequoia, but of VC investing, which encourages this sort of fake-it-until-you-make-it attitude amongst entrepreneurs.

And that's where you can have big problems like Sam Bankman-Fried and FTX.

Before artificial intelligence captured the imagination of every investor in Silicon Valley, cryptocurrencies were the major boom and the major area of focus.

Eh, I don't think so. And I'm never wrong about this stuff.

Never. And Sequoia were not one of the earliest into crypto. They were a little bit skeptical as investors compared to some of their major rivals.

Andreessen Horowitz, one of their biggest rivals, really went full speed ahead into crypto.

So quite a setback. And then when it seemed like crypto was really going up and up and up, they decided to make a big investment into a cryptocurrency exchange called FTX.

And they invested $225 million in 2022. At the time Bitcoin was one of the most popular assets.

And there was not a clear-cut way for big investment firms to go into cryptocurrency. So once SBF, if I can call him that, came into the scene, that was when people started to legitimize the business.

He was seen as this person who was going to institutionalize cryptocurrencies.

And, of course, the opposite ended up happening. The question after FTX failed was, really, how a firm like Sequoia, with so much experience, 50 years of investing expertise,
some of the best venture capitalists in the business working at that firm, how they could have gotten it so
wrong and what that says about the diligence done by VC funds over their investments more generally.

Venture capital powerhouse Sequoia telling investors
this morning that it's splitting up into three separate and independent partnerships.

In the last few years, Sequoia has undergone more changes in a shorter amount
of time than it has done probably at any other point in its history.

Perhaps the most prominent of those was the separation of Sequoia's
US and European, and Chinese, and Indian businesses.

Sequoia was one of the biggest and boldest entrants to China by a Silicon Valley VC firm.

It set up this huge fund. It employed Neil Shen, one of, really, the best startup
investors in China, to launch its China practice.

And for the last couple of decades, it really has had, of all the Silicon Valley firms,
the best and largest China presence.

They made the decision to split the firm. It's a major decision. This was a venture capital firm
that was more globally expansive than any other, who was more successful at being globally expansive than any other.

They're retrenching in
a very meaningful way.

And, simultaneously, they carved out their Indian operations. And so now what was this
massive global business is a US and European-focused entity—so very different in its outlook, in its focus, in
its investment area, and a much smaller firm than it was.

The Chinese business was managing more than $50bn in capital. And so that is now a distinct entity called HongShan.

Sequoia US, which is now Sequoia, they own some Chinese companies still. So Sequoia is still an investor in ByteDance, which is a really interesting investment for it, given that TikTok is facing a ban in the US.

ByteDance is a really important investment for the firms that are in it because it owns TikTok, which is this wildly successful video site that is incredibly popular with young people.

Many investors believe it is the future, or at least the near future, for advertising and social media.

And so if ByteDance is forced to sell TikTok, it's not clear how that's going to affect ByteDance's shareholders.

There's been these series of well-publicized setbacks, ironically well-publicized because Sequoia is so good.

And I would tend to view these setbacks, I'm talking about the FTX investment, I'm talking about having to cut off the China business because of the geopolitics... And I think what determines the future for Sequoia is how skillfully they capture the next technology wave.

The area also supports a variety of light and heavy industries. Investment capital from the city and other parts of the country supports hundreds of pioneering high technology companies in the so-called Silicon Valley, just south of the city.

Conceptually, it emerged in the 1970s. And it's called Silicon Valley because of the enormous amount of silicon required to power the semiconductor industry.

And it has really been the epicenter of US technology and global technology.

In the 1950s and '60s, Arthur Rock, a financier from New York, showed up in what was then just the Santa Clara Valley, not Silicon Valley, and financed Fairchild Semiconductor, which kickstarted the tech ecosystem on the West Coast.

And it was that introduction of risk capital which turned a bunch of disparate engineers into a bunch of people who actually formed a company.

Right at the beginning of the venture capital story on the West Coast, Arthur Rock set up an office right in San Francisco downtown.

But the second wave in the 1970s, Kleiner Perkins, Sequoia, clustered around the Stanford campus, and particularly on Sand Hill Road.

And there was a real estate developer at the time who opened up some new office space on Sand Hill Road and made these people welcome.

And so it began a tradition. So if I ask you, what are the largest companies that were created in the last 50 years, OK?

Well, that would be, you can say Apple and FedEx, OK, all happened just at that point in the 1970s, and it coincided with the rise of the venture capital industry.

OK? And, moreover, I mentioned the ERISA Act, which, effectively, allowed pension fund money and then other money to flow into riskier assets.

And, by the way, from the very beginning, it was not just in Silicon Valley.

It was also in Massachusetts. It was also, at some point, in North Carolina. But Silicon Valley became, very quickly, the hotspot of the venture capital industry.

Of course, it helps in California that non-compete laws could not be enforced.

And, therefore, you could pull somebody out of one company, put them into a new company. They would leave one company on a Friday, and on Monday morning there they are in the new company.

That would have been illegal in Massachusetts. But what differentiated the two was that you had much more aggressive venture capital on the West Coast.

Sequoia Capital was started in the early 1970s by Don Valentine.

