Roelof Botha - Sequoia’s Crucible Moment

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money.
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**SPEAKER_2** (1:41)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
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**Patrick O'Shaughnessy** (2:07)
My guest today is Roelof Botha, a partner at one of the world's oldest and most successful venture firms, Sequoia Capital. A few days ago, before I sat down with Roelof, he announced Sequoia's boldest innovation since the firm was founded by Don Valentine in the early 1970s. Going forward, the firm will break from the traditional VC mold of fund cycles and instead restructure around a single open-ended permanent structure named the Sequoia Fund.
In our conversation, we first discussed the details of this change from all different angles and then dive into Roelof's career. We talk about what's changed over the past 20 years, his days at PayPal, what legendary investors he's worked with have had in common and what he's learned from being involved in businesses like Square, YouTube and Unity. Please enjoy this great conversation with Roelof Botha.
So Roelof, we have the pleasure of speaking the week that Sequoia has announced a massive change to the way that it's gonna do business, form its capital, work with entrepreneurs. It's really hard for me to start anywhere but here because it's a big story and I'm fascinated by the thinking and work that went into it. I know you've been working on it for the better part of the year. Maybe you can begin by rewinding back to the idea itself, where it came from, what problems this change in structure was seeking to address. And then we can kind of tell the history here because if we think about what you do for entrepreneurs as a product, this is a major product upgrade. So welcome, maybe tell us what the change is and bring us back to the reason why you started thinking about it in the first place.

**Roelof Botha** (3:32)
The venture capital model as it exists today, the operating model was invented in the 1970s.
If you go back to the 1960s, financings were actually organized on a per company basis. People didn't have funds. And if you think about it from an economic theory point of view, the transaction costs were enormous. So people had the idea in the 1970s of organizing a fund. You get investors to pre-commit, you organize the fund and now you can much more quickly invest in companies. We're in the business of investing in disruptors. We reinvent industries and yet the operating model for venture has not changed in 50 years. It's kind of backwards.
The other problem with the traditional model is we have closed end tenure funds. And when we look at the reality of our business, we're in the business of finding outlier founders who want to build legendary companies, companies that really stand the test of time.