Carl Eschenbach returns to Sequoia as the AI era demands operator wisdom at portfolio companies

advertise on streaming TV, pick channels, target audiences, and measure sales just like on Meta. So without further ado, we have our first guests of the show, Pat Grady and Carl Echinbach from Sequoia Capital in the guys.

Carl, Pat, how you guys doing? We're doing great, man. We're doing great. It's great to be with you guys.

Yes. Thank you so much for uh hopping on the show on this day. Um walk us through the decision. How long have you guys been talking about potentially reunifying? Uh what what's the thinking? What's the role? Sort of break it all down for us

from the moment Carl left Sequoa.

Yeah.

Come on back. Come on back.

Yeah. No. Uh well, maybe I'll just start and then my my partner Pat here can jump in. And I say my partner because I've been his partner for 10 years. Like I joined almost 10 years ago. Uh you know at Sequoia which was an incredible joint journey at that time to join.

Uh and then I decided to step away back into an operating role. Um

you know after an eight-year total journey uh at workday, five years on the board and then back into the operating role. And I remember quite honestly when I left Seoia uh three years, three months ago, I said to Pat and the team, you know, I'll be back. You'll have me back because I always uh

had wished I dreamed and envisioned of coming back here and I thought it would be a great place to end my career and provide impact to the partnership, my partners and companies that we work with. And uh you know when I stepped down at workday now two months ago uh we started talking without exaggeration that day.

Yeah.

Typical P fashion the news was out and it was within no exaggeration five minutes I started getting texts from Pat Grady

every single partner at Sequoia. Not only did I get him, but my wife started to get him full

and they were like, "When is Carl coming back? We want you back." And and I will tell you, it's a it's a blessing uh to be back and here we are today.

Okay. Uh walk me through the bullcase for becoming or you know going back into venture capital in 2026. There, you know, it's maybe a little bit crazy narrative, but there's a narrative around like AI is eating everything. AGI is here. the big labs are dominating. They're going to eat everything. You know, Google's going to beat every company. Now, OpenAI is going to beat every company. Sequoia has investments in the labs. Uh what's the opportunity that you see for new startup formation, new growth rounds? Where do you want to see uh opportunity either in AI or in software or outside of AI? Like what is your thesis for why it's going to be a rewarding experience to be a venture capitalist now?

Yeah. Well, it's a great question, but let me step back and go back two months ago first. Um,

when I sat down at at workday, I did open the aperture up.

Sure.

And look at everything.

Yeah.

I looked at everything from going back into an operational role at very large companies, big public companies. I looked at operational roles in private companies.

Um, and some of those private companies are the AI companies that our friends here at Sequoia at the time had invested in and being part of it. Uh, and then I also started to think about, well, what would it be like to go back into venture, go back to Seoia at a time of what I would describe as the most massive technology disruption we've ever seen in the history of mankind

and to be part of it across many companies as opposed to a company is something that really excited me. joining some place like Sequoia. And I'm biased when I say this guys, the greatest venture capital firm on planet Earth ever. Missiondriven, the great the greatest partners in the world, people that are smart as hell that even I at this age get to learn from every day. and to be part of something so iconic in the midst of this massive tectonic shift and get to explore across so many different companies as opposed to a company is something that really excited me

just in my first two weeks while I haven't been fully uh you know on board yet until today I met with so many companies for SEOA right and got to experience the vibrancy of what's happening in the AI world and I just felt like Seoia is a place that gives me the opportunity to stay engaged, partner with incredible people like my young man here next to me, Pat

and just be part of a generational shift both as Sequoia inside the building and outside the building when it comes to building tectonic technology companies that will stand the test of time and I get to be part of at across all different dimensions of this crazy environment we're living in.

I love it.

It's amazing.

