—Chris Dixon, partner, Andreessen Horowitz7
At its core, venture capital is truly an apprenticeship business. It takes years of mentoring to learn how to assess investment opportunities, set pricing, and strategy, build and motivate management teams, deal with inevitable and unpredictable threats to the businesses, source additional capital and strategic partners, and finally, divest (for better or worse) these illiquid investments. “The good ones view it as a calling, not a career,” says Diana Frazier of FLAG Capital Management, a fund of funds.
Singer Bob Dylan once said, “I accept chaos. I'm not sure it accepts me.” That sums it up nicely — you can accept venture capital, but will it accept you?
NOTES
1 1. Michael Moritz, Return to the Little Kingdom: How Apple and Steve Jobs Changed the World (New York: Overlook Press, 2009), 89.
2 2. Inside the Minds: Venture Capitalists (ebrandedbooks.com, 2000).
3 3. Blake Masters, “Peter Thiel's CS183: Startup — Class 7 Notes Essay,” April 26, 2012, blog, http://blakemasters.com/post/21869934240/peter-thiels-cs183-startup-class-7-notes-essay.
4 4. Marc Andreessen, “A Panorama of Venture Capital and Beyond.” Stanford University's Entrepreneurship Corner, May 13, 2010, http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2457.
5 5. Tarang Shah and Sheetal Shah, Venture Capitalists at Work (New York: APress, 2011).
6 6. A fictional town in the US state of Minnesota. Garrison Keillor made this term popular as he reports the news from Lake Wobegon on the radio show A Prairie Home Companion.
7 7. Chris Dixon, “Being Friendly Has Become a Competitive Advantage in VC,” January 29, 2010, blog, http://cdixon.org/2010/01/29/being-friendly-has-become-a-competitive-advantage-in-vc/.
7 Generational Transfer and Succession
“Succession in venture funds is like a Shakespearean tragedy — it involves money, ego, fame, and emotion,” says Paul Holland of Foundation Capital. Some describe the adrenaline-laden world of venture investments as in the song “Hotel California” — where you can check out any time you like, but you can never leave.
Hanging out with cool kids, doling out large sums of money, playing rich Daddy power trips, and feeling mighty invincible can be heady. Yet how best should you plan to get out? And where do you go from the world of venture — where you get to see a thousand great startups each year? Most career paths sound mildly interesting after venture, and worse, you might be ill-qualified to do any meaningful operational role.
MANAGING SUCCESSION - NOW MY WORK IS DONE
Succession and generational transfers in venture firms is hard — nearly impossible. When firms are successful in generating returns, ego and greed take over. Rainmakers and top performers get the “God” syndrome, and they are the ones carrying the weight of this world, while others are socialists. Even the legendary investor Warren Buffett has not been able to find a suitable replacement to run Berkshire Hathaway and continues to run the firm at the age of 89. But Sequoia Capital has mastered the art of passing the baton to the next generation without missing a beat — over the past nearly 50 years, Sequoia has done it not once, but twice.
When Don Valentine decided to start a venture firm in 1972, he did not call it “Valentine Capital” — partly because he wanted the firm to last well beyond his years. The California coast is abundant with Sequoia trees, an evergreen variety, typically living 1,200–1,800 years, among the oldest living things and also one of the tallest trees on Earth. That sounded like an apt name for the firm he had in mind. For five years, he ran the firm largely by himself, making investments in early-stage technology companies.
Pat Grady, who co-leads Sequoia's Growth business, a role he assumed as part of the firm's most recent generational transfer, describes the firm's first succession — the transition of Sequoia Capital from Don Valentine to Sir Michael Moritz and Doug Leone. Pat says that Don walked in one morning and sat down with Sir Michael and Doug. “He pulls out this sheet of paper. He had made notes in two separate columns — duties he could do and duties he no longer wanted to do. He asked them to make a checkmark next to those duties they would still like Don to do. Then he said, all of this is now yours.” Pat chokes up as he recalls Don's words, “But make sure when you leave the firm, it is in a better place than when you took over Sequoia.”
Within months, the worst public market debacle occurred when the internet dotcom bubble burst of the year 2000, leaving behind some deep losses. Both Moritz and Leone were proven investors, having returned investor capital multiple times over. “It would have been an easy decision for Sequoia to hide behind the fact that everyone in the market lost their shirt. But that's not the spirit — Doug and Sir Michael fought for every inch and made our investors whole.” Sequoia has never lost money for its investors. They did not let the Don down — on performance or generational transfer. They built a team, and when the time came, Moritz and Leone would go on to pass on the baton to Jim Goetz, who would remind other Sequoia partners to rise up to the challenge. “I'm not going to be here forever,” he would often say. Emotion wells up, yet again, as Pat talks about the second generational transfer. “Jim Goetz was at the height of his game, when he decided to step down … saying, my work here is done.” Today, Roelof Botha leads the US business.
Generational Transfer at Sequoia: Letter to LPs
Subject: Time to pay it forward
Disruption is at the heart of our business. It's what creates opportunities for Sequoia entrepreneurs, and it's what helps them produce extraordinary returns for our LPs. Ironically, it's also the force that many venture capital firms resist, often contributing to their own decline.
Sequoia is the exception.
Over the past 45 years, starting with Don Valentine, Sequoia has embraced change as much within our partnership as outside it. That willingness to renew and reinvent — often by empowering the less experienced among us — has been the foundation of our success. I am deeply indebted to Doug and Sir Michael for the trust they placed in me, first as a Sequoia-backed entrepreneur, later as co-lead of the venture business, and more recently as a Sequoia Steward. Implicit in that arc is an obligation to pay it forward to the next generation. That time has come.
During the coming week, I plan to step aside from my leadership responsibilities. I do so with great confidence in this next generation of leaders. They represent a gifted cohort who bleed Sequoia, and their fresh ideas will spur the next wave of reinvention. More to come on these well-deserved changes from Doug.
To ensure a smooth transition and encourage change, I am going to decamp from the Menlo office for a few