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THE FIRSTVCVCLPVCAIAIMGXAIVCVCLPVCVCVCYVCYour browser does not support the element. thing that catches your eye when you enter the poshly serene headquarters of Sequoia Capital on Sand Hill Road in Menlo Park, California, is a metre-wide cross-section of what appears to be a redwood. On closer inspection it turns out to have been a tree in the past—38m years ago, according to a plaque on the back. Now it is solid stone. A gift from Roelof Botha, the venture-capital () firm’s current boss, and his wife, it reminds employees and guests of the durability of the organisation they are visiting, which has existed since 1972. In the accelerated time of Silicon Valley, that is aeons.Sequoia is not just perennial but hardy, too. In contrast to some other old growths like Kleiner Perkins, whose reputation for spotting the next hot startup has wilted in the past decade, it has managed to thrive more or less continuously for half a century. Over the years it has made its limited partners (s, as firms’ outside investors are known) and its own rainmakers (who pocket around a quarter of gains plus a management fee of a couple of percent of a fund’s assets) a total of over $70bn, thanks to early bets on future tech darlings including Airbnb, Apple, Google and Nvidia. Of that, $43bn has been disbursed since 2019.Alfred Lin, who co-led Sequoia’s investments in Open, the world’s leading builder of cutting-edge artificial-intelligence () models, topped this year’s Midas ranking of the world’s 100 most successful venture dealmakers, compiled by magazine. Mr Botha came 11th. Another three Sequoia employees made the list.Mr Botha puts things in Darwinian terms, paraphrasing the father of evolutionary science: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most responsive to change.” For Sequoia, responding to change has included hatching a “growth fund” to bankroll larger startups that would once have gone public (in 1999), expanding into China (in 2005) and India (a year later), and creating a hedge fund (in 2009) and a wealth-management arm (in 2010).Lately, as geopolitical rifts have made investments in Asia trickier and deep-pocketed “tourists”, first from New York and Tokyo, then from Riyadh and Abu Dhabi, have stiffened competition for growth deals, adapting has meant once again going after more earlier-stage businesses at home and in Europe. Two years ago Sequoia launched its Arc programme for young startups. In 2023 it parted ways with its Chinese and Indian units.This seems like a sound idea in principle: why endure cross-border headaches, or compete with spendthrift foreigners like SoftBank of Japan or of the United Arab Emirates as they bid up valuations of today’s sexy startups, when ferreting out tomorrow’s stars at home offers potentially higher returns? The niggle is that both Sequoia and the ground beneath it have changed in a way that makes returning to its roots difficult.For one thing, the landscape has become much more crowded. PitchBook, a data-provider, counted 3,417 conventional firms active in America last year, up from fewer than 1,000 in the mid-2000s when Mr Botha got into the business. Last year they managed $1.2trn-worth of assets, compared with $150bn 20 years ago. The value of new deals in the first nine months of this year exceeded $130bn. That pales beside $352bn in all of 2021, a white-hot year for startups, but is nearly twice the figure for 2014.At the same time, as Mr Botha acknowledges, “The number of smart founders is not a function of the amount of money available.” With lots more cash chasing roughly the same supply of startup talent, industry-wide returns have duly disappointed. According to Cambridge Associates, an investment firm, the s of American firms have made compound annual returns of 1.45% in the past three years, compared with 41% in the three years before and less than the 8% they could have earned in public markets. As one veteran sums up with astonishing candour, “You would be better off investing in Microsoft or Meta.” (Sequoia is tightlipped about its funds’ recent performance, though to judge by its five Midases it is likely to be above average.)As with other old growths of Sand Hill Road, Sequoia is also contending with smaller “seed” investors, often ex-entrepreneurs, getting between old-school s and the next generation of founders. These newcomers are closer to the young entrepreneurs in age, inhabit the same WhatsApp groups and offer counsel on negotiating with the Sequoias, having been through it themselves. The phenomenon dates back to the creation of Combinator, a startup kindergarten, in 2005. But it is not letting up. On November 26th the , a tech publication, reported that a young former startup manager turned partner at Andreessen Horowitz, Sequoia’s rival, was leaving to start her own $50m seed fund.Sequoia has no plans to cede what Mr Botha calls its “unfair advantage”: a respected brand name, a strong network and sophisticated data analytics. It is beefing up Arc, its startup school, and maintains a “scout” scheme, lending asset-rich, cash-poor founders money to invest and sharing the upside. In 2023 it backed five startups as they were still incorporating. It is also marketing itself more intensely. Partners speak at conferences and appear on podcasts, two of which the firm has launched in the past couple of years. It offers startups help with sales, recruiting and the like.This costs money. More important, it takes up time that could be spent actively seeking out fresh prospects. It has led Sequoia, too, to expand. Collective decision-making, on which it prides itself, is necessarily less nimble with 25 investment staff than it was with a dozen two decades ago. In the fast-paced business that can be a handicap. Time and again Sequoia has proved its sturdiness. It still has its work cut out if it is not to turn into a fossil. ■
