Even in Silicon Valley, where there are many unconventional origin stories, Roelof Botha traveled an unusual path to becoming the global leader of Sequoia Capital, the influential venture capital firm that’s backed iconic companies such as Apple, Google, PayPal, Block, and Stripe.
Born and raised in South Africa, he is the grandson of one of the country’s most famous politicians, Pik Botha. He grew up in a time of tumultuous change as South Africa threw off its apartheid past and installed Nelson Mandela as the country’s first black leader. In school, Botha had to transition between his native Afrikaans and English. After being educated as an actuary, he eschewed the insurance industry for business consulting with the South African branch of McKinsey & Company. A colleague there who was a Stanford GSB alumnus influenced him to move to Palo Alto to pursue an MBA.
At Stanford, Botha became fascinated with tech startups, and while still a student was recruited by Elon Musk to join PayPal, the pioneering online payments firm. He rose to CFO and led the company’s IPO in 2002 at the age of 28. After helping to negotiate the company’s sale to eBay in 2002, Botha joined Sequoia, where his early work included partnering with a then-obscure startup called YouTube. Thanks to that success and investments in companies such as Instagram and Square, Botha eventually surpassed his early career goal of generating $1 billion in gains on behalf of the firm and its limited partners (LPs) — which he reminded himself about by writing “109” in his notebook each week. In 2020 he reportedly hit the $10 billion mark, or 1010. Last July, Botha succeeded Doug Leone as Sequoia’s global leader.
The companies that Sequoia invested in as startups now make up more than a quarter of Nasdaq’s total value. What are the key elements of being that phenomenally successful in venture capital?
The thing that sets us apart in the industry is our enduring ethos of stewardship. This started at our inception 50 years ago, when our founder, Don Valentine, chose to name the firm, not after himself, but after the world’s longest-living tree. This translates into a culture that demands continuous growth and achievement. If you join our internal meetings, you will frequently hear the phrase “We are only as good as our next investment.” We never rest on our laurels and are always focused on what can be improved.
Secondly, we believe our job is not merely to invest; we are company builders. We don’t make deals; we partner with outlier founders to help them reach the full scale of their ambition. And we stick with these founders for the long-term — decades in many cases — as they navigate the inevitable challenges that come with building an era-defining company. Lastly, we invest primarily on behalf of great causes, with organizations such as the Ford Foundation, Stanford University, and Boston Children’s Hospital as our LP base. This gives us a greater sense of responsibility and purpose.
In your youth, you moved from Pretoria to a town a thousand miles away, where you suddenly had to switch from Afrikaans to English and adjust to a different culture and political leanings. Do the insights from being an outsider back then give you an advantage when you’re working with startups?
I think so. Many of our founders are outsiders. Some don’t fit into a corporate job, so they start companies. They are underdogs, and determined. They try to defy the odds. They do not accept the world as it is; they seek to remake it as it should be. I can relate to that. When I went to an English-language university, I felt like an outsider. I love backing immigrant founders because they have grit, determination, and a willingness to challenge conventional wisdom. I also studied actuarial science as an undergraduate. In venture, actuarial science is not a common area to draw experiences from. While I wasn’t exactly an outsider, few other individuals in the industry have this background. I had a professor who used to joke that accountants are trained to think a year in arrears, while actuaries think decades into the future. I work hard to help founders see beyond near-term calculations, and to focus instead on capitalizing on long-term opportunities that others fail to recognize.
What influence did GSB professors have on your career direction?
One of the most influential people for me was Garth Saloner, a professor of industrial economics who later served as the dean. He taught first-year strategy and pioneered the study of network effects on businesses. We’ve had many conversations on how companies can build sustainable advantages. Garth was instrumental in helping me understand how a small number of decisions and inflection points can greatly shape the trajectory of companies. At Sequoia, we call these decisions “crucible moments.”
Corporate finance professor Jim VanHorne also influenced my thinking. He really imprinted on us the need to make decisions. During business school, we were in our 20s and good at arguing “on the one hand and on the other hand.” Jim would say, “Well, now it’s decision time.” Instead of thinking like a consultant or a banker, you have to be a principal and decide, and live with the consequences.
