Don Valentine, Sequoia Capital: "Target Big Markets" | Summary and Q&A

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October 11, 2010
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Stanford Graduate School of Business
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Don Valentine, Sequoia Capital: "Target Big Markets"

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Summary

In this video, Don Valentine, a venture capitalist, discusses his approach to investing and building big companies. He emphasizes the importance of focusing on the market rather than individual people, choosing markets with significant potential for growth, and investing in companies that solve big problems. He also shares stories and advice on storytelling, asking questions, and making investment decisions.

Questions & Answers

Q: What did Don Valentine learn from his worst investment?

Don Valentine learned that even if the technology of a product works, it may not be successful if there is no demand for it in the market. He discovered that timing is crucial, and if the timing of a product's availability doesn't align with market demand, it can lead to failure. As a result, Sequoia Capital, his venture capital firm, will stop financing companies that don't have prospects for success in the market.

Q: Where does Sequoia Capital get its money from?

Sequoia Capital sources its funds from tax-exempt investors, such as universities, foundations, and international limited partners. They aggregate the investments into partnerships and have been selective in their limited partners to avoid liquidity issues and the need to sell assets for tax purposes. By working with tax-exempt sources, Sequoia Capital can focus on investing without the burden of tax implications.

Q: What markets excite Don Valentine today? What markets give him the greatest concern?

Don Valentine expresses excitement about the mobile market and the potential for further developments and applications in this space. He sees a lot of growth potential and opportunities. As for concerns, he mentions that in the past, there was a lot of hype and interest in the nano market, but Sequoia Capital chose not to invest in it. While it may have been a mistake, as the future success of nano investments is uncertain, Don states that they haven't seen any notable successes in the nano market so far.

Q: Can you explain more about Sequoia Capital's approach to choosing investments?

Sequoia Capital's approach is focused on the market rather than selecting individuals or companies. They aim to solve big problems and build big companies by investing in markets with significant potential. They prioritize the market size, dynamics, and competition, and focus on finding people with ideas and solutions for these markets. They also have a search function and actively engage in identifying and approaching potential investments. Sequoia Capital aims to make the management of their invested companies easier by outsourcing non-core functions and heavily relying on technical and marketing talents.

Q: How does Sequoia Capital handle failures and shut down investments?

Sequoia Capital believes in making informed decisions and constantly evaluates their investments. If a company is not meeting milestones or if the product doesn't find market traction despite the technology working, Sequoia Capital may shut down the investment. They hold post-mortem reviews to understand what went wrong and learn from it for future investments. Sequoia Capital aims to invest in companies that have the potential for success and will not continue financing those that face fundamental market-related challenges.

Q: How does Don Valentine approach storytelling and asking questions during investment discussions?

Don Valentine considers storytelling as a critical skill in the venture capital industry. It plays a crucial role in conveying information and securing investments. Sequoia Capital encourages entrepreneurs to tell their story effectively and comfortably. When it comes to asking questions, Don emphasizes the importance of asking concise questions of less than 20 words to allow the entrepreneur to explain their thoughts and ideas comfortably. Sequoia Capital aims to create a comfortable environment for entrepreneurs to share their perspectives and engage in meaningful conversations.

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