Sequoia's Andrew Reed on sourcing generational investments: ElevenLabs, Vanta, Figma, and the craft of board work

Law. " And here is none other than the creator of Reed's Law himself, Andrew. Welcome to the show. Thank you for having me. Thanks for being here. How you doing? I'm good. Yeah, that's going to be my tweet that's going to live in infamy. Hopefully.

There's been various attempts from people to get that its own Wikipedia page, but I think there's an actual Reed's law that keeps canceling it out. So, okay. All right. Well, we're going to work on it. Yeah, that's our new mission. Yeah, get it on Wikipedia. We We got to make it happen. Uh very blue today. I love it.

You're really you're really owning you're owning you're owning it, you know, end to end. You're verticalizing blue. It's great. Uh great intro. Uh but great great to have you on. Uh John, you want to kick it off? Yeah. I mean, we wanted to have you on to talk about this uh this post from Harry Stubbbings.

He says, "Oh, I'm hoping that's why you asked I was hoping that's why you asked me to come on the show. " Yeah. He says, "Through my role at 20VC, I study investors for a living. Andrew Reed must be the best investor of the last five to seven years.

11 Labs, Vanta, Figma, Odo, Bold, Clara, Zapier, uh, or Zapier, Circa, average ownership of say 5%. Andrew will have made 3. 75 billion for Sequoia. And he ends it with an emoji that has star eyes.

So, we wanted to go through those companies, tell us how'd you meet them, what' you like, what is the business doing well, and kind of go through how you what your process is like. So maybe we could kick it kick it off with 11 Labs. Well, sure.

I guess um the timing of that tweet was particularly good because it was, you know, I think on Wednesday of last week was when the Whiz deal was announced. Yep. And you know, yet another $3 billion gain for Doug Leone.

And you know, of course, you know, everyone at the time is saying, you know, that guy Andrew is just so amazing. You know, oh yeah, you know.

Uh so I spent like a few days in the typical Sequoia wallowing of self-pity of like how is it possible for Doug to have yet another one and I will never live up to people who came before me and then Harry's like you know who's been amazing is Andrew. That's great. I love it.

I like Yeah, everyone's been saying that this week, you know, that's been that's been the real talk track at Sequoa. That's awesome. Um uh you want to talk about like I talk about Yeah. Before we dive into all the individual companies, how how did you end up at Sequoa?

you yeah started as an analyst at Goldman and then how did you transition into venture? Was it something you always wanted to do and uh yeah just break break that down for everybody? Sure. Uh let's see. So I I was 2012 from school.

I started my career at Goldman Sachs where they you know they have the blue background uh profile pictures as the the originators of that. um spent 18 months at Goldman and left to join Sukoya. I had an one of the all-time amazing happen stance introductions. It was Sarah Guo uh who's now at Conviction back then.

She was in my class at Goldman and she was then dating and now married to a guy named Pat Grady and uh Patner here at Sequoa. And Pat um have have either you you ever met Pat before? I haven't. No. So Pat is like one of the all-time great technology investors, massively underrated. Um, and he is a very interesting guy.

He's one of these guys who has um the way I like to describe Pat is his brain is so structured and framework oriented that it ends up like when ideas enter his head and ping ping pong around for a while at the other end of his system spits out like very creative ideas despite having like not one like kind of like he's not like a creative minded guy but he ends up with very creative ideas which is why he's a great investor.

Anyway, his idea at the time was to have a class of two associates at Sequoa. One guy who was like maxed out finance and one guy or girl who was maxed out um startups. And uh I was the finance guy. I was, you know, top of my class at Goldman. And the startups guy was u Matt Hang who now runs Paradigm. Oh yeah.

Um who had previously started and sold a company to Twitter and did a bunch of angel investing. So they put me and Matt uh on a desk together. So we were the class of two associates February 2014 at Sukoya and uh it was you know it was a very interesting time to be entering the VC world.

I think for those of us who are fortunate enough to enter at that time, you sort of had a few years of earning your stripes and learning and by the time you were able to start doing your own investments, um you know, you still had many years of this like big cloud wave ahead of you and you caught the tail end of mobile.

So, you were able to get um a few really good investments under your belt early on and then uh you know, since then it was kind of off to the races.

But um and Sequoia is a great place obviously to start an investing career because you look around and you know it's like legend and there's Doug and Mike and Jim Gats and RUF and Alfred and Pat and Carl you know it's you kind of like all the firstname basis investors are pretty cool to be around you know so it's great.

