Transcript
0:00 Roloff Boa is one of Silicon Valley's most influential investors, having been with Sequoia Capital since 2003. He's helped shape companies like YouTube, Square, and Instagram, guiding founders through the highs and lows of innovation. As Sequoia reimagines venture capital for a global era, both perspective captures how discipline and ambition can coexist in a changing market.
0:38 Roloff, thank you so much for coming to the East Coast to do this with us today. >> Thank you, Don. Thank you for having me. >> So, we have a lot to get to from AI to Sequoia investments, but you made some news a couple weeks ago. You've been the steward, which is the the term Sequoia uses for basically people in charge. for several years now alone before that you were doing it with Doug Leone. you've been doing it for several years, but two weeks ago you stepped down from that role. turning it over to Alfred Lee and Patrady. What happened?
1:05 >> So, there are a few things we know how to do well at Sequoa. one of them is to make great investments and the other one is transitioning leadership which we've done many times before. I joined Sequoia 23 years ago and I wanted to learn from the best from Mike Merittz, Douglone and Jim Gats. ended up helping us lead investments in YouTube, Instagram, Square, MongoDB, Unity and a couple of other companies. And then in 2017, so just more than eight years ago, the partnership elected me to become the steward or the managing partner of the the US and Europe business. And at that point, my focus shifted to overall team and investment performance. and in the time that I was steward, we distributed over $50 billion to our investors and we saw the IPOs of Airbnb, Door Dash, Snowflake, Zoom, Robin Hood, Unity, New Bank, pending acquisition of Wiz to name a few. But the thing that I'm most proud of in that time honestly is the team that we've been able to assemble. So when I look at the quality of the bench that we have at Sequoia, we have Andrew and Constantine and Sonia and Stephanie and Bogamal, Sha and Luchana. We just have a firepower team. And when I became Stuart, the most important thing was to think long term, to think about how to leave Sequoa in a better place than I founded. And with that in mind, I always had a view on who the next generation of leaders would be. And Alfred and Pat are both exceptional investors. And people outside may not know this, but they've been co-leading the early and the growth teams for Sequoia for many many years.
2:38 And this is their time. >> Why? Why? Why now? Why is this their time as opposed to two years from now? >> That's part of the secret we have at Sequoia. We've done this successfully over time. we want to make these changes very quickly. I think there's a concept which I love is interregnum, which is when you have a period in between administrations and that's when organizations suffer stasis. No decisions get made. And so if you go back in our history, we've typically done this very quickly and to many people it may seem as a surprise, but internally surpris. But internally, but that's always been the case internally it is deliberate.
3:11 >> Let let me ask, as you know, there's been lots of buzz, lots of speculation that part of this particular transition was be was prompted by or at least maybe accelerated because of some internal controversy at Sequoia related to some things one of your partners had tweeted about the mayor elect here in New York City. Did that internal, whether you want to call it strife or conversations or disagreements, did that have any impact on your decision?
3:33 >> No. >> No impact on your decision. How how do you I I know you won't quote talk about personnel decisions except for this one apparently. But you know, how do you There's been a lot of talk your COO stepped down over the summer in part because of some of those tweets or at least she hasn't denied that that's why it was. How do you balance what you talk about the the freedom of expression of your partners and for your for your colleagues to be able to say what they want to say about what they want to say balance that with the discomfort or the potential of losing talent within the firm? How do how do you balance that?
4:04 >> That's the challenge of management is to balance trade-offs. Every decision involves a costbenefit analysis. >> Is there but is I mean does that mean there are limits on the freedom of expression of partners? You say cost benefit. Is there a limit on those sides? I think in any of these situations, you know, there is a point at which free speech becomes hate speech. And I think that is clearly a threshold around decorum and decency that is an important boundary that one needs to set with how you respect free speech.
4:30 >> All right, let's move on to lighter subjects. wi-i which is AI. You guys are obviously investing in it. Every venture capital firm is. I don't think there's been a VC deal in the past year that somehow isn't an AI powered something. >> Not sure about that. >> You got one really? Is there one that that's not pretending at least to be an AI in there? Oh, we just invested in a company called Flow Engineering that's building a requirement requirements management system for hardware development.
4:52 >> We've invested in >> I can guarantee that press release says AI in it somewhere. >> I'm not saying it's real. I'm saying we have international we have a company called Apora that provides international remittances using stable coin as an infrastructure for non-resident Indians. >> Okay. I bet theirs does too. I I haven't seen them. I don't know. Well, so let me ask the big picture here, which is where are you on the spectrum? Are we are we is the AI hype cycle legitimate or is this a bubble?
