Sequoia’s Roelof Botha has a plan to remake the VC industry

109. One billion dollars.

Roelof Botha used to write 109 on the corner of his notepad every week when he started at Sequoia 19 years ago. It was a shorthand to keep himself focused on picking exceptional startups to deliver his private goal of $1 billion in total gains. It was also a milestone that he felt would mean he would have had a measurable impact on the venture firm.

He hit the 109 goal thanks to investments in companies like YouTube, Instagram and Square. In 2020, he even reached 1010, or $10 billion in total gains, putting him in the top tier of tech investors.

One thing haunts him: How much more could Sequoia have realized if he’d let those bets ride? Square, now Block, has grown tenfold in value since its IPO, even taking into account the market’s recent retreat.

“I’ve never sold a share of Square since we invested over a decade ago, and it served me well,” Botha said of his personal holdings. “So why wouldn’t we be delivering the same thing for our LPs?”

Today, Botha’s impact is more than the dollars he’s returned. An IPO or acquisition used to be the natural end of a VC’s dalliance with a company. Botha wants to upend that — for Sequoia, if not the whole industry.

Sequoia’s move, seeded by an idea from Botha, was to create the Sequoia Capital Fund, an evergreen venture model that will allow it to hold onto the stakes of its winners past the traditional 10-year VC fund clock. Eliminating that artificial limit suits Botha, whose favorite part of his job is working with founders from early company days well into the public markets. He still serves on the boards of public companies like 23andMe, Unity and Natera. In fact, he questions what it means to be a “VC” these days.

As leader of Sequoia’s U.S. and Europe business, Botha is in charge of keeping the firm at the top of its game. “He doesn’t want Sequoia to be the 10th best firm, or even the third,” said Sequoia partner Jess Lee.

Photo: Russell Yip for Protocol

“I think of myself as being part of the Sequoia team, where I get to work with founders to help them build phenomenal businesses. And I don't really want to call myself a VC. It's because we're not fungible in that manner. I'm a non-fungible token,” he said with a laugh.

Botha’s own history, going from a Tupperware salesman to a 28-year-old public company CFO to one of Sequoia’s youngest partners, is one of a kind, certainly. And founders laud his integrity and intellect. At 48, he has ascended to become head of Sequoia’s U.S. and Europe investing and one of three stewards of the firm. His job is more than just delivering financial returns: It requires grappling with how to keep Sequoia a top-tier firm when the venture industry faces more competition in the private markets.

He may be non-fungible. But there’s still a broader existential question he and the venture industry face: Is a dollar just a dollar? The rise of players like Tiger Global in the industry has shown there’s an appetite from founders who are looking for hands-off investors. Less coach, more cash.

“The biggest threat I see right now is that there’s money that doesn’t come with advice, and I really worry what that does to companies,” Botha said.

Sequoia is a firm playing at the top of its game, thanks in part to Botha’s leadership, but now it’s his responsibility to keep it there. Not every firm has managed generational transitions, or been able to continue to pick the top companies.

“He doesn’t want Sequoia to be the 10th best firm, or even the third,” said Sequoia partner Jess Lee. “The goal is to have industry-leading returns at every vintage across decades, and that is very difficult to pull off, but the results are there.”

Botha may not be the type of venture firm leader to post salty memes on Twitter or run his mouth off on a podcast, but those who know him well caution others not to misinterpret his prim, composed exterior. There are many 109s at stake, and he wants to win them all.

“He is incredibly competitive and loves to win, so it's not like there's not a full-on carnivore in there,” said Eventbrite CEO Julia Hartz. “It’s just on top of that, he has the ability to channel his energy and not let his ego become something that distracts him, or more frankly, gets into that destructive zone.”

Part of that drive comes from growing up in South Africa before moving to the U.S. in his late 20s. “There is a certain loneliness of being an immigrant that leaves you with no choice but to work to try to get somewhere,” he said.

