5 ms·

Sequoia's Scout Program

55 points by harscoat 14y ago

maukdaddy 14y ago
To all the naysayers: there's no way you can read this and not come to the conclusion that we're in the middle of a huge bubble.
- hnthrowaway84 14y ago
  Its going for last 3 years. Meaning it started in 2009 when we were in deep recession. Money has been floating around valley forever. When general public (via IPOs) buy into frenzy then we can call it a bubble. How this program is different from Andreesen Horowitz seed investments?
  - maukdaddy 14y ago
    A classic sign of a bubble is when you start getting unsophisticated (non-professional) investors that only see money and start chasing the successes of others. Two huge examples from the past 15 years: 1. Tech bubble. Everyone and their brother became day-traders, chasing the hot stocks and trying to make their fortune. People were throwing their retirement savings, spare cash, anything they had into tech companies trying to make a quick buck. 2. Housing bubble. Everyone and their brother became flippers, chasing the hot properties and trying to make their fortune. People were throwing their retirement savings, spare cash, anything they had into properties trying to make a quick buck. Copy/paste intentional.
    - mlinsey 14y ago
      "A classic sign of a bubble is when you start getting unsophisticated (non-professional) investors that only see money and start chasing the successes of others." I agree with this, which is why I am confused as to why you see this program as evidence of a bubble, since it's pretty much the exact opposite of what you're describing.
    - hnthrowaway84 14y ago
      FYI, Sequoia investing is not at all an example of both the points you've mentioned. Sequoia doesn't choose duds as their scouts. These are all experienced entrepreneurs who have "done things" (like YC choosing its alums as partners). And Sequoia is not investing in millions. They hare investing in thousands. Their returns on Instagram alone can take care of this program for years to come. They are helping budding, young first time entrepreneurs to get started. They are creating network of budding entrepreneurs and budding angels. Many companies may fail but you have hardened entrepreneur out of this program.
  - jordanb 14y ago
    I find it interesting that this was made in 2007, before Lehman and before the great recession: http://www.youtube.com/watch?v=I6IQ_FOCE6I http://www.youtube.com/watch?v=I6IQ_FOCE6I Can there be a bubble bubble? Instead of irrational exuberance you have irrational cynicism?
- intev 14y ago
  Forgetting the fact that there is very little evidence* for a large scale bubble, I think most people want to believe in a bubble. "How is it that SV can have so much money changing hands when the rest of the world is suffering. There must be something wrong!" If the accusers spend a few minutes thinking about the facts, the probable conclusion is SV is an outlier of the economy. Not only is it relatively insulated in terms of geography, it also seems to attract a whole different breed of investors. Instead of trying to scrutinize why this is happening maybe we should try and study how we can replicate this sort of mini-economy else where. * Seen the Zynga/Groupon stock? The market still appears to evaluate companies with a non-bubble mindset.
akuchlous 14y ago
on sequoia funding : by sarah lacy ! http://nexthotstartup.com/2012/05/04/on-sequoia-funding-by-sarah-lacy/ http://nexthotstartup.com/2012/05/04/on-sequoia-funding-by-s...
- hnthrowaway84 14y ago
  How is it relevant to discussion here apart from some sort of joke about journo. May be I'm missing something.
  - akuchlous 14y ago
    do you think all the news from sarah lacy are not a bashing just for not being in selected few... its money games.. everything is allowed... just don't pretend it to be abnormal. it's silicon valley!
  - anigbrowl 14y ago
    Well, she's making a big deal about 'secrecy' and 'transparency' as if Sequoia were somehow obliged to announce every startup it has contact with. The link suggests she's overcompensating for the fact that this program has been going on for 3 years and she doesn't know about it, which rather undermines her branding as someone with their finger on the business pulse of Silicon Valley. Discovering that she's not as clued in as she thought she was, she adopts the tone of a Very Serious Person demanding transparency and accountability from a private entity that has no particular obligations in these areas, at least as regards business development. This is the downside of 'celebrity journalism'; when almost every professional writer insists on having a headshot and bio on every article published, then their output becomes as much about self-promotion as about reportage. If their reportage falls short it damages their brand, and so the story must be spun in such a way as to reflect well upon the writer. Hence the phenomenon of writers breathlessly reporting every snub or obstacle as if it were a personal affront to them, frequently mentioning themselves in the story, burying the lede beneath many paragraphs of overdramatic narrative, and baiting their writing with more and more clicheed hooks and attention-grabbing headlines. A good many writers are no longer practicing journalism, but rather marketing their own brand of punditry. I partly blame Hunter S. Thompson for this - he popularized a narcissistic style of writing that suggests the events under discussion are nowhere near as interesting as the way in which the author experienced them - except that Thompson was both more interesting and more acutely observant than most of his imitators. Of course, the increasing popularity of blogging is another major factor; unlike print journalism for most of its history, the marginal cost of adding extra information about the author or publishing every new bit of ephemera on a blog is virtually zero, and so there is every incentive to do so. Personalization is thought to make readership more sticky, and so everyone does it; the same way every blog and news page is now festooned with invitations to like things on Facebook, join the conversation on Twitter, tell them what you think in the comments, and so forth. Very little of this adds information to any given story - in the main, it's just an attempt to buy traction by giving free advertising to networking products.