Yeah there there's uh there's this meme that like founders want to raise from other founders. I think the reality is like founders want to work with very successful people that can help make their business more successful.

Uh in the early days did you have any sort of uh self-doubt around sort of like coming into this industry like you know a lot of investing is just like you know being a clear thinker and like not you know just believing all the hype and like you know uh likability is a big factor like there's a bunch of different factors but did you have any self-doubt like in in the early days prior to this like absolutely generational run uh hopefully you don't have too much self-doubt anymore but just I think I totally stomped out all the self-doubt out now.

Now it's just I wake up every day just, you know, feeling so good about everything. You should try uh hubris. Hubris is really popular these days after investors that try hubris after a generational run. It always works out. Yeah. Ask Ask Masa. Do you have a crystal ball yet? We have a crystal ball here. There you go.

Yeah, you need a crystal ball. You just Yeah, this is great. Perfect. It's uh it's funny you you mentioned this the self-doubt thing and kind of getting started. Um I actually think you know I was I think I was the first person at Sequoia to actually tweet.

You know it was like this was my in the origins this is probably 2017. I remember thinking I started in 2014 and you know I was doing well. I'd sourced some investments. I'd helped out on things. Um you know GitHub we did in 2015. The company was acquired in 2017. Mhm.

Um, so I felt like I kind of gotten my feet underneath me, but then I imagine, you know, imagine you are a founder and you are, you know, invited into Sequoia and you have your pick of Mike, Doug, Ruof, Jim, you know, Pat, Alfred, you know, why would anyone ever choose to work with me?

You I was 27 and I was like, well, like the one thing I do have is like I think I'm reasonably likable. I have a pretty good sense of humor and I am I guess less less self-conscious than many people when as it relates to you know the internet.

So I started you know with my 14 followers so I'll make some jokes on the internet. Um and it felt so countercultural at the time you know because I think this is kind of before VC was not yet as online as it is now.

I think the pandemic was sort of a um you know like the clubhouse era pandemic you know last dance tweeting phase of venture was I think a bit of a paradigm shift.

Um anyway, so like the origins of that was like how can I possibly you know be like relevant to founders and you know the internet is a fairly open playing field where if you know your profile picture is pixelated enough no one really knows how old you are, right?

Um and so then the first investment that I was like truly led for Sequoia was Robin Hood in uh 2017. And anyway, I have a question about uh the that famous uh Seoia memo that went out right as the market was collapsing. I believe this was during the housing crash.

And it's this really deep macroecon analysis of what's going to happen. And I'm wondering if is that macro DNA still alive and well at Sequoia? Do you guys still look at consumer confidence and what's happening in the credit markets and all of that or is that less relevant today?

No, it's um you know Sequoia is a interesting uh business you know in the sense that there is um people talk a lot about you know multi-stage VC firms and what that means and you know Sequoia we have this you know thriving seed and early stage business that's sort of the heart of Sequoia dating back to 1972 um and uh you know a growth equity business that spans series B's up through crossover over uh um crossover investing into the public markets.

We have this overlay Sequoia Capital fund vehicle um which is the permanent capital uh behind all these funds. We have Sequoia Heritage which is a multif family office um that is you know it's it's this independent business affiliated with Sequoia. We obviously you know we see them all the time.

Sequoia Capital Global Equities which is I think at this point the largest TMT long short hedge fund in the world.

Um so you you know put all that together it's you know uh one of the benefits we have I think um you know for being quote unquote multi-stage is you get you know different bites at the apple as companies scale and you know you try to catch everything at the seed and if you miss a few you can do the a and etc etc but also you do turn you know it's hard to really lose your mind on things if you have the forcing function of the public markets you know around the corner every single day and um and also occas occasionally does provide us with interesting um interesting insights.

I think the RIP good times memo which is the one I think you're referencing with you know the pig and the knife and the you know that tombstone I think which you know it's actually that's a great that style of presentation of you know it's all substance no flash right every page is its own independent study um and I think that's held up so well in hindsight um is I think something at Sequoa.

We try to do those sorts of things, you know, speak from the voice of Sequoia very rarely. So, we did this Black Swan memo right at the start of CO. Um, which was kind of a similar warning.