He could’ve stayed in South Africa, where he was one in a line of several well-known Roelof Bothas who worked in government and economics. His first job was as a door-to-door salesman for Golden Products, selling the local Tupperware equivalent the summer before college, something to push him out of his comfort zone. “It was awful,” he admitted. Much more in his wheelhouse were numbers. In college he studied actuarial science, economics and statistics, and became the youngest licensed actuary in South Africa’s history at 22. But instead of pursuing that work, Botha decided to join McKinsey for half the salary, with the hopes that it could be a springboard to living and working abroad.

It was the first “crucible moment” in his professional life, a phrase that Botha and the Sequoia partners like to use for a serious trial with significant outcomes.

Botha’s next trial came when he met Elon Musk.

By 1998, Botha had enrolled at Stanford’s Graduate School of Business. That’s where Musk tried recruiting him to join PayPal’s finance team. Botha didn’t have the needed work authorization. Few people say no to Musk these days, but Botha said no to joining PayPal twice before a dip in South African rand depleted his savings. Needing to make April’s rent, he finagled his class schedule and joined PayPal in March 2000.

“He was super young, like late 20s, and somehow he gave off this gravitas like no other GSB students did,” said PayPal co-founder Max Levchin.

Part of it is Botha’s size and demeanor: He’s very tall, very serious and very smart. He’s also a stickler for punctuality. It’s a combination that can come off as intimidating, disguising a goofier side. “He’s always presented as like a 40-plus-year-old graybeard, ready to take a company public,” Levchin said, describing Botha’s inner self as more like a supercompetitive 13-year-old.

When the CFO role at PayPal unexpectedly opened up, Botha raised his hand and said he wanted it. It was a battlefield promotion during a management mutiny, and he was thrown into the role with no C-suite experience. When PayPal decided to go public, outsiders questioned his credibility. ‘“He was called out over and over again by journalists and reporters and analysts, like ‘Hey, this dude is barely out of his diapers. What’s he doing being on Wall Street?’” Levchin recalled. “It was controversial.”

Internally though, no one questioned that Botha could do it. At 28, he took the company public, then soon after, helped negotiate its sale to eBay in 2002. Its CEO, Meg Whitman, wanted him to stay with the company, offering a big title and a pretty large option package — which was notable, given how fiercely eBay and PayPal had competed.

Sequoia’s Michael Moritz, who’d backed PayPal and served on its board, came in with a different offer: Join the firm as a partner. It wasn’t the richest deal: He wouldn’t initially get carry, the lucrative profit-sharing that makes VCs wealthy, but Sequoia would at least match eBay’s salary.

It was his third crucible moment, and Botha chose Sequoia.

Joining Sequoia was Botha’s third “crucible moment” in his professional career. Leaving South Africa and joining PayPal were the first two. Photo: Smith Collection/Gado/Getty Images

After working nonstop at PayPal, the transition into venture wasn’t an easy one. In 2003, it was still a soft year with many venture firms underwater on their dot-com investments, Botha recalled.

His big break came with YouTube, one of the first deals he led. He met the founders through his PayPal connections when it was just a team of three people. It was one of the first unicorns, before anyone even used that term, said Gideon Yu, its former CFO.

You’d expect a young VC to be eager to strike a deal when Google came knocking, as it did for YouTube. But Botha wasn’t interested in selling YouTube quickly with a high price to get a win on the board, Yu recalled. Instead, he insisted on a deal that would set up the company for long-term success.

“With some folks, emotions and bright, shiny objects will tend to distract you in situations like this. With Roelof, there’s always a very strong foundation and a very true north,” Yu said. After working with other investors, Yu came to realize that Botha’s approach put him in the “top echelon” of VCs.

YouTube ended up selling to Google for $1.65 billion in October 2006. It instantly catapulted Botha’s credibility and visibility, “but then, right after that, I looked at the rest of my portfolio and it wasn’t nearly as good,” he recalled.

Money-transfer startup Xoom, the first investment he’d helped lead, was struggling. He missed Twitter and said no to the CFO job at Facebook, thinking he could instead get Sequoia to invest. (The role went to Yu, and Sequoia didn’t get the deal.) Then, the 2008 financial crisis hit, and 2009 looked pretty bleak.

