Shaun Maguire on Sequoia's new $950M funds, defense tech timing, and why VC isn't an asset class

to do the ad read. numeralhq. com sales tax on autopilot spend less than five minutes per month on sales tax. Okay, thank you. Now, now I got Sean. Sorry. Sorry. [laughter] I saw you on the preview screen with the hat. I got excited. I brought you in prematurely before I could do the ad read. Anyway, how are you?

Good to see you. Big week uh Sequoa Capital. Yeah. Yeah. Yeah. Uh actually explain what happened. Some new funds uh raised, but how do you frame all of like the actual progress and the actual announcement like what happened? What is up, boys? You guys have become celebrities since last time I was here.

You got Satia Nadella. You got all these legends and then jokers like me. Um Oh, you kicked it off. You kicked it off. Anyway, [laughter] it's been amazing to watch. And yeah, I got the hat. I'm repping for you. And I got to say, this last guy had the best Zoom and audio setup ever. And you know, again, I'm just online.

Well, no, this is your zone. This is your zone when you when you know anytime there's controversy on the timeline, you just flip open the laptop, hit record, 30 minute video, single take with and this is this is what people want.

They want something that just feels like, okay, I'm actually talking to the person in their office. I get the texture of what their life is actually like. I'm sure this is what tons of founders see when they pitch you. They they open up and this is who's on the other end of the line, right? Something like that.

It work, you know, it works to be somewhat relatable. Yeah, that's great. Yeah. So, look, we're dropping new funds. We're very lucky. Sequo has been in business for over 50 years. You know, this is the next vintage of our overnight success. Overnight success.

[laughter] [gasps] You know, Sequoia's backed a couple small companies in the past. First investor in Nvidia. Nvidia, uh, series A of Apple, series A of Google. Let's go on and on and on.

Next venture fund vintage dropping venture fund 19 19 um also seed fund six wow seed is you know something that we used to combine inside our venture funds but wanted to place a major emphasis on it really to show the distinction um and I would say so anyways fund size 750 million and 200 million for seed something that I think is is there is there a growth fund as part of this is that a separate thing is that offcycle right now.

Yeah. So, the growth fund different cycle announced their funds recently. Got it. Um something that I'm honestly very proud of.

I joined Sequoia six years ago and I feel like this is the first fund cycle where we really have like a new team, a cracked generation of young people and that have been now been working together for five plus years. And so, just it really feels like we're firing all cylinders.

We got Stephanie with, you know, skilled on stage with Jensen yesterday and, you know, reflection. We got Constantine hitting his stride with Expo and bunch of other companies. You know, we got everyone on the team has some amazing portfolio companies.

Um, you know, and then the growth team, you have so many great people. Pat, Andrew, you know, Andrew taking companies public every day now, etc. And a whole new generation there, too.

uh any any uh any specific kind of like decision- making or insight around like how you guys decided kind of the fund sizes specifically was that uh I'm sure you know uh based on a lot of learnings over the last few years and and seems like a commitment to like driving uh driving like real venture returns and and staying committed to that.

But what what more can you say there? Yeah, no, you nailed it. Um, something I think people kind of misunderstand about Sequoia and I look I got to drop the flex but you know Sequoia has this outsized history in terms of the scale of companies we've backed.

Like if you look at the NASDAQ about 30% of the NASDAQ by market cap were early sequoia you know companies. Um, pretty wild crazy but but we actually don't invest in that many companies per year.

like we really try to keep it pretty focused and targeted where we can be active company builders and there was a pressure the last few years and and I would say like we were we got caught up a little during the COVID era as everyone did and our pace increased um but we've just gone back to basics and we're really just focused on ultra high quality like finding just true outlier founders that have really big vision and and kind of rolling up our sleeves.

to help them build these companies. It's just we're trying we're trying to not get too caught up in any of the trends.

We're trying to be like ahead of trends and um you know keep the fund size just where we can actually have we we strive for minimum 10x net returns like that is that is our goal for every fund and that's where we want to be. What about actual team structure, team size?

Uh is has there been any evolution in the thought process around how large the partnership is, how large the support structure is, the the back office, the you know uh h how all of that fits together.

Is there anything that's structurally changing or do you see it as like kind of just a a slight evolution of the of the of the same plan? Great question. So we're I you know we we have to be paranoid at Sequoa. Like that's our our secret is being ultra paranoid and just trying to outwork everyone. Yeah.

