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20VC: Sequoia's Roelof Botha on Working Alongside Don Valentine, Mike Moritz and Doug Leone, How Sequoia Retain Their Edge, and The crucible Moments that define startup success

20VC

Oct 25, 2020

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Roelof Botha is a Partner @ Sequoia Capital, one of the world’s leading venture firms with a portfolio including the likes of Airbnb, Instacart, Stripe, UiPath, Zoom, the list goes on. As for Roelof, at Sequoia he has led rounds into the likes of YouTube, Instagram, Eventbrite, Square, MongoDB, 23andMe and Unity Technologies to name a few. Before joining the world of venture, Roelof was the CFO @ Paypal playing a key role in their hyper-growth from 2000-2003.

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From Roelof Botha You Will Learn:

I. How he got his start in Venture

How did Roelof Botha go from actuary in South Africa to CFO @ Paypal?

“I decided to study actuarial science and finished high school in 1990, which is the year that the ANC was banned and Nelson Mandela was released and South Africa has had the most peaceful transition that any of us could have imagined. But as a young person, I wanted to ensure my future. And so I decided to study actuarial science and actually became a British qualified actuary. And the reason was that it would give me a passport to travel internationally an internationally recognized professional accreditation.”

“I joined PayPal in 2000, in March of 2000. It was the third offer to join the company. I had met Elon in 1999 and he made me an offer to join, but I couldn’t because I had a student visa, and I didn’t have a work permit in the US. I met him again later that year. Again, I couldn’t leave. And then in March of 2000, I’d run out of money, necessity being the mother of invention. So, out of necessity, I took the job at PayPal in March. And I worked part-time and studied part-time until I graduated in June as a way to make a bit of money and pay rent.”

What were his biggest lessons from seeing Paypal burn $10M per month?

“Mike Moritz actually was the one that really rang the alarm bells for us and got us to focus on the runway. So first thing he asked that every meeting runway, runway, runway. And, I remember going through a cost-cutting exercise as one of the finance people back then. Literally going through every single line item of our p&l trying to figure out where we were spending money. And it was shocking, in some sense to see some of the things that we did. It was silly. When you have the money, it sort of burns a hole in your pocket. I saw firsthand what that meant. And I also firsthand had to deal with the consequences. That informs the counsel I provide to founders today.”

How did Paypal lead to his joining Sequoia as a Partner?

“At the time PayPal got acquired by eBay in 2002 I wasn’t quite sure what I would do next. Meg Whitman gave me an offer to remain a CFO of the company and Mike Moritz gave me a call and asked whether I’d interview at Sequoia. Which is kind of strange because they were looking for a computer science major hooked on product management and enterprise software company and I was an actuary running finance at a financial services company. And I left every interview thinking it was my last but eventually they made me an offer, to my surprise, and I guess they still haven’t figured out that I’m not a good match.”

II. How Roelof Botha Approaches to Market Evaluation

Does Roelof Botha agree that the market is crazy today?

“It’s crazy in the sense that the pace has accelerated. But I also wonder if that’s just what’s happening to so many other industries and venture is not immune. If you go back 30, 40 years, investment memos arrive via the mail, and people would literally read them and call people back. There was no email at the outset. The time span for an investment decision was long. And technology and communication, technology, in particular, has really accelerated so many industries, including ours.”

How does today compare to prior vintages?

“Over the last 12 months, we’ve compressed our average time by more than a week from initial meeting to final investment decision. I think it’s partly a reaction to the environment where investments are happening very quickly, and people need to respond.”

How does Roelof assess the compression of fundraising timelines?

“I think it’s a function of many investors doing a good job, honestly. Some investment decisions, presumably are sloppy, and people are just making quick sort of gunslinging decisions. But, what I see more often is a prepared mind.”

With compressed timelines, how does he build relationships of trust with founders?

“In an online era, I don’t know if you can truly replicate the trust you build through in-person meetings and in-person, just getting to know somebody. Whether it’s the subtleties of facial expressions that are lost, given the fidelity of online video, and obviously all the other body language that you miss entirely.”

III. How Roelof Botha Mastered Founder Evaluation

What were Roelof’s lessons on founder assessment from Don Valentine?

