Sequoia Capital: trend setter
Whereas many VC firms use rhetoric designed to give a warm, fuzzy sensibility to their desires to make money off other people's ideas, using language that inspires images of partnership and collaboration, Sequoia Capital makes no such pretense. "We cannot afford to wait for markets to develop and we do not have the money or inclination to educate consumers to buy products they don't know they need," Sequoia's Web site warns. In other words, Sequoia invests to make a profit and makes no bones about saying so. Still, when Sequoia Capital invests, people pay attention. Since its founding in 1972, the firm has invested in 350 technology ventures, 100 of which have gone public or been acquired. Legendary partner Don Valentine told Upside, "I've had a front-row seat in the formation of some incredibly great companies that have created millions of jobs and billions of dollars worth of exports. It's been a magical time." Magical, indeed. Under Valentine's guidance, Sequoia had the good fortune to invest early in companies such as Yahoo! and Cisco Systems.
Recently, Sequoia hit pay dirt with VA Linux, the maker of the Linux operating system. VA Linux went public in December 1999, earning $132 million. Sequoia public companies have a history of excellent performance. Since 1980 Sequoia IPOs by portfolio companies have increased in value over 665 percent. Sequoia also funded the Sequoia Capital Seed Fund, an early-stage venture capital fund that invests in Israeli companies. The fund, managed by Haim Sadger, has so far invested in four technology companies: Pentacom, ModusNovo, 3i Systems, and AirSlide Systems.
Portfolio: the West is the best
The majority of Sequoia's investments are West Coast companies working in two areas: information technology and health care. On the IT side, the firm breaks down its portfolio into six areas: semiconductors (Linear Technology, Vitesse, AMCC); communications (Avanex, Cisco Systems, Redback Networks); software (Agile Software, Saba Software, Symantec); Internet (eToys, Yahoo!, E-Loan); computers (Apple Computer); and services (Flextronics, Scient). The firm's health care portfolio includes investments in biotechnology (Sangstat); devices (Aradigm); and services (Landacorp, Oxford Health Plans). Occasionally, Sequoia invests in post-beta stage companies in Boston or Austin and will consider more established companies across the country.
Investment strategy: do whatever, provided it's what we tell you
Sequoia doesn't require a board seat, as many VCs do, and once portfolio companies pass the start-up phase, Sequoia says it prefers to minimize its involvement in how the company is run. Sequoia partners consider themselves to be helpful and not shy about making suggestions, but ultimately try to leave the management decisions to management. Partners claim to "provide assistance when it is requested or needed, but we do not want to run companies." Reportedly, however, the firm played a key role in running Yahoo! Forbes reported that upon Sequoia's insistence, Jerry Yang and David Filo stepped aside to let Tim Koogle, a more experienced manager, take the reins as CEO.
The early bird catches the good return
While Sequoia offers funding at a wide range of levels, the firm has a distinct preference for early-stage financing, and in particular, seed financing. Also, Sequoia looks for companies that can realize "rapid growth" and "gain the largest market share in large markets." To achieve this goal, an ideal company must possess proprietary technology that would be difficult for another firm to duplicate or be the first mover in an emerging market and be prepared to fight off newcomers. A Sequoia investment can range anywhere from $50,000 to $10 million. Says company literature: "We like to start companies with relatively small amounts of money and we like our investments to become profitable quickly." The company also states that in recent years it has made "between eight and 12 fresh commitments a year" and usually makes "between 12 and 15 follow-on investments a year" in existing portfolio companies. According to Upside, Sequoia invested in "10 or more e-commerce and Internet infrastructure plays" through the company's $250 million fund, Sequoia Capital VIII. During its Internet spending spree, Sequoia invested $10 million with MP3.com in March 1999, the largest amount Sequoia had invested in any single company to date.
Right place, right time
Don Valentine founded Sequoia Capital after working at Fairchild Semiconductor and founding National Semiconductor. He credits his experience with semiconductors for the firm's success, as well as, quite modestly, "being in the right place at the right time." Valentine was also one of the original investors in many groundbreaking companies such as Apple Computer, Atari, and Oracle.
"I can't think of a more entertaining place to be than participating in making the future happen."
Don Valentine
Founder and Partner
Sequoia Capital
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