You also met your wife, Huifen Chan, at Stanford. You’ve said that she was a big influence on your decision to work with startups.
She’s an immigrant who came from Singapore, and she got her undergraduate degree at Carnegie Mellon University in computer science and engineering. She worked as a developer and then came to business school to get more into product management. When I got to the GSB, I probably anticipated that my future lay in exotic finance, because I was very interested in complex derivatives and that part of the finance universe. But the more time I spent in Silicon Valley, and the more time I spent with her, the more I was drawn to the startup ecosystem, and the wonders of being able to build businesses from scratch.
At PayPal, you had to make it through the early 2000s dotcom crash, and then you went to Sequoia and played an important role in the tech sector rising again and surging to new heights. Do you see any parallels between that time and the environment that soon-to-be and recent graduates find themselves in now?
This period is more like 2000 than 2008. We saw a large run-up in tech valuations thanks to low interest rates. With rising rates, and the corresponding increase in the cost of capital, valuations have reverted towards historical averages over the past year. Similar to 2003, many people are questioning whether Silicon Valley and technology is over. My response is: absolutely not. So long as there are problems to be solved in the world, there will be ambitious and resilient founders determined to come up with new solutions. In fact, history has shown that many of the most iconic tech companies emerge from challenging economic environments. For example, Google and PayPal emerged from the dotcom crash, and Airbnb and Block emerged from the global financial crisis.
The advice I have for recent graduates is to avoid a mistake that I saw with many of my classmates back in 2000. They chose safe jobs because they failed to understand that the startup world provides multiple chances at success. You’re not going to make it or break it for the rest of your career at one particular company. You can take risks because you get multiple rolls of the dice. And failure of one company will teach you invaluable skills that make it more likely for the next to succeed. The second mistake to avoid is striving for better titles at companies, instead of sacrificing titles to be part of a very good company. You’ll learn more and go much further by joining a great business with great people.
In the two decades that you’ve been at Sequoia, how has the VC business changed?
I’d say the business has become a lot more professionalized. When I joined, most venture capital firms consisted of a dozen people sitting around a table making investment decisions. Since then, we’ve added more operating capabilities to our business, with the intent to play a bigger role within the ecosystem and provide support to our founders in company building. The scale of technology companies and their impact on the world has also changed dramatically. When I joined Sequoia in early 2002, only about 400 million people had access to the internet globally, and those who did were mostly on dialup. Smartphones didn’t exist. Technology used to be a niche sector of the universe. It isn’t anymore. Today, over 5 billion people use the internet. And technology infuses everything and every industry. The scale of impact has fundamentally changed.
What do you look for in a startup founder?
One of the questions I love to ask a founder is “What’s the scale of your ambition?” We look for founders who are outliers, who have high ambitions, move with velocity, and can iterate quickly to grow a company. Back in the 2000s, founders had more luxury to take their time in assembling a company. Now, competitions are fierce and founders need to move faster.
You’ve started the Sequoia Capital Fund, which holds onto investments longer than VC firms traditionally have done. What’s the rationale?
The VC model that most firms follow hasn’t changed since the 1970s. It’s built around a 10-year fund cycle that artificially limits how long investors can partner with founders. We think it’s unnatural to have pre-determined expiration dates on our relationships with founders when our goal is to help them win over the long term. The Sequoia Capital Fund structure removes the artificial time horizons on how long we can partner with companies. It lets us hold public shares long after the IPO and seek the best long-term returns for our LPs.
Our experience with category-defining companies — such as Apple, Google, Airbnb and Block — has taught us that much of their value accrues long after an IPO. For example, I’m on the board of Block, formerly known as Square. At the time of its IPO, it had a market capitalization of $2.9B. Five years later, it grew to $86B. We can generate superior returns for our LPs by capturing the outsized value that comes later in a company’s journey.
Photos by Winni Wintermeyer