Sequoia founder Don Valentine had warned Botha in the interview process that he hadn’t failed enough in his career. Successful people join venture capital, only to have to face the fact that good investing means taking risks in startups that are more likely than not to fail. “Coming to grips with being wrong, not 5% of the time, but 30% of the time, 40% of the time, really eats at your self-confidence, honestly,” Botha said. There were a lot of regrets at this point, he remembered. “I nearly quit the business.”

Michael Arrington, Botha, Paul Graham, Keith Rabois and Craig Bramscher spoke during TechCrunch Disrupt in 2011.Photo: Joe Corrigan/Getty Images for AOL

Perhaps it was the pesto that saved him.

Botha cracked a small smile as he thought back on it a decade later. Sequoia partner Doug Leone had grown basil in his garden and brought him a container of homemade sauce one weekend. “It’s a small thing in the grand scheme of things, but it made a difference,” he said. It wasn’t just the pesto, of course — it was the personal gesture and the counsel Leone delivered with it that made Botha feel like he had a team behind him.

He’s now on the other side; he sees a lot of investors go through a similar “valley of despair” a couple years in. Part of his job now, running the firm, is to recognize when the new generation of Sequoia partners similarly hit that place and be there for them — although in Botha’s case, he makes homemade biltong, a South African snack similar to beef jerky that uses salt, pepper, vinegar and coriander.

When Botha entered that dark valley, partners like Moritz, Leone and Jim Goetz rallied around him, “giving me enough rope that I had to figure it out on my own, but providing enough guardrails that I didn’t go off course.” It was the advice he needed from his partners to get him back on track.

In 2009, Botha discovered Unity and Eventbrite. The next year, he invested in MongoDB and then finally got a chance to invest in Square in 2011. They would all become publicly traded companies, part of his nine career IPOs.

Botha had some high-profile flops too. Whisper never became the next Instagram. Video API TokBox sold for less than it raised. Jawbone became one of the costliest VC failures ever.

Botha may not be as outspoken or high-profile as other venture capitalists, but he prefers it that way, giving credit for everything from the scouts program to the Sequoia Fund to his whole team.Photo: Steve Jennings/Getty Images for TechCrunch

“That's part of the beauty of this business. Even though you could make big mistakes, there's another at bat tomorrow, because people are starting interesting new companies,” Botha said. “So if you're willing to swallow your disappointment, buckle up, get back on the bicycle, get back on the horse, get back on your skis — whichever thing it is that you can identify with – you just try again.”

What’s interesting to Botha at the moment always varies. Unlike a lot of VCs who will end up specializing in a subsector, Botha is a true polymath who invests across consumer, enterprise and health care, said Sequoia’s Lee.

It’s more than just having the smarts and studying up on it. Botha has the “dream gene” of being able to sit down with founders and imagine a market that could be much bigger, Lee said. “When Unity started, it was this little gaming thing and nobody knew that mobile gaming and AR and VR and 3D was going to be that huge, but he was able to dream with the founder around that taking off, and now it’s a huge public company,” she said.

After 23andMe CEO Anne Wojcicki met with Botha, he sent her a thoughtful note. Sequoia led a $250 million growth round in the DNA-testing company. “He’s really supportive and he’s really constructive, and I think it goes against the reputation of some VCs,” she said.

Phil Libin, the former Evernote CEO, heavily leans on that side of Botha to build out his videoconferencing app, mmhmm. Botha was one of Libin’s first calls when he started mmhmm, although that might seem unexpected. Botha had invested early and was on the board of Evernote when Libin moved to step down as CEO, a process he initiated but then “lost control of.”

“He always did what was right for the company. He was acting in good faith, and he went above and beyond to make sure that I was treated fairly and with respect through it,” Libin said.

Because of that, now the two have a standing weekly meeting to discuss product and strategy for mmhmm. Libin considers Botha practically a co-founder, although Botha would never want to take the credit. “Phil mentions to me that he feels about me that way. I really appreciate it. I would never repeat it myself,” Botha said.

While plenty of VCs would find a way to humblebrag about the role they had in helping a company in its earliest days, Botha’s style has always been understated. 23andMe’s Wojcicki considers him “Obama-like” for his intellect and integrity.

