Roelof Botha is one of Silicon Valley's most influential investors, having been with Sequoia Capital since 2003. He's helped shape companies like YouTube, Square, and Instagram, guiding founders through the highs and lows of innovation. As Sequoia reimagines venture capital for a global era, Botha's perspective captures how discipline and ambition can coexist in a changing market.
Roelof, thank you so much for coming to the East Coast to do this with us today.
Thank you, Dan. Thank you for having me.
So, we have a lot to get to, from AI to Sequoia investments, but you made some news a couple of weeks ago. You've been the steward, which is the term Sequoia uses for basically people in charge, for several years now. Alone before that, you were doing it with Doug Leone. You've been doing it for several years, but two weeks ago you stepped down from that role, turning it over to Alfred Lin and Pat Grady. What happened?
So, there are a few things we know how to do well at Sequoia. One of them is to make great investments, and the other one is transitioning leadership, which we've done many times before. I joined Sequoia 23 years ago, and I wanted to learn from the best, from Mike Moritz, Doug Leone, and Jim Goetz. I ended up helping us lead investments in YouTube, Instagram, Square, MongoDB, Unity, and a couple of other companies. And then in 2017, so just more than eight years ago, the partnership elected me to become the steward or the managing partner of the US and Europe business. And at that point, my focus shifted to overall team and investment performance. And in the time that I was steward, we distributed over $50 billion to our investors, and we saw the IPOs of Airbnb, DoorDash, Snowflake, Zoom, Robinhood, Unity, Nubank, pending acquisition of Wiz, to name a few. But the thing that I'm most proud of in that time, honestly, is the team that we've been able to assemble. So when I look at the quality of the bench that we have at Sequoia, we have Andrew and Constantine and Sonia and Stephanie and Bogomil, Shahzad and Luciana. We just have a firepower team. And when I became steward, the most important thing was to think long term, to think about how to leave Sequoia in a better place than I found it. And with that in mind, I always had a view on who the next generation of leaders would be. And Alfred and Pat are both exceptional investors. And people outside may not know this, but they've been co-leading the early and the growth teams for Sequoia for many, many years. And this is their time.
Why? Why now? Why is this their time as opposed to two years from now?
That's part of the secret we have at Sequoia. We've done this successfully over time. We want to make these changes very quickly. I think there's a concept which I love, which is interregnum, which is when you have a period in between administrations, and that's when organizations suffer stasis. No decisions get made. And so if you go back in our history, we've typically done this very quickly. And to many people it may seem as a surprise, but internally, that's always been the case. Internally, it is deliberate.
Let me ask, as you know, there's been lots of buzz, lots of speculation that part of this particular transition was prompted by, or at least maybe accelerated because of, some internal controversy at Sequoia related to some things one of your partners had tweeted about the mayor-elect here in New York City. Did that internal, whether you want to call it strife or conversations or disagreements, did that have any impact on your decision?
No impact on your decision. How do you... I know you won't talk about personnel decisions, except for this one apparently. But you know, how do you... There's been a lot of talk, your COO stepped down over the summer in part because of some of those tweets, or at least she hasn't denied that that's why it was. How do you balance what you talk about, the freedom of expression of your partners and for your colleagues to be able to say what they want to say about what they want to say, balance that with the discomfort or the potential of losing talent within the firm? How do you balance that?
That's the challenge of management, is to balance trade-offs. Every decision involves a cost-benefit analysis.
Is there... but is... I mean, does that mean there are limits on the freedom of expression of partners? You say cost-benefit. Is there a limit on those sides?
I think in any of these situations, you know, there is a point at which free speech becomes hate speech. And I think that is clearly a threshold around decorum and decency that is an important boundary that one needs to set with how you respect free speech.
All right, let's move on to lighter subjects, which is AI. You guys are obviously investing in it. Every venture capital firm is. I don't think there's been a VC deal in the past year that somehow isn't an AI-powered something.
You got one, really? Is there one that's not pretending at least to be an AI in there?
Oh, we just invested in a company called Flow Engineering that's building a requirements management system for hardware development.
I can guarantee that press release says AI in it somewhere.
I'm not saying it's real. I'm saying we have... we have a company called Apora that provides international remittances using stablecoin as an infrastructure for non-resident Indians.
Okay. I bet theirs does too. I haven't seen them. I don't know. Well, so let me ask the big picture here, which is where are you on the spectrum? Is the AI hype cycle legitimate or is this a bubble?
So I think the bubble is a pejorative term in what I think is one of the most tectonic changes for society in terms of how we can harness this technology. And there's an interesting book that I read recently that talks about how these sort of periods end up concentrating enormous amounts of capital and minds on opportunities that can be transformative. And I think AI is right up there. When I look at the sort of companies we're able to see walking through the doors at Sequoia, they touch industries that to me were hard to conceive as being impacted by technology and being upended by technology in the way that you're seeing right now.
Is this the biggest tech shift or tech... I don't want to call it an innovation, but whatever, however you want to say, tech shift of your career?
Absolutely. And I, you know, I was in Silicon Valley in '98, '99. I saw what happened with the dot-com era. I saw what happened with mobile. Saw what happened with cloud computing. This surpasses all of them and more.
