Here is what made Sequoia Capital an investment powerhouse! - 1 views
started by evcventures on 19 Apr 16
started by evcventures on 19 Apr 16
started by evcventures on 19 Apr 16
started by evcventures on 19 Apr 16
Since its founding in 1972 Sequoia has backed startups that now command a astounding $1.4 trillion of combined stock market value, equivalent to 22% of Nasdaq.
Sequoia Capital was and continues to retain its spot as the top investor in unicorns, with 17 currently in their portfolio including Instacart, AirBnB, and Square. Kleiner Perkins and Andreessen Horowitz were tied for second place with 15 unicorn companies each as per SB Insights report.
How did this behemoth in venture capital investing come to exist? Like every other behemoth - starting small and a story we tend to hear often nowadays.
Managed by an Italian immigrant whose beginning lie in over sweating himself cleaning boats overlooking the country side swimming pool handsome boys talked pleasant talks to bikini ladies and threatening to take revenge someday. Founded by a semiconductor salesman with a claim that he can foresee the future.
During year 2015 record nine Sequoia partners appear on the FORBES Midas Listof the most successful venture capitalists, thanks to the firm's lucrative investment in companies such as Airbnb, Dropbox, FireEye, Palo Alto Networks, Stripe, Square and WhatsApp.
Talking about India Sequoia Capital means total 12 exits of which seven got acquired, three went for an IPO (SKS Microfinance, Just Dial and Mannapuram Finance) and two were shut, according to Tracxn.
What makes Sequoia Capital leader in spotting such opportunities? The availability of information? Specific analytical approach employed by its analysts? It's overall investment philosophy? Past life karma?
Over obsessing with the little things.
Sequoia's partners don't mind hunting for great new startups in the ratty coffee shops and low-rent offices where such companies often are born. Unlike Wall Street's activist investors-who agitate for big shakeups that might rocket stock prices upward in a single day-Sequoia's partners help companies relentlessly with the little stuff that will never warrant a press release. When Stripe's 23-year-old cofounder, John Collison, wanted help pitching his company's payment services to a big East Coast financial company, Sequoia's Moritz walked him through two rehearsals, sharing ideas about how to sharpen up the story.
Stubborn about maximizing gains from its top-performing companies.
(Back in 1979 Sequoia sold its Apple stock after holding it for just 18 months, and Sequoia partners aren't about to make that mistake again.) Unlike other venture firms, which run their limited partners' investment funds for 10 years, Sequoia often looks for ways to extend its partnerships' lives for as much as 16 or 17 years. Sequoia held its Google stock for nearly 2 years after that company went public; it held onto Yahoo even longer in the 1990s.
Proper understanding of the Babe Ruth effect in venture capital
Peter Thiel observes that actual [venture capital] returns are incredibly skewed.
The more a VC understands this skew pattern, the better the VC. Bad VCs tend to think the dashed line is flat, i.e. that all companies are created equal, and some just fail, spin wheels, or grow.
In reality you get a power law distribution… Like in a good baseball game, they swing hard, and either hit big or miss big. You can't have grand slams without a lot of strikeouts. That said Sequoia Capital was never short of strikeouts too. In the dot-com bust of 2000 the firm suffered big losses from duds such as eToys and Webvan. Then add the photo app Color and the 25 millions Sequoia Capital put into it just to be sold to Apple at loss. Even the fabled Sequoia XI the famously successful 2003 fund Sequoia rang up more than $100 million of losses on startups that turned out to be shutdowns.
Picking the right approach in hiring the right people
The managing partners at Sequoia Capital are not concerned with where the candidate graduated. Instead they are interested to see what the person has done and his track record. They look to discover how the person feels about the market he is after, the magnitude of the problem he was solving.
Not choosing people - choosing markets
Sequoia Capital rarely invests in area where there is only a promise of great product. Sequoia Capital does not invest in teams. Sequoia Capital is not interested in companies who try to create new markets. Instead Sequoia capital goes after companies well suited to exploit large existing markets. Investing in the brightest smartest people is rarely a criteria. Instead Sequoia Capital focuses on the size of the market, the dynamics, the nature of the competition.
Obsession with it's companies' eco system.
When Sequoia Capital invested in Apple computers they didn't only invested in computer company. Instead it took a far more holistic approach. A computer means nothing without computer storage aka hard disks. Therefore Sequoia capital invested in companies manufacturing disk drives (audio tape is unreliable storage device). A computer needs a mouse too. That's why Don Valentino went to visit Xerox Park in order to find one.
That's a pure contrast to the Spartan merciless approach of closing under performing companies as quickly as possible. When Sequoia Capital finds a germ it doesn't only attempts to polish it, it invests in the tools of polishing too.
Utmost appreciation of the size of the market.
Organize them in such way that the people who run the companies are encourage to apply only their core skills. Only do few things great. Be good at technology and engineering. Marketing comes later.
Managing a $50 million funds for India's finest early stage startups demands all the wisdom a person can get from bespoken teachers and unflinching values.
One cannot look much beyond Sequoia Capital in that regard.
Read whole article @ linkedIn