Um, but yeah, you know, it's like a it's a nice thing to have and obviously it helps uh both on the upside and the downside, spotting new interesting things and also making sure we don't just lose our minds.

Yeah, the black swan memo was obviously really key because everything was about to change, but it did feel a little bit le lighter on the macro econ and I was wondering if that was because of the structure of the fund and RAIA regulations or anything like that, but I don't know, maybe it's just different style.

I mean, it was very it was happening a lot more suddenly than the previous crisis certainly. So, there's less Yeah.

Well, also I think you know going back in you know in ' 07 um you know like we're like we're out in Silicon out in Silicon Valley and you know not every founder was reading the journal every day right so there's a way in which you sort of had to shake everybody and you know it's this oh there's this you know it's a New York problem right it's like a you know it's a housing problem and sort of it was shaking everybody and saying no this is a you problem um I think you know 2020 everyone's on Twitter all the time no one you know nobody was like wait this hit you know the China virus like it's oh I think we all remember when it hit Italy and when it hit Washington state you know so anyway it was different in that sense yeah what you got what's your approach to uh working on on boards sort of broadly you've sat on a ton of different boards you've been board director at at a number of important companies like do you have a playbook and a system now that you come in and you say like you you know, kind of grab the reins or like what does that even look like?

What is what does partnering with you look like at at the board level? Every um you know, every situation is say like you know every good board is you know is the same and every bad board is bad in its own unique um and unhappy way.

Uh no, I think like the uh in general a paint by numbers approach to anything in technology and anything in investing is bad.

Um and I think the worst board members tend to try to be the people who come in and take the reigns and run their play run that company through their playbook because playbooks age very quickly especially in a world of accelerating change.

So, I think the first thing you have to do when you join a board is just take the time to learn what business you're actually in.

And I think this is one thing that um I found is you you can get to a pretty good sense of a company and its market um you know at the end of your diligence process when you're writing the memo, but uh you haven't seen the people in that company respond to adverse events.

you haven't seen what the real bottlenecks in the business are and you can have opinions but you sort of um uh it's much more easy to feel those opinions when you have dollars at risk.

So I think in general the first thing I try to do is like just figure out what business we're actually in and where the bottlenecks actually are. Um I think one thing I like to do pretty soon after leading an investment is uh do an executive search with the founder.

I think it's like a very nice way to get from the opposite sides of the table when you're negotiating an investment.

You know, the first thing you want to do is make sure you feel like you're on the same side of the table and, you know, going on the same side of the table and grinding a recruiter on how many leads we have in the funnel for our VP of engineering search. It's like a great way to align.

Um, and then there's this concept that RUF talks about a lot of being a a shock absorber on the board, which is something that I really really believe in. you know, when things are going well, many board members love to do the RAR cheerleading board meetings.

And you know, one of the nice things about being at Sequoa is, you know, in the portfolio review, if you're beating your number, but your page is next to the whiz, you know, financials, like, you know, it's like, okay, you know, there's levels to this.

Um and I think it's helpful to remind the best companies you know that there are like you know there are current generation companies that are performing even better than this and here's what they're doing.

And then similarly when things are going poorly um you know and poorly is almost always relative right but you know you can have a company that in a vacuum is doing amazing. come in at 80% of plan and everyone's hoham in the board meeting, you know, it's like, oh, and then we need to change our strategy.

We need to we need to change this executive. We need to, as always, we need to fire the VP of sales. Like, you know, I think oftent times the uh best thing you can do is just like cause everyone to take a deep breath. Yeah, we're actually in decent shape. We have a lot of runway. You know, look at these metrics.

Here's what's going well. You know, it's probably not a VP of sales thing. It's probably a product thing. you know that that sort of of work is is good and then every now and then maybe once every two years you have a major thing you got to deal with. Yeah. An M&A uh the capital raise etc.

But can you talk can you talk a little bit about the importance of concentration? I feel like just observing from the outside the Sequoia playbook has basically been like find the power law winner in whatever market but then also get the most concentration and the highest ownership percentages.

And we see that with the S1's go out and you know a lot of VC funds are saying congrats and Sequoia is the one showing up at the top of the cap table.

Uh has that been something that's been kind of a drum beat internally or has there ever been like a moment when it's been kind of harder to establish that foothold because of like crossover investors coming in or overpaying or valuations or anything like that?