paulsutter 14y ago
One advantage of this program is that the company receiving the seed doesn't get tainted if Sequoia passes on the A. Companies can easily add a representation to their seed docs to prevent this or at least force disclosure. The ethical and legal questions are around exactly how the scout/angel presents the investment, how the rights work, how the agreements are written, etc.
- biot 14y ago
  As explained in the article: Says Nick Mehta, another one of the first scouts, “They definitely left it open to us but told us to think about the impact on the entrepreneur. We were told we should tell the entrepreneur. But they told us to make sure the entrepreneur thinks about it before they broadcast that Sequoia is an investor because of the signaling effect if Sequoia didn’t invest later on.”
- hnthrowaway84 14y ago
  "easily add a representation to their seed docs to prevent this or at least force disclosure" Could you please elaborate on this point?
  - paulsutter 14y ago
    A lawyer would write it, but something like "Investor represents that he is investing his own personal money and not on behalf of another party". If the investor turns out to be a scout, he has to negotiate that term out and you get the chance to understand what's happening. Representations are great. Anytime you are negotiating a deal, and the other side makes some crucial claim that persuades you to accept the offer (for example, "all of our other partners agreed to this term!"), just insert that claim as a representation of theirs and watch if they squirm.
hncommenter13 14y ago
In a sense, all VCs are scouts, as very few are investing exclusively their own money. LPs give VCs money, VCs make investments and keep part of the proceeds. Do we really know where Sequoia's money comes from? Does it matter? Is the entrepreneur misled by not knowing? If not, what's the difference? That we've assigned brand value to particular VC investors is, on balance, generally irrelevant to startup success. A brand-name firm is a nice feather in one's cap (and, as a former VC, occasionally an actual value-add), but it is by no means a guarantee of success or protection against failure. Who one's angels or VCs are is nice for the press, but it changes the likelihood of success/failure of the company only marginally. Google would have been Google no matter what firms were listed as owners in the S1. Disclosure: I've known Nick Mehta for 15 years. He is without question one of the smartest, most ethical people I know. Sequoia chose wisely in making him a "scout," and I would accept his investment (of his own or anyone's money) without reservation.
- jpdoctor 14y ago
  > Do we really know where Sequoia's money comes from? Does it matter? Yes. One type of LP are execs in companies that do acquisitions. When the acquisition is done, the LPs do not disclose their involvement or profit. This will continue until some shareholder lawsuit slams them for it, and even then it will probably continue. Edit: I should note that John Chambers has disclosed his profit in some acquisitions, and stated that he would donate his proceeds. He did not state that he would also donate the sizable tax deduction that he incurs from such a donation.
  - hncommenter13 14y ago
    Sure, if an executive of an acquiror has an LP interest in a VC fund that owns shares in the acquired company (as in the CSCO example you mention), then the executive should disclose that to public investors and/or recuse himself from the consideration of the deal. But that's a protection for public shareholders of the acquiring corp, not a protection for the startup being acquired. (Public shareholders have a host of principal-agent problems to contend with, this among them; worse still is share repurchases to avoid option dilution, but that's another subject.) To the extent such disclosure makes an acquisition by CSCO less likely (as Chambers is reluctant to disclose his LP interest), then it's a potential concern for the startup. I'm not aware of that ever happening, however.
hnthrowaway84 14y ago
Sequoia is always ahead of the curve. This is good for entrepreneurs. Entrepreneurs are told well in advance about money coming from Sequoia. Even that article mentions that fact. They have always been an early stage investor. They invested in Apple when it was run by two scruffy kids and nobody believed their "personal computer" story. Even the ones who believed were scared of IBM crushing them. They believed Yahoo guys and their Internet story when it was still part time project for PhD students. They believed in YouTube even though there were bigger players in video sharing market. They invested in YC company (sama's company) when people were mocking YC as place where "feature based" companies are crated to be acquired. They invested in YC itself when YC didn't have hits like Dropbox, AirBnB or Heroku. They never invested later stage at pricy valuations like some of the recent funds. Be it that "hot" startup that comes around the corner like Netscape, Facebook, Twitter, Tumblr and number of other dot com companies. VC's are figuring out how to combat things like YC and number of micro funds. And here you have Sequoia, who is quietly doing things without any ruckus. That too for last 3 years. They saw the threat of incubators/micro funds before anyone else. And they acted upon it before anyone else. PS. I don't work for Sequoia. Nor I'm their "scout"