Didn't a Sequoia founder say that. Some I hope so. I think so. Um but we went through a pretty hardcore generational transition, you know, five, six years ago. Most of the team was not here eight years ago.

You have people like Rudolph and Alfred that have been here for a long time on the early team and and kind of have helped and Doug when he was active helping to kind of bridge the generational divide.

But I would say where we've innovated is kind of with new team and then otherwise really trying to just stay true to the roots of Sequoia active company building you know focus on both like really trying to understand market structures and find outlier founders.

I think that's that's something that's different about Sequoa is it's we're not we're not like a an or it's not founder or market. We're it's an and like we want founder and market.

In terms of everything else, I would actually say we've almost gone back to basics a little bit more like you know we have we have a wonderful operating team. Um and that's something that you know we built up over the last five or six years but we've basically kept it pretty steady in terms of size.

is like we we feel good about where everything is and now we just need to execute. Okay. Defend the venture capitalist because I'm going to make the argument that the that the venture capitalist, not Sequoia in particular, but venture capital as an entire category is cooked, chopped, destroyed. It's over.

The game's over. And here's my thesis. Uh what was Roloff's quote the other day? It's Oh, yeah. Yeah. Yeah. It's it's not an asset class. He said, "Venture capital is not an asset class," which I 100% agree with. It was a great quote. who said it's a rewardfree risk. [laughter] It's a reward free risk.

That's a great quote. But uh but specifically, I want you to address this kind of maybe it's a headwind, maybe it's not. You tell me. Um there's this idea that uh you are a venture capitalist. You can see the future. You know that self-driving cars are coming are coming and your options are Whimo and Tesla.

Like you can't get venture exposure to that necessarily. Uh you're excited about humanoid robots. Oh, well Tesla's in in that. uh you're excited about uh AI. Well, like if you wanted to play like Open AI took a billion dollars from uh from Microsoft and all the VCs were getting in small slices.

No one was able to build a 30% position in that company like they would have done in the previous era with a Facebook or with a Google. Um yeah, John was texting me last night joking. He's like, "It's absolutely criminal that Satia didn't get Carrie on on the on the OpenAI investment. " [laughter] Yeah.

And and I mean I I don't know your thesis on quantum computing. It feels very early. I love the series A and ion Q which is a public quantum computing company. Let's go. Okay. The quantum information. So maybe that so maybe that works. Yeah. Maybe we need to go there.

But it feels like there's also competition from big hyperscalers in that market. We need we need the Martin Scrowley Sean Magcguire debate on quantum. Oh yeah. I'm actually closer to Martin in a lot of [laughter] a lot of views. Yeah. Uh so maybe like the Martin and Sean conversation rather than Yeah. Yeah. Yeah. Okay.

So yeah, let's let's let's table quantum particular in particular and let's instead say uh how does venture capital play in a world where frontier technologies take 10 billion and 20 years to mature self-driving cars, AI, etc. Look, I think Ruv nailed it when he said that venture capital is not an asset class.

Like, but we don't do it the way other people do, you know, and and granted there's a couple funds I respect unbelievably deeply that have a lot in common with us. A couple, [laughter] we are only respect. There are two people I respect [laughter] and there's there's a couple funds.

Um but but look we're we're really deeply involved oftentimes in like the formation of companies.

I think in the last year there's been at least five or six companies where we signed term sheets be or sorry where we were involved in the putting together of companies like before before they even incorporated you know we were um kind of structuring the companies bringing the founders together.

My partner David Khan played a big role in bringing Kella together for example. Yeah.

Um which is an Israeli defense tech company where you know there was a very talented founder that a bunch of us knew alone drawer who had a general idea but he didn't have the right team for it and I would say his initial idea was wrong and we helped him with the idea and then David brought in had a vision of bringing this woman home with Tom Meridor and that combination is magic.

Um, and I I really it's hard to explain how frequently we do that. And so it's like if you're a passive investor at the late stage, there's no alpha today in VC or very little. But that's just not the game we play. We're extremely active. I mean, my partner Jim gets incubated Palo Alto Networks. Yeah.

You know, Rut Rulof both uh invested in YouTube with three people and they worked in the Sequo office in the beginning. And I mean I can give you so many examples like this. And so I just we don't think of ourselves as as just like an index on the basket. We're trying to like bend the arc on the asset class.