“There's a couple of people I know in life who are like, above and beyond,” said Wojcicki, and Botha’s one of them.

His natural leadership within the firm was apparent early on. “To walk into that partner meeting, it was clear to see that he was in fact a leader. It’s not surprising to see the leadership role that he ultimately formally ended up taking in the firm,” said Yu, the ex-YouTube CFO.

In 2009, Botha launched a scouts program as a way for the firm to expand the network of startups it was hearing about — a move rivals soon copied — and started co-leading the firm’s U.S. investing operations alongside Goetz. After Moritz stepped down in 2012, Goetz picked up the mantle of “steward” of the firm, but passed it to Botha in 2017 when he stepped aside.

It’s a complicated power dynamic inside a classically team-oriented firm. In deal meetings, Botha isn’t the one in charge or the one to ultimately greenlight deals. When it comes to running the firm though, Botha is one of three stewards, alongside Leone and Sequoia China’s Neil Shen, who are in charge. (Botha, who has a literary bent and often recounts stories, cites George Orwell’s “Animal Farm” line as explanation: “All animals are equal, but some animals are more equal than others.”)

Botha’s name was on the Sequoia Capital Fund announcement, a highly visible sign to outsiders of his rise within the firm, but he only reluctantly acknowledged he was a driving force behind the change. “It's very dangerous for us internally to attribute any activity we do to just one individual,” he said.

Even so, the idea for the Sequoia Capital Fund came from running the numbers. Something Botha had kept a close eye on over the years was the “as-held values,” or, what was the actual value Sequoia had distributed to LPs versus what would have happened if Sequoia held on to it. It’s a good measure in part because you don’t want to distribute companies that are about to fall off a cliff to LPs, Botha said. But it disappointed him that the fund had to distribute shares so early to LPs when, if they’d had a chance to hold on, they could’ve seen even higher returns.

The new fund pools together LP money into a larger portfolio of publicly traded companies. The Sequoia Capital Fund then feeds a group of more traditional venture sub-funds, which return their proceeds — including shares of publicly traded companies, earned through IPOs, acquisitions or other deals — back into the main fund. Sequoia’s LPs have signed off on the idea, electing to roll over 95% of eligible balances to the new fund. After a two-year lockup, limited partners will be able to request to redeem some of their holdings twice a year.

The Sequoia Capital Fund means Sequoia is giving up some of the advantages of being a VC firm (mostly lighter regulation) and becoming a registered investment adviser, allowing it to invest more of its cash in secondary offerings, crypto and perhaps other venture funds. The other reason to create an evergreen fund was this idea that VCs are expected to step off boards when a company goes public. That notion bothers Botha to his core.

“What a lot of people underestimate is how much company-building still happens at every stage,” he said. “Even when a company's public and you think it's mature, there's so much more innovation that can happen.”

The challenge for Botha is to do the same for Sequoia, which turns 50 this year. Few firms have made it that far, let alone while delivering consistently high returns. LPs may be loyal to Sequoia, but new generations of founders are harder to woo. There are plenty of entrepreneurs, including some Sequoia backed early on, choosing to tap investors who only bring money and don’t need the board seat.

There’s also been a slow deflation in tech stocks, and already concerns are bubbling that late-stage valuations could fall too. That could be bad in the short term for companies looking to exit, but it could also prove some of Botha’s thesis that companies need support. And it might also show that the timing of the move to an evergreen fund, with which Sequoia can more easily wait out cycles, was eerily prescient.

The last two years have smashed funding records and seen startup valuations soar, but Botha compared it to an open-book exam: Founders have it easy in go-go times, but when the final exam is suddenly book-closed, will they have learned enough to survive? The same goes for a new set of investors who have only had their companies marked up from round to round.

“It's easy when things are up and to the right. I haven't seen a single story, personally, that was up and to the right the whole way. And so what happens when things go bad? I worry for that,” he said.

His own story is proof of it. A rugby-playing salesman from South Africa is now a leader at one of the top-tier venture capital firms, but it took some help (and some pesto) to get there. And along the way, he learned a crucial lesson: Cash can dry up, but counsel is evergreen.