The Trump administration has begun taking direct equity stakes in American companies, not as temporary crisis measures, as in 2008, but as permanent fixtures of industrial policy.
The moves raise interesting questions, including what happens when the White House appears on a table.
At TechCrunch Disrupt in San Francisco last week, Sequoia Capital’s global managing director Roelof Botha asked just that question, and his answer drew laughs from the packed house:[Some] of the most dangerous words in the world is: “I’m from the government and I’m here to help.”
Botha, who describes himself as “somewhat of a libertarian, a free-market thinker by nature,” said industrial policy has its place when the national interest calls for it. “The only reason the U.S. is resorting to this is because we have other nation states that we’re competing with that are using industrial policy to advance their industries that are strategic and perhaps adverse to the U.S.’s long-term interests.” In other words, China is playing the game, so the US must play along.
However, his discomfort with the government as a co-investor was unmistakable during his appearance. And that wariness extends beyond Washington. In fact, Botha sees troubling echoes of the pandemic-era funding circus in today’s market, though he stopped short of using the word “bubble” on stage. “I think we’re in a period of incredible acceleration,” he said more diplomatically, while also warning of valuation inflation.
He told the audience that, on the morning of his appearance, Sequoia had reported on a holding company whose valuation would jump from $150 million to $6 billion in twelve months in 2021, only to come crashing back down to Earth. “The challenge you have within the company for the founders and the team, [is] you feel like you’re on this trajectory and then you end up being successful, but it’s not as good as you hoped at some point.”
It’s tempting to keep raising money to keep the momentum going, he continued, but the faster a valuation rises, the harder it can fall, and nothing discourages a team like watching a paper fortune evaporate.
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His advice for founders navigating these frothy waters was twofold: if you don’t need to raise for at least twelve months, don’t. “You’re probably better off building because your company will be worth a lot more 12 months from now,” he said. On the other hand, he added, if you’re six months from needing capital, pump now while the money is flowing, because markets like the one we’re in can go sour quickly.
Being the sort of person who studied Latin in high school (his words), Botha reached into classical mythology to drive the point home. “I read the story of Daedalus and Icarus in Latin. And that stuck with me, this idea that if you fly too hard, too fast, your wings might melt.”
When founders hear Botha’s take on the market, they pay attention, and understandably so. The company’s portfolio includes early bets on Nvidia, Apple, Google and Palo Alto Networks. Botha also kicked off his appearance at Disrupt with news of Sequoia’s two newest investment vehicles: new seed and venture funds that give the company $950 million more to invest and are “essentially the same size as the funds we started six, seven years ago,” Botha said on stage.
Although Sequoia changed its capital structure in 2021 in order to hold public stock for longer periods, Botha made it clear that it is still very much an early-stage shop at its core. He said that in the past twelve months, Sequoia has invested in 20 early-stage companies, nine of them at seed stage. “There is nothing more exciting than working with founders at the beginning.” Sequoia is “more mammal than reptile,” he continued. “We don’t lay 100 eggs to see what happens. We have a small number of offspring, like mammals, and then you have to give them a lot of attention.”
It’s a strategy based on experience, he said. “Over the last 20-25 years, 50% of the time we’ve made an initial investment or a business investment, we fail to fully recover the capital, which is humbling.” After his first full strike, Botha said he cried at a partners’ meeting out of shame and embarrassment. “But unfortunately, that’s part of what we have to do to achieve extremes.”
What explains Sequoia’s success? After all, many companies invest in startups. Botha partly attributed a decision-making process that surprised him even when he joined two decades ago: every investment requires partnership consent, with each partner’s vote carrying equal weight regardless of tenure or title.
Every Monday, he explained, the company kicks off partner meetings with an anonymous poll to elicit the range of opinions about the materials partners are asked to digest over the weekend. Side conversations are small talk. “The last thing you want is to form alliances,” Botha said. “Our goal is the big investment decisions.”
The process can test patience – Botha once spent six months lobbying partners for a single development investment – but he is convinced it is necessary. “No one, not even me, can force an investment through our partnership.”
Despite Sequoia’s success, or perhaps because of it, Botha’s most challenging position is that venture capital isn’t really an asset class, or, at least, shouldn’t be treated as one. “If you take the top 20 venture firms out of the industry results, we [as an industry] He actually underperformed investing in an index fund,” he flatly said on stage. He pointed to the 3,000 venture firms now operating in the Americas alone, triple the number when Botha joined Sequoia. “Throwing more money into Silicon Valley doesn’t produce more big companies,” he said. It really makes it harder for us to make the small number of niche companies flourish.”
The solution, in his view, is: stay small, stay focused and remember that “there are only so many companies that matter.” It’s a philosophy that has served Sequoia for decades. And at a time when Uncle Sam wants to be at your table and VCs are throwing money at everything that moves, it might be the most contrarian advice of all.
