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In Which I Get Excited, And Then Disappointed, By Sam Altman’s Latest Post in The Macro

I say that the stuff Y Combinator (and the people associated with it) has put out over the years is the core of my startup education. There’s always something valuable in what they share.

However, this one has me a bit confused. Sam Altman (Y Combinator) asked Michael Moritz (Sequoia Capital) some vague question about why Sequoia is so dope. Then Michael answers. Then Sam says “that was an incredible answer.” What happened in between was apparently so great it was pulled out of the normally private YC dinners and fixed in text for all time.

It stands to reason that both of these people know what they’re talking about, and that this excerpt must be the best bit of them talking about what they know. So, logically, diving into this transcript should be more valuable than most other things I could spend my time on.


Let’s follow Michael point by point:

  1. Most of you just see me as the money guy. You don’t think about, and have no reason to think about, the fact that I have to keep my own business profitable. – This doesn’t make sense to me in any position and it’s downright confounding as an opener. It seems like most tech founders are not only aware of the fact that venture capital companies have to turn a profit, but that’s one of he most popular conversations in the startup community. Maybe it made sense in context?
  2. Lots of companies that prospered in Silicon Valley in prior decades are no longer prosperous. – I’m sure this is true, but it should go without saying. Also, he lists Digital Equipment, Data General, Silicon Graphics, Compaq Computer, Lotus Development, Software Publishing, VisiCorp, and Cray Computer. These are sandwiched in between “Don Valentine started Sequoia in 1970” and “you go into the venture business and rattle off a string of names of venture firms that had moments of sunshine.” So, when Michael thought he had to provide evidence to support the assertion that successful companies can fail, he used non-VC companies to illustrate his point about VC companies.
  3. Sequoia has always focused on “how do we maintain a consistent level of exceptional performance?” – That’s the billion dollar question right there, isn’t it.
  4. We do it by following mundane, straightforward, rudimentary principles every day/week/month/quarter/year. – Just do the stuff that’s already in books on leadership and performance. But you have to do it every day.
  5. Other great leaders do it (Steve Jobs, Larry Page, Jeff Bezos, Reed Hastings). They maintain insecurity about the future. “Past successes don’t mean much” and “yesterday is irrelevant.” – Sounds good. You shouldn’t get complacent.
  6. Field the best team you can at the moment, regardless of history. “To not be unfair, or ruthless, or harsh; but detached, objective and clinical.” –  This could inspire cynicism, dear reader, but don’t be one of those people Michael referred to in his opener who ignore his need to keep his own business profitable. A fundamental characteristic of corporations is that everyone involved has a responsibility to increase the value of the corporation. It’s uncomfortable, but sometimes the best thing a person can do for the corporation is leave.
  7. If a team member no longer has “the burning desire to compete” then bring in “young people who have zest, ambition, energy.” – Since Michael mentions bringing in a few people with decades of industry experience I’m not sure if he means literally young or young at heart. Their team doesn’t seem excessively young, so it’s probably the latter.
  8. Team members must come at “at an age where they understand that this is a business that’s difficult.” Refresh the team with new people who have a drive to learn so they can succeed. – I wonder what percentage of the team is vulnerable to being refreshed. 100%? 90%? I also wonder how much of this working in practice is a result of finding driven people and how much is people being driven by the persistent threat of being refreshed. Maybe it’s a matter of finding people who are motivated by that environment.
  9. Change with the market by staying alert to opportunities. – ‘Nuff said. I suppose the unique business model in venture capital actually shifts the emphasis far more onto opportunities than threats. It’s got to turn down the volume on threats when merely missing the right opportunity can kill you just as dead.
  10. The world is “massively different” today, principally “because China.” The other countries have a little bit of change. “That change is the face of global technology.” – This part made no sense to me. I can’t help but assume this was just an awkward segue because Michael wanted to talk about how successful Sequoia’s China branch is.
  11. 12 years ago we opened a branch in China because it would help our Silicon Valley investments to “understand the Chinese market because of what was going to happen there.” – This rationale doesn’t make sense to me. I assume they opened a branch in China because they wanted to invest in Chinese tech companies and make all of the money.
  12. Everybody said our Chinese branch would fail. Today we have the #1 venture firm in China “and that’s really, really difficult to do.” – I’m not really sure how to measure the top VC fund, but Sequoia is the top in China in terms of being involved in the greatest percentage of the largest deals. It seems like that’s a pretty good measure.
  13. But I/we’ve made tons of mistakes and would do lots different if we could go back. “We’ve always felt that we’re probably one step away from going out of business.” – I’m really curious how much of this is a literal, accurate description of Michael’s mindset. It’s strange to imagine 30 years of thinking you’re about to go out of business. I suppose it ties back to the point about history being irrelevant. Maybe the VC point of view is that it doesn’t really matter how well a VC ventures their capital, someone else might come out of nowhere handcuffed to an even bigger rocketship. Refer back to that bit about opportunities being more important than threats. Even if you’re the best known VC company in the world, with first-refusal on all the best deals, it’s possible that you’ll turn down the wrong deal or some totally random deal that never even got presented to you explodes and focus shifts to them.

My attempt to parse the value that YC saw in Michael’s rambling answer:

  1. Since history doesn’t matter, but Michael does recommend making decisions, he must be looking for leading indicators of future success. Something which can be observed today that reliably points to success in the future, since apparently nothing in the past points to success in the future. The only thing I can see that he mentioned was competitiveness, a desire to learn, and doing the basics every day. For what it’s worth those do seem like good indicators of future success, particularly when that success is measured entirely in $’s.
  2. I can’t help but assume that most of the success of a VC firm is luck, regardless of of how strongly or often they might assert that they tried to be successful. That colors my interpretation.
  3. Also, given how much money is at stake, I intuit that there must be at least a few shenanigans going on behind the scenes. The potential for a $1B payday HAS to inspire nefarious acts. The impact of lying, cheating, and stealing must be real, but nobody will ever say how valuable it is in the advice they share. So the grain of salt with which I take advice like this is substantial.
  4. So, I dunno. All I’m really getting out of this is that Michael says you should do the basics every day, stay competitive, and don’t get too sentimental about your current team. I don’t see anything to justify the reminder at the beginning of the post that “[Michael’s] answer was so good that [Sam] asked him if we could release it publicly, which we’ve never done before.” Maybe it was better in person? Maybe Sam felt the need to suck up to Sequoia a bit? Maybe it’s unusual for a VC to say you should do the basics every day, stay competitive, and avoid sentimentality? I feel like I’ve heard a lot of VCs say stuff like that and I don’t even get to go to YC dinners.
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