So, you talk about this massive technology shift, which you know we can all agree on. Is part of your thesis of coming back and and judging from the the letter that you sent to the team. It felt like to me like some element of your approach is like, hey, a lot of stuff is changing in terms of technology and markets, but a lot of what you're trying to bring is kind of wisdom around maybe what isn't changing, which is human nature and leadership and how to work with people and how to get the most out of your teammates. Is that like part of your mindset at all in just coming in and and uh helping both portfolio companies and the, you know, the entire team at Sequoia just level up? Yeah. No, clearly I think that's that's a big part of my personal mission going forward. If if you read the letter that uh I sat down and wrote one evening to Pat and Alfred in the partnership and by the way I wrote that letter after looking at a lot of operating roles and talking to a lot of other venture capitalists and firms. Uh and I kept coming back to myself and saying why not Sequoia? Why not Sequoia? That was always my grounding point. when I was thinking about what to do next. Fast forward, I wrote that letter because I have a mission in life. A mission in life to give more than I get. A mission in life to not focus on success, but focus on significance and impact to others, including my partners, the partnership and founders. And now being in the industry for 38 years and having been here for six and spent 32 years in operating roles, I felt like I was uniquely positioned to bring wisdom, to bring advice, to bring coaching, to bring mentorship to younger founders, right, to help them achieve their personal professional goals. and the Sequoia platform and my incredible partners like Pat and Alfred and Andrew and the rest of the team here give me that opportunity to bring what I'm most interested and that is serving others to the table at a time that while yes technology is moving at a pace and rate that we've never experienced there's also a need to help people understand how to build scale grow lead inspire ire motivate others and that's something I'm super passionate about and my incredible partners here at Sequoia said hey this is a place for you to do all of that uh both inside and outside the building and and that's why I'm here and I couldn't be more excited about it guys

nowadays it feels like uh feels like and also in the data companies are growing faster than ever and you get you know what would have been maybe 10 years ago like five years of company building compressed down into two years when you're kind of mentoring uh CEOs or leadership teams you know in the portfolio how like what what advice are you giving them around that new dynamic which is that hey you might raise three rounds in a year you might be adding headcount at a at a much higher rate than you than you had to and meanwhile like again the technology is shifting at this insane exponential rate as well.

Yeah. So, it's a great question and I'd have Pat chime in because they're seeing this, you know, obviously every single day companies are raising around and one, two, three weeks later they're raising another round and then they're trying to figure out what the hell to do with that capital. Um, but let me go back and just share with you one of the principles that I've always focused on when it comes to business strategies. And I always have talked about speed as being one of the best business strategies ever. This is long before the current environment we're in. And I say that because I use a, if you will, a sports analogy. If Pat is faster than me, is operating or executing faster than me or running plays faster than me, it's hard to defend. Speed is a business strategy. And right now, we're in the midst of everything happening very, very quickly. So speed becomes more important. But you can't be sloppy. You can't do things in a wasteful way. You can't just spend unlimited capital because at some point that capital will have to be replenished and now have to come to people like us and others. So I think there's a dimension of how to leverage speed as a winning business strategy, but also be smart about how to do it and where you're spending those dollars. And I'll let Pat chime in and what they're seeing. I saw it today on some of the calls that Pat was leading uh across the partnership.

Yeah, I I think that's well put. Speed is, you know, one dimension of a vector. The other is direction. I think the other thing that's interesting right now, it's not just how quickly things are happening. It's how dynamic the entire market is. You know, our partner Constantine has this framework that there are some revolutions in computation and some revolutions in communication. A revolution in computation is about the way information is processed. A revolution in uhation is about the way information is distributed.

Cloud, mobile, internet, all of those are revolutions in communication. It was about the distribution of technology or of information. This is a revolution in computation. It's about the processing of of information

like

the result of that is that the raw ingredients that you have available to build your product change every day or at least every possibly every month, but they're changing fast, right?

And so you can be running like heck in a particular direction. If it turns out that that technology floor shifts underfoot, all of a sudden you got to change direction. And so I think one of the big sort of um things we have learned from the founders who are doing it best, the Daniel Nadlers and Winston Weinbergs of the world is that talent density matters so so so much. If you It's not about being bigger, it's about being better. It's about having the densest possible talent pool so that when the world shifts, you're not caught flatfooted. You go in the right direction.