And look, I'm going to give a shout out to Founders Fund. Like they do this incredibly well. They've been incubating companies. They bring a founder mentality, you know, more passive. My Yeah. my my uh I mean yeah obviously like Sequoia and Founders Fund incredible returns like the model's clearly working.

I guess maybe it doesn't matter that Sequoia and Founders Fund like I don't know all all the funds it just feels like there's a world where uh self-driving happens or some other big huge h humanoid robots. It happens, but it happens in a way that the value isn't captured by venture capitalist.

And that's what I'm wondering. I'm not worried. I'm not worried about it. You're not worried about that? Okay. I'm not worried about it. I think there will be a lot of value captured in the public markets.

You know, like one of the best one of the best, you know, trades you can make in AI the last five years is obviously buying Nvidia. Nvidia. Y the same was true with crypto though. Like you could just buy Bitcoin. You know, buying Bitcoin outperformed basically every crypto investment. Yeah.

But Coinbase was still an amazing investment. I think Bitcoin like at almost every point in time slightly outperformed Coinbase. Yeah. Um maybe not. I've heard from investors that that's why they passed on Coinbase because they were like, I'll just buy Bitcoin.

And it's actually a big part of why Sequoia passed on Coinbase in the time. Yeah. Um so look, like I think we've seen this play out many times before, but I'll give you a counter.

Funny thing in there is that the reason why Bitcoin has done so well is probably because there were VCs that were like, "Yeah, I'll pay for the R&D at Coinbase to make it accessible. " And then the price went up and so everyone else is you you and FF were free riding maybe.

Yeah, we we [clears throat] we were there's always been this dynamic though, you know, like the famous telco buildout in the late 90s where global crossing and all the, you know, there were 17 fiber companies that went public and were very highly valued and then investors lost all their money, but that fiber buildout laid the pathway for, you know, SAS and consumer internet companies in the early 2000s.

like this dynamic is always happening and I I think as investors we just have to try to stay counteryclical, try to stay ahead of the bubbles, try to figure out what are the second order effects of the bubbles like whenever you concentrate huge amounts of capital there will be all this new infrastructure that you can take advantage of and and so we're just you know like defense tech is an area where we were not very active in before the war in Ukraine and tragically that war was a catalyst.

Yeah. And you have to identify like even though you have a C there's probably only a 6 to 12 month window where defense tech is nonobvious. And so like we made three or four I think really good investments in that period you know like Nuros like Stark like um you know Kella a little after that.

Um and you just have to be ahead of the curve because like now I think defense tech is becoming consensus. it's too obvious.

And so it's like valuations are incredibly high, but it's just like that's our job at Sequoa is to be ahead of the curve on these things and and there's just always going to be opportunities to make money if you're proactive.

Uh venture capitalists uh buy minority positions in companies and you can be on the board and you can be adding value and helpful.

Uh but there's this after you kind of deploy into a company there can be uh kind of this grass is always greener thing where it's like you can meet like another five companies the next day and there's always like this this influx of opportunity.

You've been at Sequoia now for years and you have an opportunity to meet new companies every day or or you know get on the phone with existing portfolio companies uh some of which are maybe doing really well some of which are maybe not.

Like I I was curious if Sequoia like has any lessons throughout history of of companies that like uh that you guys draw on of companies that kind of like hit rough patches and people were maybe less excited about but like found a way to have you know get to another kind of inflection point.

Um because I feel like you have 50 years of history. A lot of being a great firm is just remembering what made you great and having these sort of like lessons that are like IP effectively. Oh man, this is such an astute point and and look, I think this is one of the superpower I'd say has a lot of superpowers.

You know, one is we just have this network. A lot of the founders we back were employees at, you know, prior Sequoia portfolio companies. So there's that flywheel. There's like the institutional knowledge, you know, moat.

There's just like the there's a customer moat where we have there's so many companies that you know they've someone that bought whiz early and it it made them look really good as a siso or CIO like they're more likely to buy like the ne like eon the next infrastructure company.

So there's all the there's all these moes but um or advantages but on this one incredibly astute point Alfred Lynn tells a story of how Door Dash really struggled to raise like at least one or two rounds of funding.

You know I'm sure you remember like Uber was the hottest company in the world for a long time and Door Dash was Door Dash was like number three or so in the space. It was really hard for them to raise. I think it was a series C. I may be off by like maybe a series B or D, but I think this is series C.