5:21 >> So I think the bubble is a porative term in what I think is one of the most tectonic changes for society in terms of how we can harness this technology and there's an interesting book that I read recently that talks about how these sort of periods end up concentrating enormous amounts of capital and minds on opportunities that can be transformative. And I think AI is right up there. When I I look at the sort of companies we're able to see walking through the doors at Sequoia, they touch industries that to me were hard to conceive as being impacted by technology and being upended by technology that in the way that you're seeing right now.
5:54 >> Is this is this the biggest tech shift or tech I don't want to call it an innovation but whatever however you want to say tech C shift of your career. >> Absolutely. And I you know I was in Silicon Valley in 98.99. I saw what happened with the dotcom era. I saw what happened with mobile. Saw what happened with cloud computing. This surpasses all of them and more. >> Why? >> I think there are so many industries in America that have oified. there's this index, it's called HHI, the Herendel Hershman index, which measures the relative concentration of industries and research by the Reserve Bank or the Fed Reserve actually shows that in 70 more than 75% of industries in America have become more concentrated over the last 20 years. In most cases they've increased concentration by 90%. So you have so many industries that are relatively oified and ripe for disruption. And AI isn't just a new distrib distribution mechanism or a new interface. It is fundamentally a set of capabilities that can upend industries.
6:50 And we're seeing that in cyber security in customer support in the legal profession in finance just industry after industry where an entrepreneur walks in and they've encountered a problem and they describe what they're going to do. I just go, "Wow, I hadn't thought of that." >> Do you I'm wondering when you think about kind of this circularity argument, right, where where you've got an LLM which does a deal with a with a cloud provider and also with a chipmaker and also maybe with an energy provider to the data. Do you have any concern?
7:19 You know, you said bubble's a porative, which it is because it suggests the whole thing can pop and and everyone gets it on their face. Is there do you feel that there's a bigger risk to it right now because you do have all this interconnectivity? If one company fails, it's not just a loan. They there's kind of this series of dominoes which is almost being structurally created. >> Well, the two things when I think about many of the other bubbles that we've encountered and I don't think it applies here. I think this is far more constructive than it is a bubble.
7:46 they're often debt fueled and most of these companies are spending money that's on their balance sheet. This is existing cash that's being used. So you don't have the same leverage impact and then deleveraging impact that you may have had in other situations. The other thing I'd say from all the evidence that we have is that the majority of cycles being used right now are going towards inference rather than training. >> And so I'd say two years ago when I heard these arguments I were more I was much more sympathetic towards it because when it was training it wasn't obvious that it was actually solving customer problems. That's changed and unlike what happened in the com era where people were building infrastructure that layow often until 20056 when web 2.0 took off.
8:27 In this case, every spare cycle is being used. There's no spare capacity. >> Well, guess one of the other differences between now and 2000 is that the legacy companies back in 2000 998 2000, they were kind of caught with their pants down, including some of the legacy tech companies, right? And and and for an investor, for and I know you weren't quite at Sequoa yet, but for venture capitalists, they were able to capitalize on that, right? Because the startups were doing stuff and nobody were either not paying attention or weren't giving enough credence to what was going on until they got surpassed.
8:56 That's different this time. The the big legacy tech companies, the Googles, the Meadows, etc., they're paying a lot of attention, spending a lot of money. As a VC, how do you think about that when there's a startup opportunity? The whole why won't Google do it? Lately, it seems that Google's been saying, "Yeah, we'll do that." >> That's always the risk. And I remember when I joined Soqua Capital, Michael Moritz had this great phrase that yes, there are elephants in the industry, the big incumbents, but they're more likely to trample on you by accident than on purpose. And I think we're always looking for companies that have a keen insight and an ability to focus in the way that the big companies cannot. I'd say the other difference by the way this time is AI has become a board level issue for Fortune 500 companies, >> right?
9:35 >> And so I think bigger companies are able to take advantage of this technology in a way that I don't think they were geared up in mobile cloud or in the internet. It doesn't mean they'll always get it right and it doesn't mean that there aren't enormous opportunities for us as venture investors. Have you do you feel there's a difference in mentality maybe is the word among some of the call it the AI cohort or founder cohort in the following sense often when you've had successful companies successful startups founders don't want to sell too early they don't want to leave you know they're going to ride this thing whether it be into the public markets or you know run it for the next 30 years we've seen over the past two years not only a bunch of people sell quickly we've seen a bunch of these big aqua hires and I appreciate you know meta is throwing huge money etc but but it's coming again founders partners in the past often wouldn't leave. You're seeing a bunch of them leave now. I wonder as a VC, are you concerned at all when you invest or you see your partners invest in these things? It's almost like you you guys don't put keyman provisions in these deals, but it almost feels like you should be right now.