Um

makes sense. It feels like an amazing time to join Sequoa. The technology industry is bigger than ever. Venture capital is bigger than ever. We're in an AI boom. But I'm wondering if you could turn back the clock for me and tell me what the vibe was like when you joined VMware because it feels like a very different time. And what was that like? You know,

was that?

Yeah.

2002, right?

Yeah. Wow. You're taking me way back. Yeah. I joined uh VMware uh in 2002.

Yeah.

Um

and when I joined I think there was a couple hundred people with probably 95% of them being engineers. I think it was a deeply technical company by great great founders out of Stanford and Diane, you know, the founding CEO, great people. And I remember joining, you know, this young little company, basically no revenue

and saying, "Hey, we're going to go change the world." Like every startup says, "We're going to change the world." And I remember Diane Green saying to me,

"We're going to virtualize these little x86 computers and the entire world's going to run on top of them." And I remember talking to Diane at the time. is you mean like mainframe partitioning lars that's where we do no we're going to do it on these little to boxes and I'm like well who's going to hell who the hell's going to do that right um and then I went home and I thought about it

and then I had to go quite honestly to my wife and say all right I just left working for a Bay Area company living in Pennsylvania computing I committed I wouldn't do that again I thought about this more and I said to myself wow if Diane in this incred incredible technical team can do what they say they're going to do and turn that slideware into software that virtualizes these servers and allows you to run multiple applications and operating systems simultaneously. I said to myself, if they can do that, the next thing I said is I can figure out a distribution strategy and I can sell that [ __ ] silly.

Yeah.

And the journey began there. The first year or two, no one was buying it. It's like all startups who go through that phase like wow you want me to take all of these 10 20 servers physical servers separated by physical computers and put them on one and if that server goes down then everything goes down and I'm like yeah that's what you should do. Yeah, it didn't go real well at the beginning, but then we'd hit an inflection. And then once we hit an inflection with this technology at the time that they brought to market was called Votion, which would actually allow you to take a live running virtual machine and move it across physical servers without the application ever going down. So now you had some redundancy and backup. And when we started to show people that first they're like wait this isn't really working. So we had to unplug cables to show things were actually working and then it inflected and um quite frankly one of the greatest you know professional journeys of my life being there 14 years a couple hundred people to 20,000.

Yeah.

And and I was so blessed to be there because I got to do so many different roles in the company. I was never CEO. Uh I was always I guess number two guy at the time uh across three great CEOs between Diane Paul Mitch and Pat Gell Singer and uh

got to be a CFO for a while of a public company. Got to help run product when our CTOs left. It was just an incredible journey. It gave me a view into a startup

and it gave me a view of how to scale companies and it really helped me get a deep understanding of how to build global operations and build them at scale at the enterprise level.

Yeah. And um

why did you what what made you push through that one to two years where you felt kind of silly even selling the product

just given that that uh there wasn't it didn't feel like you weren't feeling that pull from the market eventually you got the breakthrough with votion but

what was the signal that made you keep just running down

opportunities? Great question. Um very simply the engineering talent at the time and if you look at now the industry is proliferated with incredible talent from VMware it's everywhere from CEOs to head of sales to head of engineer it's everywhere um what gave me the conviction and belief to keep pushing through is whatever that engineering team said the product would do it would do. And I kept saying, I remember at the time telling people, right, we moved from forecasting numbers or revenue or bookings to forecasting literally our forecast calls was how many proof of concepts have we started because if someone tested it, it worked.

It literally worked and we were having

So the market was like, we don't believe you and you just had to sh you just had to actually convince them to let you show them.