He tells the story. Postmates was pretty hot. It's as well. And then Postmates was hot. There were a bunch of legacy platforms like GrubHub and and been around before too. So, it was a blood bath. It was ultra competitive economics hadn't yet become positive. They really struggled to raise around.

You know, Airbnb obvious like Sequoia was the first investor or or led the seed round. Sorry, not first investor. They did YC.

you know, we invested $600,000 at like a $3 million valuation and they went through some incredibly hard times even even like during co I mean for them I remember Alfred's updates it was just unbelievably brutal period it was like easy to give up on them and that may sound crazy given the scale they're at today but you know also with Elon like SpaceX and Tesla were on the verge of death um at multiple points and when you have these when you have these experiences like it it really is an institutional knowledge like you know weapon.

Um, yeah, cuz it's just not it's way less it's way less fun to jump on the phone with a port co that's like totally struggling and they're going to say like, "Hey, we need a bridge or can you introduce me to some some more investors and it's like, well, it's not fun to introduce a company that's struggling to other investors cuz they're it's it's way more fun to introduce a company that's ripping because you're like, you know, throwing a bone to them.

" Um, I was curious to get a sense of like your activity in in H1 of this year versus now. Have you picked up the pace? Have you slowed down at all? What's been um what's it been looking like? I'm embarrassed.

I saw the data recently like a few weeks ago, but I have so much going on, including a lot of, you know, Twitter drama as you guys see, and I some somehow I don't remember the exact pacing data, and so I don't want to be wrong. We're a registered investment adviser now, so these things are Oh, yeah.

This is like doubly hard when we're wrong. Every time you come on, I [laughter] want to ask you about stuff that you can't talk about because of RAIA and I don't care about whatever you're going viral for on Twitter. Um, can you talk about data centers in space? You're Caltech PhD. Do you understand it?

Does it make sense to me? Am I team Delion or am I team? I wasn't going to make I wasn't going to make it about that. You could be you could you could comment on it at a more abstract layer level but uh but you know you're obviously a big this is something I thought a lot about.

I mean like for 15 years I started a failed space launch company in 2007. So you know and this was this is an idea we actually thought a lot about.

Look, I think I think the reality is no one really knows and actually something I told Delian with Varta like you know I passed on Varta in the early days which I should have made the investment and the way I describe it to Delian now is I think he had the right macro idea and the wrong micro idea and to unpack that like the micro idea is they wanted to make ZBLAN this like ultra pure you know fiber optic cables it's like dude we don't need ZB land in a world with Starling We're like ZBLand's good for long distance data movement.

We're going to do it all with Star the long distance data movement is going to happen in space with Starlink and um but the I think the macro idea of just building space infrastructure, building an incredible team, you know, building like learning how to build satellites.

I think that their timing couldn't be better just in terms of what's going to happen to the space economy over the next 10 years on the back of SpaceX and Starship.

Y and I think their ability to just concentrate talent and be in position to pounce when the opportunities come up is something that should not be underestimated. And so some with these data center companies in space there are two very real serious unknowns.

One is like just the thermal properties dissipating heat in space is insanely hard and anyone that says they figured it out right now like they have not figured it out. They may figure it out in this in the just and it's because you need a lot of surface area, right?

Is that is that Yeah, there there's basically there's like no thermal connectivity or very little of space as a medium and so heat that leaves any unit area whatever in space.

it just it stays close to the satellite in space and so you need you can move things around inside the satellite but once heat leaves the satellite it'll just heat up a little local pocket of space around you and takes a very long time to dissipate away from the satellite.

Um and so like this is something no one really understands how it works. Um the second is you have to deal with high energy particles that are going through your electronics.

you don't have the, you know, earth's magnetic field shielding your electronics and there's you can have, you know, metal shielding and and things like this, but no one really understands how this is going to work and how it will affect all the circuits and electronics. Um, so these two things are hard.

There's also like a big just time question around exactly when Starship will fly, like when cost will be passed to the, you know, launch companies. So I think some of these companies may be too early. Um, and look, I actually think I I'm more team Delian on the micro.

Like I think he has the right points that there's a lot of things that are unsolved right now on the micro side of data centers in space.

But I just I'm such a macro bull on space over the next 1015 years that it's hard for me to bet against any team that is just building that like concentrate talent building the expertise because I just think it's going to be such an exponential rising tide at some point in the next like 10 years.

