What's it like for a fast-growing start-up to have Sequoia Capital as a major investor? For the past two months, FORBES's Alex Konrad and I have been collecting first-hand insights. We tried to squeeze all the best answers into this Midas List cover story about Sequoia -- but we didn't come close.
It's time to make amends. This article amounts to part one of our "start-up confidential" guide to working with Sequoia. (Alex provides lots of great additional insights in part two, here.) Our expert panel includes the likes of Dropbox founder and chief executive officer Drew Houston, Medallia president Amy Pressman, MongoDB CEO Max Schireson, Green Dot founder Steve Streit and ServiceNow CEO Frank Slootman.
Here's what these executives told us.
1. Entering Sequoia's world can be daunting. Dropbox's Houston recalls his first visit inside Sequoia's offices in 2007, when he gawked at various mementos of Apple, Cisco, Google and other companies that the venture firm has funded over the years. "It's kind of intimidating," Houston says. "We were hoping that maybe there was a room in the back where they had some large clump of fairy dust. If we could just roll around in it for 10 minutes, everything would be OK."
No such luck. Instead, Houston says, Sequoia's partners "let us find our own direction. It was like being drafted by the NFL -- very exciting, but also a signal that you need to get your game up."
2. Sequoia's appetite for growth will take your breath away. Sequoia's best investments have grown from seedlings to towering businesses with multibillion-dollar market valuations. After seeing such growth happen repeatedly, Sequoia doesn't settle for moderate expansion if something bigger is possible.
ServiceNow's Slootman, who joined the software maker in 2011, says his company's headcount has risen to 2,000, from 250, in less than three years. That's been spurred by Sequoia partner Doug Leone's constant encouragement for a fast-growth strategy. The reward: huge jumps in the company's revenue, earnings and market value. "You really need to push the pedal all the way down," Slootman says. "You have to get comfortable with being uncomfortable."
3. Sequoia sways you with parables. "There isn't any standard playbook to Sequoia," says Medallia's Pressman. "But there is a lot of pattern recognition." Sequoia partners like to counsel executives by sharing stories of how earlier companies solved similar problems -- or by arranging introductions to possible mentors within the extended Sequoia family. Founders can decide whether these connections are helpful; generally the answer is "yes."
As Medallia built up its sales force, Pressman and other top executives at the customer-service software company chatted repeatedly with leaders at ServiceNow. "The conversations were amazing," Pressman recalls. ServiceNow was "setting the standard for what was possible in terms of enterprise software company growth rates," in ways that provided lots of instructive lessons for the Medallia team.
4. How you hire is fundamental. Houston remembers that early on, Sequoia's partners told him: "Don't worry about revenue. Do worry about getting the best possible engineers. They emphasized the importance of culture, which was totally alien to us. We just wanted to code."
The Midas List cover story mentioned that Sequoia partners take key recruits and their spouses out to dinner, if it helps make a candidate more confident that this is the right start-up to join. But Houston says Sequoia's input sometimes is most useful at the earliest stages of a job search, before any candidates are identified.
When Dropbox decided last year that it wanted a chief operating officer, for example, Sequoia partner Alfred Lin drew on his own experience as Zappos's COO to help Houston clarify what his company needed. By Houston's account: "Alfred said: 'These are the nine things you should look for. These are the three things that could screw you up.' That really helped us shape the search spec. If you don't know what you're looking for, you won't find it."
5. Today's meeting is in the Pacific Ocean. Once Dropbox zeroed in on former Motorola Mobility CEO Dennis Woodside as its top choice to be COO, Sequoia partner Bryan Schreier, a Dropbox director, helped woo the candidate by emphasizing that joining Dropbox was a once-in-a-lifetime opportunity. Their decisive conversation occurred when Woodside invited Schreier to go surfing together one weekend, off the coast of Santa Cruz, Calif.
"We sat out there in the waves and talked about the opportunity," Schreier recalls. "It was a wonderful day. It was the biggest swell Santa Cruz had seen in a year. My wife said: 'Don't try to convince me that this is part of your job.' But it really was, for once."
6. Sequoia abhors "cheap" exits. Fast-growing companies regularly attract takeover interest -- and Sequoia swats away bids that it thinks don't reflect the full potential of an enterprise. The standard message to founders: “Don’t cash out yet. You’re worth much more.” That’s a risky strategy, but most of the time it works. Steve Streit, the CEO and founder of Green Dot Corp., remembers what happened in 2003 when a big competitor offered him $80 million for his prepaid Visa and MasterCard company, along with a warning that if he didn’t sell, the big guys would crush him.
Stay focused and ignore the bully, Sequoia partner Michael Moritz told him. Good advice. Today, Green Dot is publicly traded, with a market value roughly 10 times what that long-ago suitor offered. What’s more, Green Dot’s prepaid program now is 40 times larger than the tough guy’s own efforts.
7. Do what's right for the company; don't genuflect to Sequoia. In January 2013, MongoDB's founder, Dwight Merriman, became chairman and handed over day-to-day control to a new CEO, Max Schireson, who had joined the database company two years earlier. Knowing how important it was for everyone to work together well, Sequoia suggested that Schireson chat with Eric Schmidt, who in 2001 was recruited to be Google's first outside CEO, in similar circumstances.
So what did Google's leader say? "Always remember the founders' inspiration," Schireson recalls. "Help them realize it. And pay more attention to the founders than to the investors."