Yeah. Well said. I had passion, I believe, I had conviction and I witnessed the technology working as advertised. A lot of times it doesn't in startups and it takes a while to get there. And I knew it was not if I knew it was when the market would tip and come our way. And then when it tipped and it inflected it, it took off uh very quickly. And then we started to see all this competitive pressures come in with open source technologies like KVM uh you know OpenStack um HyperB by Microsoft but we just stayed focused we stayed convicted uh about the technology and uh and we proved it time and time again to anyone who tested it was an incredible journey and I'm so grateful for that 14 15 years.

Amazing.

Yes. It's such a such a wild ride. I mean, you've at various points been working at organizations with a hundred people up to 20,000. Do you feel like you have a good calibration on when you're talking to a founder or an executive just asking yourself the question, can you see this person thriving in an organization that's three orders of magnitude bigger? I don't even know if that's a relevant question anymore for a venture capitalist to be asking, but I'm I'm curious if you feel like there is a set of patterns that you've discovered or a set of skills that are on display from younger, more upandcoming executives and founders that sets them up for success at massive scale. Yeah, I think I I can identify patterns and I have enough experience for the six years that I was here with Pat and the team learning from them about what to look for in a founder uh and whether or not they can scale.

Yeah.

Uh one of the things I absolutely look for is self-awareness in founders

and are they honest about what they're good at? Because a lot of these founders quite frankly are just incredibly intelligent human beings and sometimes they think they can do everything when in fact they can do everything but not great and they have something they're really good at and do they have self-awareness to say but I need to go get the other people as part of the company to help me scale so I can focus on what I'm really good at. um do they have the ability to know when to turn things over to others um is critically important and I've seen that happen time and time again. Um and then the other things quite frankly that I personally look for I'm sure Pat I heard Pat talk about this this morning. There are attributes and characteristics of people that I look for that are way beyond the intelligence side of the equation. You can't teach grit. You can't treat strive. You can't teach a great attitude. You can't teach determination, right? All of those are things that are innate and part of people. And you want to see that in these founders. And when you find someone who has that passion, drive, desire, relentless ability to fight through challenges, issues, and opportunities, and then they have the intellectual horsepower on the other side. When that comes together, that's a beautiful thing. I

actually reminded the first time I I don't know Carl reme this. First time I met Carl was 2010

and it was Doug Leone, Fred Luddy, who's the founder of Service Now and I went to visit Carl to get some advice on scaling Service Now. And uh I was probably in my I was in my late 20s. Carl's in his early 40s, still in his late 20s. Look how young this guy.

And it bothers the hell out of me, guys. How good, how young, how smart, helping run one of the most iconic, you know, partnerships in the world. And here I sit turning 60 this year. pisses me off every time.

But so I I have like pages of copious handwritten notes from this meeting, which I'm sure exists somewhere around here. But the the oneliner that stuck in my brain, which is very consistent with what Carl was just saying, was attitude determines altitude and will determines skill. And I always think about that and we kind of morphed that into the expression attitude is the ultimate input. And I think when you see these founders,

I'd also kind of use the Ray Deio line, you know, pain plus reflection equals progress. When you see these founders who are willing to take a risk and experience the associated pain and then reflect very honestly on what happened and what they can do better next time, progress is inevitable.

And so I'd almost say there's this and like you have to have the right attitude to put yourself in that position. But if you're willing to take risk and experience a little bit of pain and then if you're willing to be intellectually honest with yourself and self-aware and sort of clinically diagnose what you can do better next time, like those founders are just going to keep cranking.

Yeah, really well said.

Introspection.

Yeah, taking aside taking a side on the introspection gate.

I was going to try and te something up, but you really delivered. uh talk to talk to us about uh both of your agreements or disagreements maybe. I'm sure you've been debating the future of enterprise software, the future of what's going on the SAS apocalypse, public companies, like just the nature of business changing? What is what remains true now that hasn't changed and won't change for decades versus what maybe has changed in the last few years and needs an update in terms of how people think about how businesses grow, how businesses flourish uh in when they're working in the technology industry. Yeah, I'll let pass and then I'll I'll give you my perspective because I've answered this question about 17 million times in the last three and a half years at work and I have a different perspective than probably most.

Yes.