There's the WhatsApp example which is like really famous but I'm sure there's a million others, right? Yeah. Yeah, I think our, you know, our north star, we want to be the largest outside shareholders in the most important companies of tomorrow.

And um it would be amazing if we were the seed investor in every single most important company of tomorrow. Um and we actually do a decent job of that. Um and if we don't do the seed, we try to do the series A. If we do do the seed, we'll often try to do the series A.

Um and at any given round, you know, there's a relative riskreward and um and also like, you know, we can't um we can't forget that we're in the you know, net multiple of money business, right?

We're focused on investment returns and if you know, being the fourth biggest investor of the most most most important company is a good investment, we'll do that, too.

But I think the ability to um double down and triple down on companies that we really believe in and hold them for the long term like that that's the the other thing that um you know often gets lost is is you know there's a famous example of like Sequoia and Apple like do you guys know how much money Sequoia made on Apple?

No. Okay. Well, I'm not going to tell you because it's it's not nearly as much as you might think. Um Oh, right.

the uh now I think I'm it's coming back to me in the single digit I think it was I think Zquo made a 40x on 150k um wow uh so singledigit million dollar gain and when you um you know when you have experiences like that and then you realize you know own 10% of Google at the IPO you know the list goes on and on and on so this idea that um you know we don't necessarily need to be the first investor in every single company, but we should be the longest term investor and for the really special companies scaling up with them and compounding.

Um, you know, that's like the business that we want to be in. How do you balance both uh competition and partnership both within the firm? Like you want to put up the biggest and best numbers, right?

Like I imagine you're competitive and then externally too you're you're oftentimes competing with other firms that are sort of your friends to win rounds at certain moments but you're a multi-stage fund.

So sometimes you're going to do a round and they'll do the next one and then you'll do the next one and then you got to be on the board with them.

So like how do how do you approach uh you know you have to sort of show up at some points and be like I'm going to win this deal and then at other time and then the next day you're back to being uh you know boys. Boys. Yeah. Well, it's funny.

There's been, you know, there's there's one of those like really wonderful things about Silicon Valley. You know, I remember one time um you know, I'm sitting in a board meeting and uh I'm sitting next to somebody who I know has a term sheet in on a company that I also have a term sheet in on.

You know, I think he must know and I definitely know, but we're not going to talk about it.

you know it's like it's um uh anyway so like I think it is actually quite wonderful this ability to sort of you know um or you being even like it's constant right like you know we're co-investors in this one company but we're investors in the direct competitors in this other situation um to me the lesson is just like always try to do business with good people and trustworthy people and you know try to find front stabbers not backstabbers is a is a good rule of thumb And you know like uh if you do that by and large people are like good and ethical in the valley like it's a pay it forward place.

It's a repeat game. Um I think there's a reason why a lot of the you know bad behavior comes from people who aren't from Silicon Valley. You know the it's like yeah it's actually a wonderful place to do business in that way. Um, but Sequoia, you know, we are as cutthroat as it gets, right?

Like we we are front stabbers, you know, we'll we'll like we don't hide that in general. We want to do usually as much of a round as we possibly can. Um, we'll, you know, tell you what we're willing to pay.

You know, we're not um, you know, externally necessarily with investment banks or with search firms known for being like the easiest group to deal with.

Um but here's all I hear often like oh Sequoia I've heard is really tough internally like really sharp elbowed and I mean the the stakes are really high it's a small team expectations on performance are insane right like that's where the it's a consensus investment process as well where you you don't need to just basically close you you got to close if you're an entrepreneur you got to close all your partners correct ex yeah exactly and the part you know the partner meeting there's like you know I I've seen founders, you know, some founders really rise to the occasion in the Sequoia partner meeting room.

I've seen people just totally wilt. Um, but it's an amazing like it's actually an amazing culture inside the building because of that. I think like because the expectations are so high and um the team is so small, right?

I think like this is one of the things that you know Doug has this presentation he calls it the laws of physics where one of the laws of physics is that fund returns are inversely proportional to team size and um also fund insurance inversely proportional to fund size.

You know we've been very disciplined about keeping the number of people on the team and keeping the funds to like a relatively stable um size and then working together to kick ass. That's the that's that's clear. Can you talk a little bit about uh paths to venture?

You mentioned that in your analyst class there was the high startups, maxed out on startups versus maxed out on finance. Are both of those paths still viable today or have they shifted over time? How do you think about hiring new people?

