Sequoia, Apple, Sequoia Fund discussed on Acquired

Acquired
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I don't actually want to run this thing day today. I'm going to be the chairman and really help these guys but regardless with this in a perfect example of Don's company building at work and management team at recruiting on the back of this apple raises their first venture capital round of just over over half a million dollars interestingly the lion's share the capital comes not from sequoia but from Vin rock which does a little over two hundred fifty thousand dollars Donskoy. Let's go to one hundred and fifty thousand dollars. Arthur rock does the balance so apple is off to the races and they really you know as we've chronicled many times and will continue to chronicle in the future really invent the personal computer usher that wave of technology in two years later though this is this is the David side there comes. This is just so painful so painful and clearly has left its mark on on sequoia two years later. I couldn't find all of the circumstances around this but to the best of my understanding so the first Sequoia Fund did not have only tax exempt nonprofit. LP's in it it also had I believe feeding individuals and maybe corporations and Dot Salomon Brothers better there folks like and certainly capital group as a result of that those folks needed to pay taxes and apparently some of these LP's or encouraging aging don to make distribution of some of the gains in the fund so that they could pay their taxes on the gains and so apple had grown quite quite a lot. It's now nineteen seventy-nine and Dan before the IPO cells sequoia steak which they had invested one hundred fifty thousand dollars for six million dollars A to make this tax distribution to LP's. Now that's an enormous returns phenomenal phenomenal return but oh my goodness six million dollars compared to what apple you know would shortly become and then ultimately in the long term of course become and it's this lesson that drives Sequoia Sequoia in subsequent funds to take to take their capital only from nonprofit tax exempt sources which becomes really not certainly the norm across the industry but a goal in the lion's share of money that moves into venture capital is ends up. Being University Endowments Foundations folks that are Super Longterm impatient and aren't going to force BBC's to make this terrible decisions like this yeah another you can sort of check me on this. David it but my understanding is sequoia more so than your average venture firm all holds the stock in companies longer after they go public and and often sticks with the companies for very long time I think probably also inspired by this lesson this and and others that we're going to that we're. GonNa talk about here. in Short Order Order you know we're going to talk about the playbook in a little bit but one of the key lessons that they learned is like when things are going well go along you know like value creation creation in these companies that are building and creating enormous markets takes a long long long time. I mean just look at you know AIRBNB. Look look at Google. Look at it. Look at Apple. You can still be getting enormous. Enormous value creation a decade plus after these companies are founded regardless of whether they're private a bitter public yep so it's fascinating to think about you know the first couple of investments. I two out of a handful of investments being apple and Atari in total you returned a profit of about ten million dollars or a Max of ten million dollars is wild to think that that is the sum total of of of sequoias return on those two companies. I know I know but at the time I mean like even you know pulling it into context today lake if we within the two to three years of starting wave if we could be sitting onto X. cash distributed like I would feel great about that you know but the lesson here is like that's not the game where the business business were in or the game. We're playing the game. We're playing is like ten x plus cash distributed and to do that. You really need to be in it for the long haul especially when you're investing early yeah the other thing to know here and David as you as you foreshadow and you've been smiling a little bit we will get into this much more later this season but with Atari sorry the Atari boom that we all sort of know of in the eighties was after it had sold to Warner and so you know it's quite an even have an option in participating participating in that upside unless they were going to block the sale yeah yeah totally and that also leads to another part of this quad playbook which is like when things are going well really tryin. Brian convinced these companies to stay independent and not sell. I mean look at instagram rate. Selling instagram to facebook was a it was a terrible terrible mistake by the founders and the investors even though you know it netted them great returns at the moment and was interesting. Sequeira ended up investing right before before that deal happen that is a debatable topic but we can. You think that's debate. I think if it had gone a lot longer than facebook would have had to pay a lot more more like in the dozens of billions of dollars to acquire purely because there is a very very high user count social network that is a threat to them however do I think that instagram would develop the business that they have today that is billions of dollars of revenue flowing through them by advertisers. Maybe but that's not a sure thing thing I mean that's all because facebook had had done funneling all their existing advertiser there. I think that's true and certainly the helped accelerate it grow it more quickly me but at a minimum instagram should've waited you no longer in an had what's ask acquisition their bare minimum you ah it's so hard to it's easy to armchair quarterback this now and aren't to be sitting in the seat of Kevin Mike when they have a billion dollar offer in front of them uh but this is the value I mean sequoias learn these lessons over so many decades and seeing it time and time again so the other lesson that they take from apple is what Donald Square call an an aircraft carrier approach that they start taking to these big markets they realized on realizes that apple has created this pc market and it's not just going. GonNa be Apple. That's going to succeed in the PC market. They're going to usher in all of these other enabling companies that you need around the PC so like apple is the the aircraft carrier but you need all the destroyers and the you know the ship surrounded and like all the planes on the ships and all that stuff so they start financing component companies companies around the PC industry apple and Don helped start a company called Tandon Corporation. That makes describes they are. I investors in ten and Tannin goes public public after a couple of years really market cap of over one and a half billion dollars..

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