The Trump administration has begun taking direct equity stakes in American companies, not as temporary crisis measures, as in 2008, but as permanent fixtures of industrial policy.
The moves raise interesting questions, including what happens when the White House appears on your cap table.
At News Disrupt in San Francisco last week, Sequoia Capital’s global steward Roelof Botha fielded exactly that query, and his response drew knowing laughter from the packed house: “One of the most dangerous words in the world are: ‘I’m from the government, and I’m here to help.’”
Botha, who describes himself as “sort of libertarian, free market thinker by nature,” conceded that industrial policy has its place when national interests demand it. “The only reason the U.S. is resorting to this is because we have other nation states with whom we compete who are using industrial policy to further their industries that are strategic and maybe adverse to the U.S. in long term interests.” In other words, China’s playing the game, so the U.S. has to play along.
Still, his discomfort with government as co-investor was unmistakable during his appearance. And that wariness extends beyond Washington. In fact, Botha sees troubling echoes of the pandemic-era funding circus in today’s market, though he stopped short of using the word “bubble” on stage. “I think we’re in a period of incredible acceleration,” he offered more diplomatically, while also warning about valuation inflation.
He told the audience that, on the very morning of his appearance, Sequoia had debriefed about a portfolio company whose valuation soared from $150 million to $6 billion in twelve months during 2021, only to come crashing back down to Earth. “The challenge you have inside the company for the founders and the team, [is] you feel as though you’re on this trajectory, and then you end up being successful, but it’s not quite as good as you hoped at one point.”
It’s tempting to keep raising money to maintain momentum, he continued, but the faster a valuation climbs, the harder it can fall, and nothing demoralizes a team quite like watching a paper fortune evaporate.
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His advice for founders navigating these frothy waters was two-pronged: if you don’t need to raise for at least twelve months, don’t. “You’re probably better off building because your company will be worth so much more 12 months from now,” he said. On the other hand, he added, if you’re six months from needing capital, raise now while the money’s flowing, because markets like the one we’re in can sour quickly.
Being the sort of person who studied Latin in high school (his words), Botha reached for classical mythology to drive the point home. “I did read the story of Daedalus and Icarus in Latin. And that stuck with me, this idea that if you fly too hard, too fast, your wings may melt.”
When founders hear Botha opine on the market, they pay attention, and understandably so. The firm’s portfolio includes early bets on Nvidia, Apple, Google, and Palo Alto Networks. Botha also kicked off his Disrupt appearance with news about Sequoia’s two newest investment vehicles: new seed and venture funds that give the firm $950 million more to invest and are “essentially the same size as the funds we launched six, seven years ago,” said Botha onstage.
Though Sequoia changed its fund structure in 2021 in order to hold public stock for longer periods, Botha made clear it is still very much an early-stage shop at its core. He said that over the last twelve months, Sequoia has invested in 20 seed-stage companies, nine of them at incorporation. “There’s nothing more thrilling than partnering with founders right at the beginning.” Sequoia is “more mammalian than reptilian,” he continued. “We don’t lay 100 eggs and see what happens. We have a small number of offspring, like mammals, and then you need to give them a lot of attention.”
It’s a strategy rooted in experience, he said. “In the last 20-25 years, 50% of the time we’ve made a seed or venture investment, we fail to fully recover capital, which is humbling.” After his own first complete write-off, Botha said he cried at a partner meeting out of shame and embarrassment. “But unfortunately, that is part of what we have to do to achieve outliers.”
What accounts for Sequoia’s success? After all, a lot of firms invest in seed-stage companies. Botha partly credited a decision-making process that even surprised him when he joined two decades ago: every investment requires partnership consensus, with each partner’s vote carrying equal weight regardless of tenure or title.
Each Monday, he explained, the firm kicks off partner meetings with an anonymous poll to surface the range of opinions about materials the partners are asked to digest over the weekend. Side conversations are verboten. “The last thing you want is alliances to form,” Botha said. “Our goal is great investment decisions.”
The process can test patience — Botha once spent six months lobbying partners on a single growth investment — but he’s convinced it’s essential. “No one, not even me, can force an investment through our partnership.”
Despite Sequoia’s success, or perhaps because of it, Botha’s most provocative position is that venture capital isn’t really an asset class or, at least, it shouldn’t be treated as one. “If you take out the top 20 or so venture firms out of the industry’s results, we [as an industry] actually underperformed investing in an index fund,” he said flatly onstage. He pointed to the 3,000 venture firms now operating in America alone, which is triple the number when Botha joined Sequoia. “Throwing more money into Silicon Valley doesn’t yield more great companies,” he said. “It actually dilutes that. It actually makes it harder for us to get the small number of special companies to flourish.”
The solution, in his view, is: stay small, stay focused, and remember that “there are only so many companies that matter.” It’s a philosophy that has served Sequoia for decades. And in a moment when Uncle Sam wants on your cap table and VCs are throwing money at anything that moves, it might be the most contrarian advice of all.
