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    Special: Sequoia Capital's Investment Playbook (with Alfred Lin)

    enFebruary 01, 2021

    Podcast Summary

    • How Sequoia Capital and MITIMCo partnership creates legendary companies.Successful investing requires a prepared mind, exceptional talent, and uncompromising integrity. Partnering with experienced investors can help bring the weight of collective expertise and resources to the table.

      Sequoia Capital has a history of investing in companies that went on to be worth over $3.3 trillion. The internal playbook for creating their famous prepared mind to evaluate opportunities is a team effort and works because of the partnership that brings the weight of Sequoia to the table and helps those companies become legendary companies. MITIMCo partners with leading investors who have built competitive advantages and have a combination of both exceptional investment talent and the uncompromising integrity required to be stewards of MIT's resources.

    • Finding Success in Venture Capital InvestingTo succeed in venture capital investing, investors must have a prepared mind and be willing to think outside the box. Due diligence involves understanding the market landscape, founders' approach, and their operational abilities. Proactive and introverted partners can thrive in this business.

      A great founding team finds a great market, a wedge into that market, or something wrong with the market that they can fix. To work with them, investors need to have a prepared mind for what the market can become and be willing to think outside the box. Ideas can come from structured thinking, random reading, or conversations with founders and partners. Proactive and introverted partners can succeed in this business. Doing due diligence involves understanding the market landscape, differentiating factors of the founders' approach, and their operational abilities. Sequoia's success comes from their partnership model, where partners can be both structured and ecosystem-focused to come up with new ideas.

    • How to Build a Successful Startup according to SequoiaA successful startup needs to solve a specific problem, have good timing, and a clear vision. Aim to enter a market with a superior product or strategy, avoid head-on competition, and gradually move up for higher-margin markets. Get early investment and partner with reliable founders to become a crucial player in the future.

      Successful startups need to have a specific problem that the company is solving, good timing, and a clear vision of what the company will become in 10 years. Startups should aim to enter a market with a superior product or strategy that differentiates them from current trends. It's important for startups to have air cover and avoid head-on competition with larger competitors in the beginning, and instead focus on low-margin opportunities to build expertise and gradually move up for higher-margin markets. Sequoia invests early and partners with founders at the idea and seed stage to understand and paint a picture of the world, constantly assessing whether the company can become an important player in the industry in the future.

    • Investing with a Prepared Mind for Global Network EffectsConsidering conceptual possibilities and non-obvious markets for early-stage businesses can lead to scalable growth, while investing in hard assets like art can hedge against inflation and offer fractional investment opportunities.

      Investors should have a prepared mind and foresee the potential for global network effects in early-stage businesses. The concept of a marketplace has been around, but having a prepared mind allows investors to think conceptually into the future. Market size is a crucial consideration for venture capitalists, but going after non-obvious markets can lead to scalable growth opportunities without intense competition. For travel business like Airbnb, winning the supply is the key to getting all the demand and achieving a global network effect that would drive growth. Smart investors are moving towards hard money assets like art to hedge against inflation, with platforms like Masterworks.io allowing fractional investment in paintings by artists like Banksy and Monet.

    • Factors to consider when evaluating a market for business successIt's crucial to focus on the potential for future growth, understand industry trends, and connect the present with the future vision when pitching a business. Nuances like gross margin dollars and volume are just as relevant as gross margin percentages.

      When evaluating a market, it's important to consider not only its current size, but its potential for growth in the future. Understanding the trends that are driving the industry and how they may evolve is crucial. When pitching a business, founders should focus on painting a clear picture of their vision for the future, the realities of today, and how they will connect the two. While market size and gross margins are important factors to consider, it's important to also consider the nuance of how those factors play out in different industries and business models. High gross margin dollars can be just as valuable as high gross margin percentages, and low gross margin businesses can still succeed with high volume and repeatability.

    • The Importance of Unit Economics in Business and Sequoia's Investment StrategyBusinesses must prioritize generating profits for long-term success and winners in the market receive the most profits. Sequoia seeks out promising companies at the seed stage and adapts successful business models from other geographies for investment opportunities.

      Unit economics is important for any business because in the long run, a company has to generate profits to be valued highly. Winners in the market get a disproportionate amount of profits. More capital means winners get more money and can extend payback periods. Sequoia aims to identify important companies of tomorrow at the seed stage but acknowledges that they may miss some and invest later. Insights and learnings from different geographies influence their thinking back in the US as talent is evenly distributed and opportunity is not. A winning business model in one geography may work in another even if it needs modification.

    • Sequoia's Global Vision with Local Action for Long-Term SuccessSequoia's focus on helping founders build long-lasting companies, learning from global trends, and prioritizing safety during challenges like the pandemic, makes them a valuable partner in achieving long-term success.

      Sequoia thinks globally but acts locally, focusing on helping founders reach their full potential and bringing their future vision to reality. The company values long-term prospects over short-term gains and aims to pick the right founders who want to build long-lasting companies. They maintain a lightweight communication network, allowing each group and geo to make their own investment decisions. Sequoia also learns from global trends and market successes, like DoorDash and Meituan, while adapting to challenges, such as the pandemic. They prioritize keeping restaurants open and ensuring the safety of drivers and customers during contactless delivery. Sequoia's small team size provides an opportunity to partner with founders and help them achieve their goals. The focus on compounding and exponential projections helps them understand long-term prospects for success.

    • The Importance of Learning from Mistakes and Successes in BusinessTo succeed in business, you need to be a constant learner with a high level of IQ, EQ, and hustle. Setting the right culture from the start and creating an environment for continuous improvement is key.

      In the business world, compounding is a hard thing to reverse. Early years of compounding may look very linear and it's almost always more obvious after the fact that you're in a compounding situation. Learning from mistakes and successes is important for building an enduring institution. To be successful in this industry, you need high IQ, EQ, and hustle, and you have to be a constant learning machine. You have to think about every single day what you can improve for the next day. Being both a skeptic about what's going to go wrong and having imagination for what can go right is necessary for success. The secret sauce is setting the right culture from the start and creating an environment where people can stand on the shoulder of giants to make continuous improvements.

    • The Realities of Venture Capital and How to SucceedVenture capital is unpredictable, but focusing on enduring qualities, having a strategic business plan, and building a sustainable business model are essential for success. Founders can reach out to Sequoia Capital for opportunities and resources to deepen their involvement in company-building topics.

      Venture capital is a humbling business where you can make money even if you get the investment thesis wrong and lose money even if you get it right. High IQ, EQ, and hustle are desirable qualities for venture capitalists, but there are no real requirements for the job. It takes a long time to figure out if you are good at this business. Focus on enduring qualities, have a strategic business plan, and build a sustainable business model. Founders can reach out to Sequoia Capital by emailing lin@sequoiacap.com. Acquired offers a library of over 50 interviews and deep dives on company-building topics, monthly Zoom calls, and other benefits for limited partners who want a deeper involvement in Acquired's work.

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