I can't tell you when that will start but it'll be big. on the on the SpaceX front, how uh there's been a lot of news over the last few weeks around uh direct to sell uh partnerships between like SpaceX and and other you know uh you know uh device manufacturers etc.

How screwed do you think uh a lot of the big telecom companies are over the next 10 years? Look, I I don't think they're screwed.

I think that when you have I think that I think look I think SpaceX is gonna do unbelievably well unbelievably well and I am maximum bull on direct assault for SpaceX but I think what happens like in the kind of most wild success scenario for SpaceX SpaceX is providing like 20 30% of the world's mobile data in a decade or so but I think that the total mobile data consumption will be like double at that point.

So it's still like a 70% net increase for all the existing Telos because there's something this is just a like a fact of history when a product gets better people use it more and you know like when you have the ability when you don't have dead zones and cell service when you have 5G everywhere you know like Optimus is going to come online uh you know Tesla cars are going to come online people are going to be when you can when you have really good mobile connectivity from the car you're going to be streaming instead of instead of like 1020p, you're going to be streaming 8K content from your car while it's driving you.

And so I just I think it's going to be one of these things where rising tides lift all boats, but I would not underestimate how big of a deal it's going to be for SpaceX. Like it's already an multiple hundred billion dollar companies in the category.

And so if it just becomes even if it even if the market structure doesn't change and there's just a new player in the oligopoly that looks very very good. Um, we've asked a lot of people in the age of AI, should you learn to code? That's a less interesting question to me these days.

I want to know, should you learn to deal? Should you learn the art of the deal?

Because basically is is the art of the deal becoming a more important tool in the founders tool chest because we've seen so many so many no I I we it really feels like there are founders out there who can just work magic and marshall capital and buyers and customers and the government and the government from a different country and they get 17 people to say yes this has to happen and then all of a sudden it happens.

and we get the thing and it feels like it could be the beginning of of a new archetype, a new founder archetype or maybe it's an old archetype. But what do you think about learning to deal?

Yeah, look, I mean f first on the learning to code, I personally think that coding is going to be like doing arithmetic a long time ago. Um, and it's just like it won't be as interesting or valuable. Humans won't be doing that much of it. But I think it's very valuable to train your mind how to think.

And so a lot of like learning to code thinking is that kind of like thinking mode? Thinking? Yeah, think. Sure. Thinking mode. Thinking mode. Deal mode. But look, I think I think like even more extreme than I mean even more extreme way to train your mind to think is is doing pure mathematics.

And so like if a kid's asking what to major in today, I mean my answer would be like do pure math or physics which are the maximum ways to train your mind to think you know or learn huge social skills like just don't even go to college you know if you [laughter] do be frat president intern over here our intern in at TVN is on a gap semester studying physics and is now hanging out here and he's just like nodding just being like I'm patting myself in the back.

Sean McGuire says I did everything right. Uh uh curious kind of last question. I wish we could hang out longer but um we're back to back. How I'm going to come to your Thunderdome soon. Yeah. Yeah. Next one should be in person. Yeah. Anytime in LA. What are you seeing?

How is the government shutdown affecting uh defense tech companies that that you're seeing or or talking to? Oh yeah. That's a good question. I'm going to give the brutal brutally honest version which is what I try to always do at least my own opinion. Um, it's a tale of halves and have nots.

So, I work with a few companies that are, you know, getting absolutely reamed by it. But I also work with a couple companies where it hasn't really affected them. Yeah.

And basically like if you have something that the government absolutely needs like maybe they can't send you the money right now but they're still giving you the phone call and telling you know and like you know telling you that you should expect after you know after the shutdown ends and you know we can still give you the award.

We just can't you know tell you the exact dollar amount because we need congressional approval on the exact dollar amount and it's it's a tale of halves and have nots. Um, I mean it's a really good signal to be honest, at least as an investor to be like, is what I'm investing in a nice to have or a need to have.

For sure. It's very clarifying. Yeah. Very good. Cool. Uh, great to catch up. Always fun. Congrats on the new uh We need to ring the gong for Sequoia C. Yeah. Yeah. They they deserve this. Two gong hits. Two gong hits for the two new funds. Still got it. There we go. Thank you, boys. You guys are legends. Keep crushing.

Bye. See you soon. Thanks for coming on. Bye. Let me tell you about Finn. AI, the number one AI agent for customer service. Number one in performance benchmarks, number one in competitive