10:32 >> What do you get though if you have a key? >> Well, you the person doesn't quit for a better doesn't quit because someone just laid a bag of money in front of them. >> Yeah. >> Because that because you guys always say you're investing in people. Well, if the person leaves, what have you invested in? >> But you can't force them if they're not motivated to do so. >> No, you can incentivize them. But they already have a huge incentive because they own so much of the company. I I'd say on the acquaire dimension, I think those companies maybe didn't have a clear path to building substantial independent value and that maybe is part of why they've ended up with that odd structure, right? How do you think you guys obviously like every venture capital firm have this huge portfolio called them preGPT companies, right? And on the tech side, companies that were created be before GPT came out and and AI showed up in every press release which I'm still sure they're in. when you're examining that part of your portfolio, what are some I don't know if it's either metrics or something else that you're able that you as a firm have been looking at to identify these are companies that can pivot that can successfully ride this wave and you know what these are ones that might just have been wrong place wrong time >> it's always a challenge when you have big technology shifts I think we certainly saw this when we were investing in in web companies in the mid 2000s and then mobile came around and the challenge for those companies was could you become mobile first or maybe even mobile only and sort of let go of what you had before and you know meta Facebook at the time is a great example I remember how people were doubtful yeah that they were able to make the mobile transition and their stock was plummeted and people thought oh you'd never be able to monetize mobile traffic you know how laughable is that in retrospect so I think a similar challenge exists in every wave and there are companies where the founders see the opportunity and are moving very aggressively and our job as board members is typically to help shine a light on what's around the corner and that's what we Do you feel right now with this shift that you've kind of had to and maybe not literally write off but at least mentally write off more portfolio companies than you have during other tech shifts?
12:24 >> Not that I can think of. >> Sequoia has invested in Google, Apple, SpaceX, Nvidia. Will, you're also an open AI. Will open AI end up being the most valuable if if not ROI just in terms of pure enterprise value, will it become the most valuable company ever in Sequoia's history? >> Maybe. What do you think? You got to you're betting this. There's a prediction market. There's a poly market on this for you. Is this going to what what's your bet?
12:49 >> I think SpaceX has a bigger chance of being the most valuable company. I think >> SpaceX by itself is responsible for 80% of all mass moved into orbit last year. it dominates that particular industry. I'd say in the case of OpenAI, an incredible business. They have several competitors as large language models, as foundation model providers. And I think Google is starting to really shine with Gemini as a consumer service. They now have over a half a billion monthly active users. So it seems as though there's real competition now for the consumer aspect of what OpenAI is and so it doesn't have runaway market dominance characteristics.
13:24 >> Let me ask you about a different Elon Musk company and obviously you worked with him years ago. PayPal. you guys are investors in XAI which which is a combination now of Twitter and and XAI. this is something actually I asked your colleague Pep Grady on stage earlier this year and I'm I'm curious what one of the things that's most notable to me about this company is that there that you don't have a board seat. There is no board of directors of this company. The last time you guys invested in a company that had no board was FTX.
13:47 How are you comfortable with this? >> well, OpenAI also doesn't have a board seat. >> not a board seat, but there is a board. There is a board. But we've I mean I've known Elon since he recruited me to PayPal back in 1999. And so a lot of that comes down to your trust and faith in the individual. And Elon doesn't want to be encumbered with some of the bureaucracy that goes along with sort of more traditional boards. it doesn't mean that he's not open to advice. We text frequently. He has many people that tell him things that are uncomfortable to hear because he wants to build really successful businesses. Do >> we've talked about AI. You said earlier that there are some things you're investing in that are not AI.
14:27 What what is what mostly nonAI opportunity or sector is most interesting to you right now? >> Well, it depends if you include what's happening in robotics as part of AI. Include it. >> You'd include that because of the computer vision capabilities. >> No, no, let's not I mean sorry, let's not include let's talk talk robotics. >> Talk robotics as a standalone. And I think it clearly is benefiting from the the work in foundation models. We have an investment in a company called Skilled that actually is providing a foundation model for robotics. So you can take a $10,000 robot and have it be as performant as a $100,000 robot because of the intelligence that you imbue. Cobalt, Robco, several other companies. So I think there's this era of us being able to mechanize a lot of labor. That's interesting. And then I think stable coins are absolutely fascinating. We're an early investor in a company called Bridge that Stripe acquired that's helping with commercial international payments and totally circumventing the need to use the the legacy Swift banking system which is expensive, cumbersome and lacks transparency.