He was sort of seen as this very kind of humble person. He is amongst the few who hasn't named his company after himself.

He had been a water polo player and had the physique to go with that. And he'd been a semiconductor salesman as well.

And because he'd been on the sales side he chose to specialize not necessarily in really cutting-edge technology, but in the commercialization of existing technology.

And so, often, the people he backed were kind of crazy business people like Steve Jobs doing Apple, the crew who did Atari, the early game company, that did games like Pong... you walked into their factory and everyone would get high just from walking around because people were just smoking dope on the production line.

And Atari, for example, would say to their investors, if you want to talk to us, you have to come in this hot tub...

take your clothes off and sit in this hot tub. And the good thing about Don Valentine was he wasn't frightened.

And when he took his shirt off, because of that water polo playing I told you about, his authority went up, not down.

And so he was able to look at these crazy founders in the eyes and say, listen, you're going to take it from me.

You're doing something wrong here. Do it this way, not that way. So he pioneered a hands-on model of venture capital investing, which became central to the model later on.

Don Valentine had this idea that he didn't want your classic Harvard Business School graduate to join the firm.

He wanted to venture out of that, for want of a better word, and find people who were kind of wonky.

And the two people he found who eventually ended up co-leading the firm were, actually, extremely different from each other.

So you have Michael Moritz, who's this Oxford-educated guy who then moves to America to work as a journalist for Time magazine.

Don Valentine's sort of tough guy style of almost boasting about firing company founders, when capital becomes more plentiful then all the capitalists have to compete to be charming to the start-up founders.

And threatening them with being fired became a very bad business idea.

And so it's fitting that Michael Moritz, who had a smoother style, became, basically, the number one after Don Valentine retired.

Doug Leone is a slightly different character, much more of a sort of tough guy again, he once boasted to me that he went to the dentist and had his tooth drilled without anesthetic just to prove he was tough enough to withstand the pain.

He was famous for just relentlessly following up, doing calls at 5 in the morning, at midnight at night, getting on planes to China the whole time.

Sequoia have managed to have success over generations. Don Valentine founded Sequoia in 1972.

He hands over the reins to Mike Moritz and Doug Leone in 1996. Roelof Botha joins Sequoia in 2003.

He's hired by Michael Moritz, who at that point is managing partner of Sequoia. And he rises through the ranks.

He's invested in various very successful companies, including YouTube, MongoDB. And he becomes the managing partner of the US and European business in 2017.

And in 2022 he steps up to lead the whole firm. This is the global business as was before it split off.

Sequoia, like many other great investment firms founded in the 1970s, has been undergoing generational change where the founders and the early success stories are getting older.

They're moving on. And they are having to transition to different leadership.

And, in many places, it's been quite bumpy. It's complicated. That doesn't mean they won't come through with great success.

It's just generational change is awkward. One incident that brought that to light was a board level conflict at Klarna, which is one of Sequoia's biggest European investments.

It's a buy now, pay later company. It was once Europe's most highly valued start-up.

Effectively, what had happened was that Sequoia's partner on the board, a man called Matthew Miller, had tried to remove Sequoia's former managing partner, Michael Moritz, who remained as the independent chairman of Klarna...

had tried to move against him and have him removed from the board. Former partner Mike Moritz, one of the biggest veterans investing in Silicon Valley, when he left the firm last summer, he maintained a board seat at Klarna and at many of the other companies where he had led Sequoia's investments and had become very close to the founders of those companies over time.

You almost have the physicality of the old guard, the new guard butting heads. And, of course, this spills out into the open.

And it also emerges that Matthew Miller did this with the knowledge and backing of Sequoia, which stings even more for Moritz.

And, eventually, I think Sequoia see that this has become a public relations disaster. And even though they say we've resolved this, we don't want to hear any more about it, this becomes another episode which, I think, starts to make investors feel uncomfortable about what exactly is going on at Sequoia and why this fabled firm is suddenly having these boardroom scraps with former and current employees.

This new generation of venture capitalists at Sequoia have already made some very bold and large bets. Roelof was really fundamental in Sequoia making an investment in Twitter when Elon Musk took it private.

And Roelof used to work with Musk at PayPal.

They're very close. Sequoia has other links to Elon Musk. That has been part of the reason why Sequoia has invested in multiple of Elon Musk's ventures, including his tunnel-digging company, The Boring Company, his rockets company, SpaceX, and, more recently, Sequoia put $800 million into Elon Musk's acquisition of Twitter in 2022.

So far, we just don't know how successful that investment is going to be.

I mean, Twitter is now valued at a fraction of the price that Elon Musk paid for it.

What we don't know is how successful Elon Musk will be in turning Twitter around. And if he can turn it into a successful profit-generating business again, then it will be a rosy investment for Sequoia.

But at the moment it looks very uncertain.

Sequoia struck gold on a number of early investments. So its first investment was Atari, some other very notable investments Apple, Google, these companies which became absolutely huge and, in quite short order, returned huge amounts of money for Sequoia and its own investors.

Sequoia Capital and the evolution of the VC industry | FT Film

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Sequoia Capital and the evolution of the VC industry | FT Film

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