The Trump administration has begun taking direct equity stakes in American companies. This is not a temporary crisis measure like in 2008, but a permanent fixture of industrial policy. These moves raise interesting questions, including what happens when the White House appears on your company’s capitalization table.
At TechCrunch Disrupt in San Francisco last week, Sequoia Capital’s global steward Roelof Botha fielded exactly that query. His response drew knowing laughter from the packed audience. He stated that one of the most dangerous phrases in the world is when someone says they are from the government and are there to help. Botha, who describes himself as a libertarian and free market thinker by nature, conceded that industrial policy has its place when national interests demand it. He explained that the only reason the United States is resorting to this is because the nation competes with other states that use industrial policy to further their own strategic industries, which may be adverse to long term US interests. In other words, because China is playing the game, the US has to play along.
Still, his discomfort with the government as a co-investor was unmistakable during his appearance. That wariness extends beyond Washington. In fact, Botha sees troubling echoes of the pandemic-era funding circus in today’s market, though he avoided using the word bubble on stage. He more diplomatically suggested we are in a period of incredible acceleration, while also warning about valuation inflation.
He told the audience that on the very morning of his appearance, Sequoia had debriefed about a portfolio company. That company’s valuation soared from one hundred fifty million dollars to six billion dollars in twelve months during 2021, only to come crashing back down. He explained the challenge for the founders and team inside such a company is that they feel as though they are on a trajectory, and then they end up being successful, but it is not quite as good as they had hoped at one point.
He continued that it is tempting to keep raising money to maintain momentum, but the faster a valuation climbs, the harder it can fall. Nothing demoralizes a team quite like watching a paper fortune evaporate.
His advice for founders navigating these frothy waters was two-pronged. If you do not need to raise money for at least twelve months, then do not. He said you are probably better off building your business because your company will be worth so much more twelve months from now. On the other hand, he added that if you are six months from needing capital, you should raise now while the money is flowing, because markets like the current one can sour quickly.
Being the sort of person who studied Latin in high school, Botha reached for classical mythology to drive the point home. He recalled reading the story of Daedalus and Icarus in Latin, and the idea stuck with him that if you fly too hard and too fast, your wings may melt.
When founders hear Botha opine on the market, they pay attention, and understandably so. The firm’s portfolio includes early bets on companies like Nvidia, Apple, Google, and Palo Alto Networks. Botha also kicked off his Disrupt appearance with news about Sequoia’s two newest investment vehicles. These are new seed and venture funds that give the firm nine hundred fifty million dollars more to invest. He stated these are essentially the same size as the funds the firm launched six or seven years ago.
Though Sequoia changed its fund structure in 2021 to hold public stock for longer periods, Botha made clear it is still very much an early-stage shop at its core. He said that over the last twelve months, Sequoia has invested in twenty seed-stage companies, nine of them at incorporation. He said there is nothing more thrilling than partnering with founders right at the beginning. He continued that Sequoia is more mammalian than reptilian. He explained that the firm does not lay one hundred eggs to see what happens. Instead, it has a small number of offspring, like mammals, and then gives them a lot of attention.
He said this is a strategy rooted in experience. Over the last twenty to twenty-five years, fifty percent of the time the firm has made a seed or venture investment, it has failed to fully recover its capital, which he finds humbling. After his own first complete write-off, Botha said he cried at a partner meeting out of shame and embarrassment. But he noted that unfortunately, that is part of what the firm has to do to achieve outlier successes.
What accounts for Sequoia’s success, especially since many firms invest in seed-stage companies? Botha partly credited a decision-making process that even surprised him when he joined two decades ago. Every investment requires partnership consensus, with each partner’s vote carrying equal weight regardless of tenure or title.
He explained that each Monday, the firm kicks off partner meetings with an anonymous poll. This is to surface the range of opinions about materials the partners are asked to digest over the weekend. Side conversations are forbidden. He said the last thing you want is for alliances to form, and that the firm’s goal is to make great investment decisions.
The process can test patience. Botha once spent six months lobbying partners on a single growth investment. But he is convinced the process is essential. He stated that no one, not even him, can force an investment through the partnership.
Despite Sequoia’s success, or perhaps because of it, Botha’s most provocative position is that venture capital is not really an asset class, or at least it should not be treated as one. He stated flatly that if you take out the top twenty or so venture firms from the industry’s results, the industry as a whole actually underperformed compared to investing in an index fund. He pointed out that there are now three thousand venture firms operating in America alone, which is triple the number from when Botha joined Sequoia. He argued that throwing more money into Silicon Valley does not yield more great companies. It actually dilutes the ecosystem and makes it harder for the small number of special companies to flourish.
The solution, in his view, is to stay small, stay focused, and remember that there are only so many companies that truly matter. This is a philosophy that has served Sequoia for decades. In a moment when the government wants a place on your capitalization table and venture capitalists are throwing money at anything that moves, this might be the most contrarian advice of all.