Um, so you know, it's funny the first thing that comes to mind is a line that uh I learned from a man named Carl Echinbach. Okay,

who who was a partner at Sequoia from 2016 to 2022.

And um the line is people do business with people. M

and I think there's a there's an there's a foundation model maximalist point of view that the labs themselves are going to do every everything in every nook and cranny of the economy.

Yeah.

And I just have a hard time imagining that version of the future coming to fruition because people do business with people.

Yeah. And I think that between a job to be done and the raw capabilities of a model, there's a lot that needs to happen to like shape it into the path of least resistance for you to travel down as a user. Yeah.

To get to the right answer with the least amount of paint. And there's probably a person in between who's going to do that work. And as a customer, you want to do business with that person.

And so I think people do business with people is going to remain true. the shape that that takes in terms of what the businesses are is probably going to change. I think in the world of software, you know, the first wave on the the on-prem to cloud transition was this transitioning of systems of record. You know, the workdays and salesforces and service nows of the world. The second layer on top of that was the systems of engagement. You know, those systems of record might own the core database, but then there are a bunch of different workflow applications that reside on top. I think what we're going to see with this um the wave of AI software is this third layer on top of those which some people call system of intelligence. I don't want to call it that. It's the layer that does the work. You know, it's the it's the agents getting deployed that may or may not need those workflows beneath them, but certainly need access to everything that's sitting in that system of record.

I think that's what we're going to see. And as a result, I think those system of record companies are relatively safe. They may not catch a lot of net new workloads because a lot of the net new workloads might go to the AI native companies, but I think they're overall pretty safe. I think some of those workflow based companies in the middle are in trouble because they're neither the system of record nor the agenic capability that's getting deployed. And so they'll have to figure out how to become like that agent harness so to speak for whatever job needs to be done. And then I think those AI native companies on top the the basic thing they need to achieve is figure out the context of this organization. Figure out the guardrails. Come up with some sort of an eval framework some come up with some sort of a value function. Basically wrap all the context around the capabilities of the foundation model to achieve the outcome that the business person wants. And so I think there's a very important job to be done for those that new layer of companies. And um and again, people want to do business with people. Like there's a lot of value in, you know, having somebody you trust take your hand and lead you into the AI future.

Yeah. Yeah. I love it.

So So first of all, it's the first time I heard someone else ask this question to someone else other than me and

and then use you.

Actually, it's so funny. I was sitting here thinking I am going to respond, but you're going to hear something very similar from me.

Sure.

I'll start in kind of reverse order. I do think there is power to use Pat's exact analogy of a system of record, a system of action, a system of engagement and I will use system of intelligence because I think if you have the bottom three and you can layer on an agentic or agent strategy and you back that up with the data, the context of the data and you own the business process workflow, you're in a unique unique position to have a great enterprise AI software company that stands the test of time.

I don't think we're in a world where does AI win or do the incumbent SAS companies win. I think we're in a world of and

I think some people are the beneficiaries of AI like a workday like a Salesforce and then others maybe have more headwind because they can be disintermediated because there's AI and you don't need access to all that data. I personally believe all of the challenges with software companies at scale and what's happening in the stock market are completely overblown. I've been saying that repeatedly. they're not going anywhere.

Incumbency is incredibly powerful in the enterprise.

Incumbency is even more powerful when a company like Workday, who I was blessed to be there for over three years, has a 98% gross retention rate of 11,000 customers, 65 plus percent of them being Fortune 500 companies.

Yeah.