I think with venture um and funny I I read and and you know I do I help lead Sequo's growth stage investing business. So like venture like true venture you know seed it's a different thing.

Um from my perspective uh it sort of doesn't matter at all what you did before because nothing you do before joining a venture capital firm prepares you for how truly like multiaceted long-term successes in venture. like you can divide the job into you know sourcing, picking, winning and company building.

Like those are probably the core four core competencies and um what we try to do or at least what I try to do is I want to find somebody who can really hit the ground running on one of those things.

So with finance, you'll have people who come in and you know they can be really good on the you know the picking like the investment uh the investment process due diligence have a real point of view on why a company should succeed but maybe you've never taken a meeting before one-on-one with anybody in your life you know for that was me like when I joined Sequoa at Goldman I was the you know headphones on behind the Excel sheet you know like that was I literally had never done a 101 meeting before in my life and I got to turn to uh Doug and I said Doug you know like is there like a sector you want me to cover?

And Doug Lor and he goes, you know what? That's what we hired you for. Like noted. Um so I like to find somebody who can hit the ground running on one of those things, but clearly has like the potential to max out on all of them if given enough time.

And then we just really try to invest in young people and give them opportunities to try things and take meetings and sponsor investments.

And um you know if you look at a lot of it a lot of the people at Squa started in their early 20s here and apprenticed you know were nobodyies for five six years and then all of a sudden people started recognizing them when they had you know amazing amazing portfolios and that's sort of what we try to we try to do.

Uh, last big question I have for you. How do you think about underwriting generative AI investments today? Uh, there's been a lot of chatter on the timeline this week about what's what's ARR, what's not. Um, and you're in a lot of the companies that feel like they will be these sort of power law geni winners.

Like even Figma itself is like such a sleeper, right? and that like they have like most of the important creative people in tech in the app all day long. They should be able to launch a ton of different products that that end up dominating in some of these categories.

But what's your what's your just sort of like broad approach to sort of and the way that you sort of look at all the revenue that's sort of just like popping up in all these new novel categories and will probably lead to big businesses, but some will kind of evaporate as well. It's a terrific. Yeah.

Figma, stay tuned everybody. The uh the um it's in, you know, it's the most transformative. It's the most interesting time in technology that I could possibly imagine.

I actually think moments like today on the internet, you know, when you have the jiblification of of of, you know, all the last five years of memes happening at once, it's like a nice it's like a nice reminder of this, you know, unlike prior technology waves which were, you know, distribution extending waves where a small group of people had this at first, you know, now a billion people have access to tachib and are logging on and doing the same thing.

It turns out we have like a I don't know a zillion computers in Virginia just making cartoon memes today which is it's you know it's like a small power plant being burned. Um uh it's like these are coal powered memes everybody. Another one of these we can do so much.

Um uh so it's you know it's amazing but because of that fact like you know everybody's on the internet all the time and most of these technologies are available at the get-go to everybody. Um uh you can see revenue ramps like nothing we've ever seen before, right?

Um because it's transformative technology with full distribution from the get-go. And uh some of that will certainly be easy come easy go revenue. Uh I think some of it certainly won't. It makes each individual um each individual investment decision nuance and complex in its own way.

I think the important thing is going back to that law of physics um presentation that Doug gave when I first got to Squa. You know, there are some things that never change in business and there are some things that change all the time and uh I think the important thing is knowing which one's which.

That's powerful to end it. I love it. Powerful. I can see why you closed so many deals. You're great. You closed us. Yeah. Um, great having you on. This was fantastic. Yeah. Thanks, guys. Thanks for having me. Come on. Come on with uh we're going to have Dylan Field on hopefully at some point.

You guys should come on and just we can all, you know, hang out. It'll be fun. That sounds wonderful. The good old days. Thank you guys. Awesome. This is great. Talk to you soon. Cheers. Yep. You know, he's he's in a quiet period for some of Thank you, Jordy. We heard your feedback the fan to the fans.

Jordy is keeping the soundboard and getting wild with it. Uh he's in a quiet period on CLA because they're about to IPO. And I've been saying that the SEC should ban quiet periods because I just think that people should be able to yap 247 regardless of what's happening in the public markets.

Uh so that's what I will be lobbying for the next time I'm in Washington DC. Ban quiet periods, also ban lockups. Anyway, we have our next guest. Welcome to the