55 points by harscoat 14y ago

To all the naysayers: there's no way you can read this and not come to the conclusion that we're in the middle of a huge bubble.

hnthrowaway84 14y ago
Its going for last 3 years. Meaning it started in 2009 when we were in deep recession. Money has been floating around valley forever. When general public (via IPOs) buy into frenzy then we can call it a bubble. How this program is different from Andreesen Horowitz seed investments?
- maukdaddy 14y ago
  A classic sign of a bubble is when you start getting unsophisticated (non-professional) investors that only see money and start chasing the successes of others. Two huge examples from the past 15 years: 1. Tech bubble. Everyone and their brother became day-traders, chasing the hot stocks and trying to make their fortune. People were throwing their retirement savings, spare cash, anything they had into tech companies trying to make a quick buck. 2. Housing bubble. Everyone and their brother became flippers, chasing the hot properties and trying to make their fortune. People were throwing their retirement savings, spare cash, anything they had into properties trying to make a quick buck. Copy/paste intentional.
  - mlinsey 14y ago
    "A classic sign of a bubble is when you start getting unsophisticated (non-professional) investors that only see money and start chasing the successes of others." I agree with this, which is why I am confused as to why you see this program as evidence of a bubble, since it's pretty much the exact opposite of what you're describing.
  - hnthrowaway84 14y ago
    FYI, Sequoia investing is not at all an example of both the points you've mentioned. Sequoia doesn't choose duds as their scouts. These are all experienced entrepreneurs who have "done things" (like YC choosing its alums as partners). And Sequoia is not investing in millions. They hare investing in thousands. Their returns on Instagram alone can take care of this program for years to come. They are helping budding, young first time entrepreneurs to get started. They are creating network of budding entrepreneurs and budding angels. Many companies may fail but you have hardened entrepreneur out of this program.
- jordanb 14y ago
  I find it interesting that this was made in 2007, before Lehman and before the great recession: http://www.youtube.com/watch?v=I6IQ_FOCE6I http://www.youtube.com/watch?v=I6IQ_FOCE6I Can there be a bubble bubble? Instead of irrational exuberance you have irrational cynicism?
intev 14y ago
Forgetting the fact that there is very little evidence* for a large scale bubble, I think most people want to believe in a bubble. "How is it that SV can have so much money changing hands when the rest of the world is suffering. There must be something wrong!" If the accusers spend a few minutes thinking about the facts, the probable conclusion is SV is an outlier of the economy. Not only is it relatively insulated in terms of geography, it also seems to attract a whole different breed of investors. Instead of trying to scrutinize why this is happening maybe we should try and study how we can replicate this sort of mini-economy else where. * Seen the Zynga/Groupon stock? The market still appears to evaluate companies with a non-bubble mindset.

akuchlous 14y ago

on sequoia funding : by sarah lacy ! http://nexthotstartup.com/2012/05/04/on-sequoia-funding-by-sarah-lacy/ http://nexthotstartup.com/2012/05/04/on-sequoia-funding-by-s...

hnthrowaway84 14y ago
How is it relevant to discussion here apart from some sort of joke about journo. May be I'm missing something.
- akuchlous 14y ago
  do you think all the news from sarah lacy are not a bashing just for not being in selected few... its money games.. everything is allowed... just don't pretend it to be abnormal. it's silicon valley!
- anigbrowl 14y ago
  Well, she's making a big deal about 'secrecy' and 'transparency' as if Sequoia were somehow obliged to announce every startup it has contact with. The link suggests she's overcompensating for the fact that this program has been going on for 3 years and she doesn't know about it, which rather undermines her branding as someone with their finger on the business pulse of Silicon Valley. Discovering that she's not as clued in as she thought she was, she adopts the tone of a Very Serious Person demanding transparency and accountability from a private entity that has no particular obligations in these areas, at least as regards business development. This is the downside of 'celebrity journalism'; when almost every professional writer insists on having a headshot and bio on every article published, then their output becomes as much about self-promotion as about reportage. If their reportage falls short it damages their brand, and so the story must be spun in such a way as to reflect well upon the writer. Hence the phenomenon of writers breathlessly reporting every snub or obstacle as if it were a personal affront to them, frequently mentioning themselves in the story, burying the lede beneath many paragraphs of overdramatic narrative, and baiting their writing with more and more clicheed hooks and attention-grabbing headlines. A good many writers are no longer practicing journalism, but rather marketing their own brand of punditry. I partly blame Hunter S. Thompson for this - he popularized a narcissistic style of writing that suggests the events under discussion are nowhere near as interesting as the way in which the author experienced them - except that Thompson was both more interesting and more acutely observant than most of his imitators. Of course, the increasing popularity of blogging is another major factor; unlike print journalism for most of its history, the marginal cost of adding extra information about the author or publishing every new bit of ephemera on a blog is virtually zero, and so there is every incentive to do so. Personalization is thought to make readership more sticky, and so everyone does it; the same way every blog and news page is now festooned with invitations to like things on Facebook, join the conversation on Twitter, tell them what you think in the comments, and so forth. Very little of this adds information to any given story - in the main, it's just an attempt to buy traction by giving free advertising to networking products.