I think there are so many industries in America that have ossified. There's this index, it's called HHI, the Herfindahl-Hirschman Index, which measures the relative concentration of industries, and research by the Reserve Bank, or the Fed Reserve actually, shows that more than 75% of industries in America have become more concentrated over the last 20 years. In most cases, they've increased concentration by 90%. So you have so many industries that are relatively ossified and ripe for disruption. And AI isn't just a new distribution mechanism or a new interface. It is fundamentally a set of capabilities that can upend industries. And we're seeing that in cybersecurity, in customer support, in the legal profession, in finance, just industry after industry where an entrepreneur walks in and they've encountered a problem and they describe what they're going to do. I just go, 'Wow, I hadn't thought of that.'
Do you... I'm wondering when you think about kind of this circularity argument, right, where you've got an LLM which does a deal with a cloud provider and also with a chipmaker and also maybe with an energy provider to the data. Do you have any concern? You know, you said bubble's a pejorative, which it is because it suggests the whole thing can pop and everyone gets it on their face. Do you feel that there's a bigger risk to it right now because you do have all this interconnectivity? If one company fails, it's not just alone. There's kind of this series of dominoes which is almost being structurally created.
Well, the two things when I think about many of the other bubbles that we've encountered, and I don't think it applies here. I think this is far more constructive than it is a bubble. They're often debt-fueled, and most of these companies are spending money that's on their balance sheet. This is existing cash that's being used. So you don't have the same leverage impact and then deleveraging impact that you may have had in other situations. The other thing I'd say, from all the evidence that we have, is that the majority of cycles being used right now are going towards inference rather than training. And so I'd say two years ago when I heard these arguments, I was much more sympathetic towards it because when it was training, it wasn't obvious that it was actually solving customer problems. That's changed, and unlike what happened in the dot-com era where people were building infrastructure that lay idle often until 2005, 2006 when Web 2.0 took off, in this case, every spare cycle is being used. There's no spare capacity.
Well, I guess one of the other differences between now and 2000 is that the legacy companies back in 1998, 2000, they were kind of caught with their pants down, including some of the legacy tech companies, right? And for an investor, and I know you weren't quite at Sequoia yet, but for venture capitalists, they were able to capitalize on that, right? Because the startups were doing stuff and nobody was either not paying attention or weren't giving enough credence to what was going on until they got surpassed. That's different this time. The big legacy tech companies, the Googles, the Metas, etc., they're paying a lot of attention, spending a lot of money. As a VC, how do you think about that when there's a startup opportunity? The whole 'why won't Google do it?' Lately, it seems that Google's been saying, 'Yeah, we'll do that.'
That's always the risk. And I remember when I joined Sequoia Capital, Michael Moritz had this great phrase that yes, there are elephants in the industry, the big incumbents, but they're more likely to trample on you by accident than on purpose. And I think we're always looking for companies that have a keen insight and an ability to focus in the way that the big companies cannot. I'd say the other difference, by the way, this time is AI has become a board-level issue for Fortune 500 companies, right? And so I think bigger companies are able to take advantage of this technology in a way that I don't think they were geared up in mobile, cloud, or in the internet. It doesn't mean they'll always get it right, and it doesn't mean that there aren't enormous opportunities for us as venture investors.
Do you feel there's a difference in mentality, maybe is the word, among some of the, call it the AI cohort or founder cohort in the following sense: often when you've had successful companies, successful startups, founders don't want to sell too early, they don't want to leave, you know, they're going to ride this thing whether it be into the public markets or, you know, run it for the next 30 years. We've seen over the past two years not only a bunch of people sell quickly, we've seen a bunch of these big acqui-hires. And I appreciate, you know, Meta is throwing huge money, etc., but it's coming again. Founders, partners in the past often wouldn't leave. You're seeing a bunch of them leave now. I wonder, as a VC, are you concerned at all when you invest or you see your partners invest in these things? It's almost like you guys don't put key-man provisions in these deals, but it almost feels like you should be right now.
What do you get though if you have a key man?
Well, the person doesn't quit for a better... doesn't quit because someone just laid a bag of money in front of them.
Because that... because you guys always say you're investing in people. Well, if the person leaves, what have you invested in?
But you can't force them if they're not motivated to do so.
No, you can incentivize them.
But they already have a huge incentive because they own so much of the company. I'd say on the acqui-hire dimension, I think those companies maybe didn't have a clear path to building substantial independent value, and that maybe is part of why they've ended up with that odd structure.
Right. How do you think... you guys obviously, like every venture capital firm, have this huge portfolio, call them pre-GPT companies, right? And on the tech side, companies that were created before GPT came out and AI showed up in every press release, which I'm still sure they're in. When you're examining that part of your portfolio, what are some... I don't know if it's either metrics or something else that you're able... that you as a firm have been looking at to identify these are companies that can pivot, that can successfully ride this wave, and you know what, these are ones that might just have been wrong place, wrong time?
It's always a challenge when you have big technology shifts. I think we certainly saw this when we were investing in web companies in the mid-2000s, and then mobile came around. And the challenge for those companies was, could you become mobile-first or maybe even mobile-only and sort of let go of what you had before? And, you know, Meta, Facebook at the time, is a great example. I remember how people were doubtful that they were able to make the mobile transition, and their stock plummeted, and people thought, oh, you'd never be able to monetize mobile traffic. You know, how laughable is that in retrospect? So I think a similar challenge exists in every wave, and there are companies where the founders see the opportunity and are moving very aggressively. And our job as board members is typically to help shine a light on what's around the corner, and that's what we do.
Do you feel right now with this shift that you've kind of had to, and maybe not literally write off, but at least mentally write off more portfolio companies than you have during other tech shifts?
