The VCs who funded Dropbox, Zoom, and Airbnb reveal what they look for in pitches after announcing a $3.35 billion investment in new startups

Airbnb

Airbnb co-founders Brian Chesky (left), Nathan Blecharczyk (center), and Joe Gebbia (right) received a seed investment from Sequoia Capital.

• Sequoia Capital is a venture capital fund with early-stage investments in companies like Zoom, Stripe, Airbnb, and Dropbox, among others.
• The fund revealed $3.35 billion last week for investments in US and global startups.
• In separate episodes of "The Twenty Minute VC," Sequoia partners Pat Grady and Mike Vernal, discussed how they think through the investment process.
• Click here for more BI Prime stories.

Recent filings from Sequoia Capital revealed that the firm has raised $3.35 billion for investment funds focused on US, China, and India-based startups.

Founders looking to capitalize on the move can look to what two Sequoia partners have said about the firm's investment strategy. For starters, they should pay attention to the firm's guiding principles.

Sequoia's mission statement has remained unchanged for decades: "We help the daring build legendary companies, from idea to IPO and beyond." That mission continues to be a unifying theme for investments.

"Everything we do ties back to that theme," said Pat Grady, a partner at Sequoia, on the podcast "The Twenty Minute VC."

"Those founders are no longer just on Sand Hill Road," Grady said, speaking of a street in Silicon Valley comprised of mostly VC funds focused on the high-tech industry. "They're all across the Americas, they're in China, they're in India, they're in Southeast Asia. That's why in 2005, we went into China and India, and more recently, Southeast Asia."

Here's how Sequoia thinks through the investment process.

Communication is key

Mike Vernal, a general partner at Sequoia, said on a separate episode of "The Twenty Minute VC" that the founders he partners with know exactly what they're doing - and can communicate it concisely.

"I think it comes down to clarity of thought, it comes down to grit, and just relentless, focused execution," Vernal said.

Founders who understand where they're going can usually articulate those points in a few words, Vernal said. An exceptional pitch involves communicating in three to five minutes, with the rest of pitch time devoted to the fringes of the plan.

Investment decisions at Sequoia begin when a few investors see something special in a startup, Grady said. Vernal emphasized the importance of the conviction of the sponsor, or the person proposing the investment, because they have to convince the entire team of their passion.

Even though the drive to invest begins with a few VCs, by the time the team decides to invest, everyone should be on board.

"At Sequoia, rarely do investment decisions begin with consensus," Grady said. "They always end with consensus, because by the time we invest we want it to be a team Sequoia investment, not an individual's investment."

Recently the firm has been investing early, either seed or series As - although they do invest in all funding rounds, Grady said.

"Our focus is very much on partnering as early as possible, and trying to build deep relationships," Grady said. This has played out well for Sequoia's seed investment success stories - which include Zoom, Stripe, Airbnb, and Dropbox.

Addressing missed opportunity

It takes time (eight to 10 years, according to Vernal) to really understand if a company is going to endure. While Vernal said the decision-making process at Sequoia tends to be objective and well documented, they have missed out on good investment opportunities.

"In each case, I started by being instinctually really interested in the company and then as I rationalized it. I rationalized away why this might work, but it probably wasn't going to be a great company," Vernal said. "In each of those cases, I didn't trust my instincts or gut enough."

Striking the right balance between initial gut instinct and logical decision making is key when deciding to back an investment, Vernal said.

Grady said one of the mistakes Sequoia has made historically was being "a little bit too greedy on ownership," or control over the companies they invested in. They've countered this in recent years by being founder-driven and founder-focused.

"Zoom is a recent example where we got a nice chunk of ownership in one initial investment where we and the founder both felt great about how that went," Grady said.

But, according to Grady, and Sequoia's mission statement, everything the VC fund does is tied to "helping the daring build legendary companies." Grady stands by that mission as the force behind the firm.

"Everything that we do here is reverse engineered off of that mission," he said.

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