“Founders are people who don’t just accept the status quo. They want to challenge the status quo.
Unlike most of us, these are the people who confront the problem. Founders embrace that challenge. They look at a problem and they want to take on the world and change it for the better. And so you want to lean into these characteristics.”

What matrix did Don teach Roelof to assess founders on?

“When I first joined Sequoia Don Valentine was still in our office. Don took me aside, probably in the first month, and he said ‘Roelof there is a two by two matrix of people we invest in. On the one axis, it’s not exceptional and exceptional. And the other axis, it’s easy to get along with and not easy to get along with. Your job today is to figure out in which quadrant we normally make money.'”

How does Roelof Botha feel about the rise of competitive rounds?

“So in some sense, if an investor has an intuition for a space, if they’ve done their landscaping work to have a thesis on a particular category, and then a belief that this particular company is the winning company, and want to approach that company with an offer and insights to help them succeed…That to me sounds like a fabulous recipe.”

When should founders take them vs remain heads down on execution?

“The danger, obviously, is the money burning a hole in the pocket problem. That, if a company is overcapitalized, does it end up diluting the company’s focus on what matters most.”

IV. Roelof’s Investment Mentality

How did Roelof Botha prevent becoming too confident when early investments went well?

“When Don started to recruit people to join him at Sequoia he was recruiting people to take over, people to succeed him. Not people to work for him. And that was the sense that I got when I joined. It was, yes, I was an associate, and yes, it is an apprenticeship model where I was learning from some of the senior partners. But there’s a real sense of ownership where I knew that if I did well, ultimately I would have a seat at the table to help manage and run the partnership”

How does Roelof prevent relying on past failures as a reason for turning down opportunities today?

“If anything, you’re likely to see failure before success, which is another thing that eats at your self-confidence. You’ve got to think about the false positive and false negative decisions you make and what can you learn from them.”

What can investors do to retain a very flexible mind?

“You need to retain an element of naivete, a sort of childlike innocence and willingness to dream and imagine, as you look to the opportunity.”

Why does Roelof believe you are only as good as your next investment?

“Investing is about the balance between fear and greed. You have to be willing to take risk, to be able to swing for the fences to get these exceptional returns. Some of the returns we have it’s 100 or 200 x our initial investment. And with that, comes the risk that sometimes it doesn’t work out.”

V. Sequoia’s Edge

What does it take for Sequoia to retain it’s edge at the top?

“The core to that is to think about the customer first. And to steal a line from Bezos, you want to be competitor aware, but customer-obsessed, and that’s the key. So we obviously take note of what our competitors are doing and try to learn from the clever things that they are doing. But, mostly it comes from being customer-obsessed.”

How does Roelof measure the success of the Sequoia scout program?

“More than a decade ago we came up with this idea of scouts as a way of getting raw startups connected with contemporary founders who could help them get off the ground in a way that no venture capitalists could.”

Has the structure changed?

“The idea was to go from just providing what I call bespoke services, and our business is really bespoke service one on one. When you join a board you work with the founder and their team and that company to help provide advice.”

What do they plan to do moving forward?

“We’ve iterated with that program and it’s been announced recently that we’ve added a seed or pre-seed element to that for companies that are Product-Market Fit.”

VI. Roelof’s Evolving Stance On Board Membership

How would Roelof Botha evaluate his current style of board membership?

“One of the phrases I’ve come up with is that board members also meant to be shock absorbers, not amplifiers. So when the team is in the doldrums a little bit depressed, or that mister product deadline, or they’ve had a setback be there to rally them.”

How has that style changed over time?

“I think much more about taking a Socratic approach to being on the board. Asking questions and truly asking questions, not asking questions that are really suggestions. Truly asking questions. Because, even if you think that the company should turn right, rather than left, you don’t have all the nuanced details of what they deal with on a day to day basis.”

What elements did he find challenging?

“You’ve got to be very careful with what you say even an offhand comment. Maybe a joke can be misinterpreted and take on far more meaning than you intended. So try to be circumspect about what you say and try to caveat words appropriately.”

What advice would Roelof give to new board members adopting their first board seats?

“It’s so much worse to pretend that, you know, it’s so much easier to just ask a question, hey, I don’t quite understand this. Why are we doing this? Can you explain this product that we’re building? Again? What does this acronym mean? Don’t be shy about asking questions.