The Trump administration has started acquiring direct equity holdings in U.S. businesses, not just as short-term emergency responses, as in 2008, but as enduring elements of industrial strategy.
These actions prompt intriguing questions, such as what occurs when the White House becomes a listed shareholder.
At TechCrunch Disrupt in San Francisco the prior week, Roelof Botha, Sequoia Capital’s global steward, addressed precisely that inquiry, and his answer elicited knowing chuckles from the crowded venue: “[Some] of the most perilous words globally are: ‘I’m from the government, and my intention is to be helpful.’”
Botha, who identifies as “a somewhat libertarian, free market thinker fundamentally,” stated that industrial policy is appropriate when it is vital for national interests. “The sole justification for the U.S. resorting to this is that we have competing nation states that employ industrial policy to bolster their industries, which are strategic and potentially detrimental to U.S. long-term interests.” In essence, since China is participating, the U.S. must reciprocate.
Nevertheless, his unease with government as a co-investor was palpable during his presentation. This caution extends beyond Washington. Indeed, Botha perceives concerning parallels between the pandemic-era funding frenzy and the current market, although he refrained from using the term “bubble” onstage. “I believe we’re experiencing a period of extraordinary acceleration,” he articulated more tactfully, while also cautioning about inflated valuations.
He informed the audience that, on the very morning of his talk, Sequoia had reviewed a portfolio firm whose valuation surged from $150 million to $6 billion within twelve months in 2021, only to subsequently plummet. “The challenge within the company for the founders and the team is that you feel as though you’re on this path, and then you ultimately succeed, but it’s not quite as favorable as you once anticipated.”
He continued that it is tempting to continuously raise capital to sustain momentum, but the quicker a valuation rises, the more precipitous the potential fall, and nothing is more demoralizing for a team than witnessing a paper fortune vanish.
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His advice for founders navigating these turbulent waters was twofold: if you don’t require funding for at least a year, refrain from raising. “You’re likely better off developing, as your company will be worth considerably more in 12 months,” he stated. Conversely, he added, if you’re six months away from needing capital, raise it now while funds are readily available, as markets like the present one can rapidly deteriorate.
Being someone who studied Latin in high school (in his own words), Botha invoked classical mythology to emphasize his point. “I did indeed study the story of Daedalus and Icarus in Latin. And the notion that if you soar too vigorously, too swiftly, your wings may disintegrate resonated with me.”
Founders heed Botha’s market insights, and with good reason. The firm’s portfolio encompasses early investments in Nvidia, Apple, Google, and Palo Alto Networks. Botha also commenced his Disrupt appearance with announcements regarding Sequoia’s two newest investment vehicles: new seed and venture funds that provide the firm with an additional $950 million for investment and are “essentially the same magnitude as the funds we introduced six or seven years prior,” Botha mentioned onstage.
Although Sequoia modified its fund structure in 2021 to retain public stock for extended durations, Botha clarified that it remains fundamentally an early-stage enterprise. He noted that in the past year, Sequoia has invested in 20 seed-stage companies, with nine of them at the point of incorporation. “There’s nothing more exhilarating than collaborating with founders from the outset.” Sequoia is “more mammalian than reptilian,” he elaborated. “We don’t lay 100 eggs and observe what transpires. We have a limited number of offspring, akin to mammals, and thus need to provide them with considerable attention.”
He explained that this strategy is rooted in experience. “Over the past 20–25 years, we have failed to fully recover capital in 50% of our seed or venture investments, which is humbling.” Botha recounted that after his initial complete write-off, he wept at a partner meeting due to shame and embarrassment. “But regrettably, that is integral to our pursuit of outliers.”
What underlies Sequoia’s accomplishments? After all, numerous firms invest in seed-stage companies. Botha partially attributed it to a decision-making process that even surprised him upon joining two decades ago: every investment necessitates partnership consensus, with each partner’s vote holding equal weight regardless of seniority or position.
He elucidated that each Monday, the firm initiates partner meetings with an anonymous poll to gauge the spectrum of opinions regarding materials the partners are expected to analyze over the weekend. Side conversations are forbidden. “The last thing desired is the formation of alliances,” Botha stated. “Our objective is superior investment decisions.”
The process can strain patience — Botha once dedicated six months advocating for a single growth investment to his partners — but he remains convinced of its necessity. “No individual, myself included, can unilaterally approve an investment through our partnership.”
Despite Sequoia’s triumphs, or perhaps because of them, Botha’s most provocative assertion is that venture capital is not truly an asset class, or at least should not be treated as such. “If you exclude the top 20 or so venture firms from the industry’s results, we [as an industry] actually performed worse than investing in an index fund,” he stated plainly onstage. He highlighted the presence of 3,000 venture firms currently operating in America alone, which is three times the number when Botha joined Sequoia. “Merely injecting more capital into Silicon Valley does not generate more exceptional companies,” he said. “In fact, it diminishes the effect. It actually complicates our task of enabling the small number of distinctive companies to prosper.”
The solution, in his perspective, is to remain small, maintain focus, and bear in mind that “only a finite number of companies genuinely matter.” This philosophy has served Sequoia effectively for decades. And at a time when governments seek equity stakes and VCs indiscriminately invest in anything showing movement, it could be the most contrarian counsel available.
