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Summary:

With all the fuss surrounding the recent “AngelGate” meetings, it’s instructive to listen to one of the legends of the VC business — Sequoia founder Don Valentine — talk about the approach and the thinking that led to his investments in companies like Apple, Cisco, Google and Yahoo.

don valentine screenshot

With all the fuss surrounding the recent “AngelGate” meetings and the tension between angels and super-angels and traditional venture funds, it’s instructive to listen to one of the legends of the Silicon Valley VC business — Sequoia Capital founder Don Valentine — talk about the approach and the thinking that led to his investments in companies like Apple, Cisco, Google, Yahoo and Zappos. In the video embedded below, he talks to a group of students at the Stanford University Graduate School of Business about what matters and what doesn’t.

Valentine says that many people assume that Sequoia has been so successful because the fund backs “the best and brightest, the greatest managers and all that stuff [but] we do not.” The only thing that really matters, he says, is the market.

“We have always focused on the market — the size of the market, the dynamics of the market, the nature of the competition — because our objective always was to build big companies. If you don’t attack a big market, it’s highly unlikely you’re ever going to build a big company.”

As a result, the Sequoia founder says that the fund isn’t really interested in where an entrepreneur went to school, or whether they have any actual business credentials — all Sequoia is interested in is the size of the potential market they are trying to attack, and the potential value of the problem that they are trying to solve.

“We don’t spend a lot of time wondering about where people went to school, how smart they are and all the rest of that. We’re interested in their idea about the market they’re after, the magnitude of the problem they’re solving, and what can happen if the combination of Sequoia and the individuals are correct.”

In some cases — as with Apple — an idea about the potential market can lead to multiple investments in all of the various players in that ecosystem, Valentine says. Apple “had in mind the idea of you all having your own computer,” he tells the graduate class at Stanford, and the implications of that involved the need for memory makers and disk-drive companies and manufacturers of all of the other parts that were needed for personal computers. So Sequoia wound up investing in more than 15 companies in the PC category, including game-maker Electronic Arts, which was created in the Sequoia office.

The Sequoia founder also says that he had an advantage over some other VCs because he “could see the future,” meaning he understood the transformation that personal computers and microprocessors were going to unleash because he worked at Fairchild Semiconductor and co-founded National Semiconductor. For Valentine’s thoughts on Steve Jobs’ marketing abilities, the failure of Sony and Xerox (which he calls “one of my favorite tragedies”), the importance of storytelling and the launch of Cisco, please see the full video embedded here or at YouTube.

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  1. He conveniently forgets to mention that Sequoia tried hard to get its money out of Google in 1999.

    1. He may not have mentioned that, but I don’t think it changes the points he was trying to make all that much. Thanks for the comment though.

  2. I’ve personally heard at least one other Sequoia partner the exact opposite: invest in team first, then market. Often a start-up’s focus or business model change in the first year or two. If the VC were truly investing in the market first they would be unlikely to give the founders such leeway.

    1. Ah AJ do you know the difference between the market (opportunity) and a business model?

  3. I dont think any VC including Don knows anything. It is a simple game of chance/dice. Roll the dice and 1 in 10 investments will be big. This is a well researched and documented topic at Stanford and Harvard business schools as well as other schools. So don’t listen to his BS, he is just saying stuff to make himself look smart.

    1. Well well Boscoe, I don’t see you rolling any dice so you’re certainly not helping to progress the world forward. If we didn’t have any dice rollers then where would we be? Anyway, you’re clearly an idiot to say that any VC including Don knows nothing (are you one of those all-or-none simpletons)? As this article reflects, Don did have some knowledge about the direction the world was heading due to his work at Fairchild and there is something to be said about people who can pick up on trends and then roll dice on the trend line. Btw I don’t see you taking any risks to change the world by rolling dice. If it were not for Sequoia and their co-investors along with the vision of Jibs I wouldn’t be typing this reply on an iPad in a cafe. Please make your comments more productive (it’s quite clear that you and fellow commentor AJ have some sour grapes – air your dirty laundry somewhere else).

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