Qubit: Roelof Botha (Sequoia) on Value Creation
Roelof Botha shared the following on the Invest Like the Best podcast back in November 2021:
Sequoia had $45 billion of public securities (likely to be a lot less now) and about the same amount of FMV in private companies
Think about value creation before value capture in the early stages of building your company
LPs can choose which underlying funds to invest in (whether seed, early, growth, or public) but it has to be through the new Sequoia Fund structure
A $45 billion (as of November 2021) public portfolio with a cost basis of $2 billion is quite a multiple.
“So, we deal with some of this volatility today. We obviously have a fair market value of our unrealized private companies. It's roughly the same as the value of our public holdings. So, by the way, the 45 billion that we hold today in public holdings has a cost basis of two. You can only pull this off in my mind if you have very high multiples of returns. The only way you get multiples of returns is by partnering with founders that have incredible ambition, and you're patient in letting them continue to scale their businesses.”
“I think about value creation before value capture. And it's very rare that a company creates or delivers an enormous amount of value and fails to build a good business. … But if you deliver value, usually you can figure out the rest. So I always start with that value creation piece. So what was the insight? What is the problem that you're addressing? And why is your solution compelling and unique in addressing that problem?
Even if it's compelling, if it's not unique there're going to be lots of competitors. And then you're probably going to struggle to build a distinctive business. So it's that unique and compelling value proposition that I look for.”
“The value that goes into the Sequoia Fund would form an account, a capital account for that LP in a pooled vehicle. So, they don't own particular shares. They just own a percentage of the overall value of this new fund. When we organize future funds, so the next time we raise our next seed fund, venture fund, growth fund, they will be under the Sequoia Fund, and the Sequoia Fund will be the sole LP of these future funds. So, when we organize that next day seed fund, Notre Dame will get an allocation invitation to say, would you like to invest in this new seed fund? If they say yes, the funding of their capital commitment to that sub-fund would be drawn from their balance in the Sequoia Fund.”
Source:
Roelof Botha - Sequoia’s Crucible Moment
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