15:24 >> What talk about venture capital with the five minutes we have left. you have recently referred to the to venture capital and I know you don't like calling it an industry. So let's call it an asset. >> No, industry is okay. Asset class is bad. >> Asset class is bad. Okay. So as an industry that it is a return-free risk I think is how you referred to it why is it that it seems that venture capitalist particular over the last four or five years what why have why has DPI been so low why have the returns been so low why have there been so few IPOs coming out of these massive portfolios well I think partly the threshold to become a public company has changed pretty dramatically I mean I was thinking about MongoDB I was at the board meeting last week actually and when we went public in 2016 the companies market cap was about a billion dollars. You know, today it's worth 25 or something and that was at the bottom end of the threshold. I think you can't take a company public today at a billion dollars. I mean, it probably cost you $50 million a year just to comply with Sarbain Oxley and all the internal control requirements. So, >> does that mean when you're getting into a company whether particularly maybe more at the growth stage than but even at the early stage has that then changed your modeling your math when you're going in at the how so how does that change it? I think the era of being able to own 15 20% of a company by the time it goes public and have it be a billion dollar company is gone. You that return math doesn't work.
16:39 So unless you see a path to this company being worth four billion at a minimum you can't bank on it being an independent company and then you're dependent on M&A which candidly hasn't changed that much under the new administration. It's still pretty darn unfavorable. Hence the aquire dynamic that you alluded to earlier. So M&A is is not as easy given the the regulator. >> Did you did you expect that in Trump 2.0 it was going to get easier than it is?
17:04 >> We I did. I was wrong. >> You were right. You say you were wrong. What indication? Why do you think it or when I when you say it's not as favorable as you expected? Is there anything specific that you were expecting to happen or is it just general vibes? >> I think the vibe in general was that it was a more pro business administration than we'd seen under the previous administration. But M&A is still an area maybe back to the comment I made about the the Herendel Hushman index that people recognize that there's so many con concentrated industries and that's bad for America's competitiveness longer term.
17:35 >> If venture capital is struggling there there's this push to so-called democratize alternative assets of which venture capital is one. Do you think is it an asset class that venture I'm sorry yeah sorry is it an industry see this is my problem. Is it an industry do you think in which retail investors should have access to investing? because >> that's coming. >> It is coming. I I agree with you on that. I think it's the thing which I worry about a little bit is for retail investors to invest in the fund structure of venture capital U to me is a little bit more risky because it's it's >> as opposed to a basket you mean or some sort of venture ETF.
18:09 >> I think what would be more interesting is if there's an ability to trade secondary shares in more mature companies or standalone companies. So you know a company like SpaceX or Stripe. These are companies that are of massive scale but remain private and retail investors don't have an ability to participate in them. Maybe that's an interesting idea. we have a photo. Can someone throw this up on the screen for me? >> All right. So this this is I used to work at Fortune. This is one of our my favorite photos of Fortune. You are up there up up top in in the red tie.
18:38 Here's my question. >> No, no, no. That's Drew. I'm read >> right there. You >> my bad. I apologize. >> is up next, right? >> So, these were your colleagues, a lot of your colleagues at PayPal. I Here's my question. When you look at this picture, which of the individuals in here has done something that has surprised you most since this and and why. They've all, everybody here has accomplished some interesting things and none of which had to do with with PayPal.
19:06 >> I think the work that David has done as the AI, David Sax, >> David Saxs, he's incredible. He he's a little bit more salt and pepper than he was back then. but I think he's actually done an incredible service to this country in in helping create the legal framework for AI and for crypto to thrive. Fair enough. my final question for you, you said at the beginning of this when I asked about you stepping back, you talked about kind of passing the baton and moving on. What is the future for you? Are you retiring from do you eventually kind of step back and retire from investing, retire from Sequoia? You're not that old. What's next?
19:39 I serve on the boards of four public companies that all started as seed or early stage investments for Sequoia. Nata, Unity, MongoDB, and Block. I serve on 12 private company boards. I'll continue to be an adviser to the firm. And right now, I'm doing the thing I love most, which is meeting with entrepreneurs to hear about their ideas. >> So, does that mean you will be making new investments? >> Yes, I I actually have a company that's presenting this Thursday. You have a company presenting this Thursday.
20:08 last question. Give me one Sequoia portfolio company that most people don't know about that's the most interesting to you. The most under the radar Sequoia portfolio company. >> I love this company Expo. It's XBO. It's the person who started co-pilot inside Microsoft. He's a Dutchman who was a computer science professor and he started this company less than two years ago to solve penetration testing and cyber security. And today if you go to hacker one they are number one in the world. Their software is literally the best hacker in the world less than two years after the company got started. And if you look at the rate at which AI is progressing, this thing is growing and improving at an exponential rate. And I sort of think about the possibilities of this type of technology. I love that business.
20:51 >> Roloff, thank you so much for joining us. Thank you.