Take my money, whatever the price”

Doug, founders in Germany used to have to go to many investors to get money. Suddenly it’s the other way around – venture capitalists are literally queuing up to invest in promising start-ups. What happened?
What is happening in Germany is not unique. We also see young people in many other places who are entrepreneurial and who have attended good schools; who have a vision and maybe a technical background. Everywhere they start companies. What happened only in Silicon Valley for a long time – and maybe in Tel Aviv and Beijing – we are now seeing around the world.

What does not change the finding: today’s founders have much more power over investors.
For me it is not a question of power. It’s a virtue that so many people want to do new things at a time when changes are accelerating due to technological innovation.

What has actually happened in Germany? The German start-up scene has long been shaped by Rocket Internet. This investor helped build companies, trained founders and often had a great deal of influence.
Rocket Internet has recruited founders. We don’t think you can recruit founders. Founders develop themselves. They have a dream that they have been thinking about for a long time. They cannot sleep at night, they are so eager to do something. You see the problem in the market. We want to work with such founders.

The counter-model are investors like Tiger Global, who are now taking action here. They don’t spend long examining business models. They just participate everywhere and bet that something will work out. Is that a positive development?
You will see your market evolve over time. There will be more investment firms. Some just want to invest and will say: Take my money, no matter what the price. You don’t have to call me anymore either.

What does this mean for founders – and what role should investors play for them today?
Just as they think about building their product, founders also need to think about their investor base: do they want to raise passive capital or have investors who see themselves as long-term business partners? We tell founders that we would like to be their partner.

Hardly any founder will refuse your offer. As one of the top venture capitalists, Sequoia has the character of a signal: your portfolio companies are automatically given great potential in the market. What role do you play in the day-to-day running of the company?
We want to be the reliable advisor. The advisory board member who helps with recruiting and anticipates problems. And if there’s an emergency, we’ll help out.

For example, you are an investor and a member of the advisory board at the online broker Trade Republic in Berlin. How exactly do you work with the boss there, Christian Hecker?
He gives us updates every month, we have a lot of email exchanges and Zoom meetings. If I see a problem, I call him. I ask what he’s going to do, how I can help, why he’s going A, if he’s considered B as well. Ask a CEO questions, show solutions. But never give him any instructions – that would be wrong in our view.

Christian Hecker says you know exactly how far you can get involved. How did you learn where the line is?
I’ve made more mistakes than anyone you’re about to interview – simply because I’ve been at Sequoia for 34 years. At some point you’ll figure it out: you understand the pressure a founder is under. You understand his perspective. You have empathy, that’s very important. They’ll never be as excited as a founder, but they’ll never be as grounded either. Our job is also to be a bit of a shock absorber.

You are on the advisory board of other start-ups. Take the Israeli cyber start-up Wiz, for example, which is valued at six billion dollars less than two years after it was founded. How does Sequoia select its companies?
With an early-stage investment, you practically only have the founder and a vision. So the founder and what he or she says is what matters most. That’s 90 to 95 percent.

What if the company is already making $50 million in sales?
Then the founder is still very important. But it’s also about revenue growth and profitability. How much money does the company need? What competitive advantages does it have? Who are the competitors? We’re only interested in market leaders, that’s important. We don’t want to invest $20 million to have $60 million two years later. We want market leaders who can become very, very, very big.

Also read:

Sequoia recently caused a stir with a major restructuring. In the future, your own financiers should only invest in a kind of superfund that is liquid at all times. Only this fund invests in your various sub-funds. Put simply, this means that you make yourself independent of when your investors want your money back.
We have sold shares in start-ups in the past because there are ten-year fund cycles. Everyone has this ten-year cycle. We don’t have that pressure anymore.

Nevertheless, the competition among venture capitalists is enormous. Was that a reason for the restructuring?
We didn’t have to do it, we just chose to do it. The founders understand that we are interested in working together for a very long time. Not just three or four years, but the next 20 years.

According to your information, current and former Sequoia companies make up a quarter of the total market value on the US technology exchange Nasdaq. Would these companies be as successful today if you hadn’t invested in them?
There have been a handful of successful companies in my career that would not have been as successful without my presence. Then there are some that we have helped with and have become even more successful as a result. And then there’s maybe 10 to 15 percent where we probably made little to no difference.

Doug Leone, thank you for the interview.