paulsutter 14y ago

One advantage of this program is that the company receiving the seed doesn't get tainted if Sequoia passes on the A. Companies can easily add a representation to their seed docs to prevent this or at least force disclosure. The ethical and legal questions are around exactly how the scout/angel presents the investment, how the rights work, how the agreements are written, etc.

biot 14y ago
As explained in the article: Says Nick Mehta, another one of the first scouts, “They definitely left it open to us but told us to think about the impact on the entrepreneur. We were told we should tell the entrepreneur. But they told us to make sure the entrepreneur thinks about it before they broadcast that Sequoia is an investor because of the signaling effect if Sequoia didn’t invest later on.”
hnthrowaway84 14y ago
"easily add a representation to their seed docs to prevent this or at least force disclosure" Could you please elaborate on this point?
- paulsutter 14y ago
  A lawyer would write it, but something like "Investor represents that he is investing his own personal money and not on behalf of another party". If the investor turns out to be a scout, he has to negotiate that term out and you get the chance to understand what's happening. Representations are great. Anytime you are negotiating a deal, and the other side makes some crucial claim that persuades you to accept the offer (for example, "all of our other partners agreed to this term!"), just insert that claim as a representation of theirs and watch if they squirm.

hncommenter13 14y ago

In a sense, all VCs are scouts, as very few are investing exclusively their own money. LPs give VCs money, VCs make investments and keep part of the proceeds. Do we really know where Sequoia's money comes from? Does it matter? Is the entrepreneur misled by not knowing? If not, what's the difference? That we've assigned brand value to particular VC investors is, on balance, generally irrelevant to startup success. A brand-name firm is a nice feather in one's cap (and, as a former VC, occasionally an actual value-add), but it is by no means a guarantee of success or protection against failure. Who one's angels or VCs are is nice for the press, but it changes the likelihood of success/failure of the company only marginally. Google would have been Google no matter what firms were listed as owners in the S1. Disclosure: I've known Nick Mehta for 15 years. He is without question one of the smartest, most ethical people I know. Sequoia chose wisely in making him a "scout," and I would accept his investment (of his own or anyone's money) without reservation.

jpdoctor 14y ago
> Do we really know where Sequoia's money comes from? Does it matter? Yes. One type of LP are execs in companies that do acquisitions. When the acquisition is done, the LPs do not disclose their involvement or profit. This will continue until some shareholder lawsuit slams them for it, and even then it will probably continue. Edit: I should note that John Chambers has disclosed his profit in some acquisitions, and stated that he would donate his proceeds. He did not state that he would also donate the sizable tax deduction that he incurs from such a donation.
- hncommenter13 14y ago
  Sure, if an executive of an acquiror has an LP interest in a VC fund that owns shares in the acquired company (as in the CSCO example you mention), then the executive should disclose that to public investors and/or recuse himself from the consideration of the deal. But that's a protection for public shareholders of the acquiring corp, not a protection for the startup being acquired. (Public shareholders have a host of principal-agent problems to contend with, this among them; worse still is share repurchases to avoid option dilution, but that's another subject.) To the extent such disclosure makes an acquisition by CSCO less likely (as Chambers is reluctant to disclose his LP interest), then it's a potential concern for the startup. I'm not aware of that ever happening, however.

hnthrowaway84 14y ago

Sequoia is always ahead of the curve. This is good for entrepreneurs. Entrepreneurs are told well in advance about money coming from Sequoia. Even that article mentions that fact. They have always been an early stage investor. They invested in Apple when it was run by two scruffy kids and nobody believed their "personal computer" story. Even the ones who believed were scared of IBM crushing them. They believed Yahoo guys and their Internet story when it was still part time project for PhD students. They believed in YouTube even though there were bigger players in video sharing market. They invested in YC company (sama's company) when people were mocking YC as place where "feature based" companies are crated to be acquired. They invested in YC itself when YC didn't have hits like Dropbox, AirBnB or Heroku. They never invested later stage at pricy valuations like some of the recent funds. Be it that "hot" startup that comes around the corner like Netscape, Facebook, Twitter, Tumblr and number of other dot com companies. VC's are figuring out how to combat things like YC and number of micro funds. And here you have Sequoia, who is quietly doing things without any ruckus. That too for last 3 years. They saw the threat of incubators/micro funds before anyone else. And they acted upon it before anyone else. PS. I don't work for Sequoia. Nor I'm their "scout"