Not going anywhere. And the other thing we can't forget is why I say and is because what matters in the enterprise is scale, security, and compliance. And some of these big SAS companies have that. That all being said, the pace and rate of change that can happen outside of the big incumbents and big SAS companies who are innovating like crazy, we're innovating at workday like I've never seen have an opportunity to start completely fresh, can start from scratch, get to leverage all the technologies and all the models that are out there and build agents and agentic solutions faster than anyone else. and they're going to be able to go in the enterprise and provide value day one either on their own or on top of and through some of these SAS companies. So I think it's an and opportunity that's going to happen in the enterprise in the market as a whole. There's going to be some winners, there's going to be some losers, but I think the current narrative out there of these SAS companies being overblown or being in trouble is completely overblown. And obviously I'm biased. I think workgate stands in a very unique position to completely uh you know continue to crush the ERP market both on the HR and finance side and I couldn't be more bullish on the opportunity ahead but at the same time I'm super excited watching these young talented people now that we get to invest in and how quick they can iterate iterate leveraging AI and just completely disrupt markets legacy markets that don't have all of the data don't have the context and don't not have the workflows.

What advice would you give to a Fortune 500 CEO that maybe is an incumbent that's thinking about buying versus building these Agentic products?

I tell them to do both.

I think if you have all the data and you have the context of the data and you can build a great engineering team, right, that comes with an AI background, build as much as of it you can at the same time. Go do acquires. Go buy technology companies that are completely AI native from the beginning and bring them into your organization. I wouldn't say do one or the other. It's both.

You know, at workday in the last six months I was there, we bought four AI companies and they become part of the core fabric of the company that Neil and Garrett and the leadership team there get to take advantage of. At the same time, they bring in their talent on their own as they build out their organization. So I don't say think you say it's it's one or the other. You have to do both.

I think it's also one of these classic questions of what do you want your best people focused on?

You know, do you want your best people building the same sort of stuff you can get out of the box from somebody else who spends all day long thinking about that thing

or do you want your best people creating competitive advantage for your company? Like I think if you're a Fortune 500 company right now, kind of a no-brainer to go with Harvey for everything related to legal. kind of a no-brainer to go with Sierra for everything related to customer support. You know, you should probably try something like Expo to work on pin testing. Like, these are excellent companies with excellent people who spend all day obsessing over a particular problem. Why take your best engineers and ask them to go do that? Go do something that's going to be unique to you.

Okay, last question.

Pat, by the way, Pat makes a great point. Having spent a lot of time with CEOs of Fortune 500s around the world, there's this whole narrative, we're going to do it oursel. We're going to build our own agents and they will do some of that. But why? If you can go to a Harvey, right, get what they've already built and leverage it and very quickly get a return on that investment. So there's a time cost to value equation here for the enterprise. Go with that solution and let them go focus on financials or insurance or retail or whatever CPG, you know, let them focus on what their core business is. Why build that technology if someone could do it much faster outside the company? Okay, last question for Carl. Few years ago, you were spotted at the Allen and Company conference sporting two coffee cups. You have an incredible amount of energy. Are you a two coffee in the morning guy or were you bringing an extra coffee for a friend?

Well, it the answer I hate to use the term again, but both.

Okay.

I was bringing coffee. I was bringing a a coffee back to the room for my amazing wife of 35 years, Hannah. Uh and and

yeah, and and I used to drink probably 8 to 10 to 12 cups of coffee a day.

There we go.

Wow.

That's all I have all day.

That's amazing.

And that's all I have all day until I get to dinner. When I eat dinner, it's my one meal a day.

That's fantastic. Wow. Incredible amount of energy. Well, it's clearly working. Thank you so much for taking the time to come chat with us.

It's so good to see you guys both back together.

Yes.

No, thank you. And I I just want to say, listen, I I just want to thank Pat.

Yeah.

I want to thank Alfred. I want to thank the entire partnership here at Sequoia for allowing me to join them and serve alongside them.

Yeah.

Our our our partners, our customers.

Yeah.

Uh our companies were investing in our founders. It's a true honor to be back. I'm super excited about the journey ahead and uh I think you know Sequoia is uniquely positioned to continue to be one of the most iconic uh missionoriented venture firms of all time and I'm proud to be back part of it.

Yeah, we're we're excited for you. Thank you so much.

Incredible stuff.

We will talk to you soon.

See you guys.

Have a good rest of your day. Goodbye. Let me tell you about

10 to 12 coffees a day.

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